Thursday, November 11, 2010

Wise Investing the Key to Growing a Sustainable Tourism Economy

There are two key things every single person in the tourism industry needs to abide by.

First. We are in business to give visitors the exceptionally high quality experiences they are looking for.

Second. We're in this industry to make money.

Visitor experiences that create a net loss to the industry do not reflect wise investing and are sadly, often the results of poor planning and an absence of market demand research during the planning process.

In Northern Ontario we've been riding a wave of public tourism infrastructure projects for well over 40 years. Some are great catalyst attractions that are acknowledged to incur an operating loss but provide a net economic gain to the community through increased visitor retention and spending. Provincial and National Parks, Substantially programmed provincial attractions, arenas, convention centers and public/private waterfront development partnerships are examples of these successful models. Some, like the myriad of "heritage" and "interpretive" centres are built with the best of intentions, but evidence has shown repeatedly that they rarely meet their performance expectations and fail to deliver as catalyst attractions as stand alone venues.

Many communities feel the pressure to grasp at any and all public tourism infrastructure projects and hope they are the "hail Mary" passes that transform their community. We've lived with an expectation that government funds are always available to build them...but often forget the the absence of operating grants to keep the doors open when the dust settles.

We need to look at these potential tourism projects with a critical business oriented eye and truthfully weigh their operating deficits - and lets be honest, in Northern Ontario, most do - against their effect of visitor retention and increased community spending. Its called Return on Investment (ROI) and its the first thing every private tourism operator looks at when making a decision.

Financing the capital component is relatively easy from the various programs available federally and provincially. However, if a projected operating deficit in the feasibility study is still greater than the total community impact of the project, it would, in fact, not grow the local tourism economy and put money into the city and region - but actually take money out of it.

When I conduct an ROI analysis, I look at the role of the attraction in terms of consumer demand or interest. An attraction is only an attraction if people are attracted to it.

If there is a expected consumer demand, we move to the next phase - Capital - Can it be financed or funded and what kind of partnerships can logically come together, whether public, private or a mix.

Thirdly - and this is the critical one - operations. and there are three scenarios that can exist. One, will it turn a profit. Two, will it turn a loss but be offset by the positive economic impact by extending visitor stays in the community (an extra half day turns into an additional meal or hotel room stay) or have a viable endowment fund to cover operating losses. Three, the economic impact remains less than the operating loss. Arriving at scenario three, for us, is a red light that stops a project in its track. We look at the number of projected visitors, the average length of visit to the attraction and using Ministry of Tourism localized visitor spending data, we determine the economic impact. Than I add the multiplier of 1.6 - the recognized notion that every new dollar entering a community creates an additional 60 cents in spending through wages and local supplies purchased. This gives us the total economic impact. If that is less than the operating deficit, it doesn't get my endorsement without changes.

I always advise the groups often driving these initiatives that they need to decide if they want to alter the project scope, seek additional programming partners to build critical mass and realize operating efficiencies or simply walk away.

In economic development (of which tourism is a huge generator in these parts) we are not acting responsibly towards the industry or community partnerships by ignoring research and empirical data that could see enormous legal and financial ramifications for organizations or have to endure the embarrassment of another boarded up business or attraction in the community.

The Ontario Tourism Competitiveness Strategy is built on four pillars and one is "Investing Wisely" We need to depart from the economic development philosophy of grasping at every thing that presents itself and make investments that are financially sustainable as profit centres or positive community catalyst investments. I've spend fourteen years in this industry, many of them evaluating multi million dollar proposals for government funding of such tourism centres and I can tell you, honest due diligence is essential to the integrity of the funders, proponents and the consultants often hired to write their business and feasibility plans. We don't do anything constructive by ignoring business plan or feasibility studies that present negative financial and visitation projections.

Now, I'll go back to an earlier statement about providing visitors with the high quality experiences they desire as our number one mission. Many, many of these experiences can and are being delivered by the private sector - for profit. Visitor retention can be accomplished in the same way by a farmers market, boat tour, a culinary or artisan gallery experience or even a self guided historical walking tour. These experiences often require little, if any public funds and our role in getting them rolling and keeping them sustainable can be achieved through giving them the research tools in their planning and promoting them-under the city or regional brand - effectively so visitors know where to find them. Its about rethinking what an attraction is through the visitors eyes, not ours.

We have to achieve a new investment paradigm and rapidly rethink our approach tourism investment and product development in the region to ensure we have a sustainable tourism economy that is built on consumer demand generators.

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