Short-term accommodation provider Sonder's third-quarter revenue per available room, average daily rate and occupancy all slipped year over year as the company continues to change its product mix and its corporate sales and pricing strategies, Sonder co-founder and CEO Francis Davidson said during a Wednesday earnings call.
Davidson outlined a Sonder initiative designed to hold the line on pricing instead of using advance discounts to bolster occupancy.
"Several factors came into play this quarter, including broader travel industry trends, product mix between hotel and apartment-style properties, geographic mix, cohort mix and the impact of our corporate sales and pricing strategies," Davidson said.
In Q3, Sonder's RevPAR was $153, down 3 percent year over year and below the $164 it reported last quarter. Sonder's ADR also slipped in the quarter, down 2 percent year over year at $185.
Occupancy in Q3 was 83 percent, down 1 percentage point year over year, but a slight increase from the 82 percent reported in the second quarter.
Changing Sales Efforts
Sonder in the third quarter continued to see "strong demand" for its properties in Europe and the Middle East, Davidson said, with those markets reporting 14 percent year-over-year RevPAR growth.
As for North America, RevPAR at those properties remained "flat," he said. This region also resulted in a "negative impact" for the company as Sonder reported some "slower starts" in new property openings. While it typically takes time for new properties to ramp up, Davidson said, this is a "larger drag than we've seen in the past," primarily due to a "greater proportion of properties that rely heavily on B-to-B sales."
To this end, Sonder is investing in local sales teams in some locales, Davidson said, adding that the company is seeing "early signs of success from this initiative."
The company's B-to-B sales efforts are "regaining momentum," according to Davidson. These efforts include the company's new VP of sales, Chad Fletcher, joining in August and an "acceleration" in forward bookings, Davidson said.
Looking ahead, the company expects its corporate segment to bolster sales "primarily in urban markets" and during weekdays, Davidson said.
In Q3, Sonder "leaned into" a new pricing strategy that eschewed using advance discounts to boost occupancy, Davidson said. This strategy allows the company to have "greater pricing power" earlier and throughout the booking window, he said.
Previously, "within 7 days or 14 days before target dates, we would go and reduce price to drive more occupancy, and we actually think that's not the right approach," Davidson said. "Building a base of occupancy earlier into the booking window, but then holding price as we approach that date of arrival is actually a better strategy to drive stronger ADRs and stronger RevPARs. … I think there are some dates where we've been selling out a little bit too early, and that's caused our capacity to yield optimally to be impaired."
Product Mix
The company continued to see "relative strength" in its hotel product, a sector which it entered with the July launch of its Powered by Sonder hotel collection, and "moderate pricing pressure," for its apartment product.
Third-quarter RevPAR at Sonder's hotel product increased 8 percent year over year, while RevPAR at its the company's apartment-style lodging sector grew by 1 percent year over year.
"This bifurcation is representative of the market trends with hotel RevPAR growing year on year but alternative accommodation RevPAR decreasing across our geographies, particularly in North America," Davidson said. Hotels now make up 40 percent of Sonder's product mix, compared to approximately 30 percent last year, Davidson added.
While Q3 hotel growth outpaced Sonder's apartment-style products, "RevPAR for our hotel properties tends to be slightly lower than our apartment-style properties," Davidson said, explaining that the shift towards hotel properties "had a roughly 1 percent negative impact on our year over year RevPAR growth," he added.
Additional Q3 Results
In Q3, Sonder's live units grew 31 percent year over year to 11,800 and increased by approximately 700 units from the previous quarter.
Sonder continued its plan, set out in June 2022, to proactively reduce its planned signings and drive growth primarily through conversion units. Sonder executives also detailed a property initiative in which the company works with landlords, assess properties and explores "alternative solutions" to reduce "drag" on its bottom line.
Sonder's Q3 revenue was $161 million, up 29 percent year over year. This growth was attributed to a 33 percent increase in bookable nights, and Sonder's live-unit growth, Davidson said.
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