The Ultimate Guide to Start and Run a Capsule Hotel Successfully

It’s no secret that we have Japan to thank for its contributions to the world. Be it automobile, electronics, machinery, metal, chemicals, or textiles. And yes, Pokémon!

But apart from all these, Japan has also gifted something innovative to the world of hospitality. And today we are going to talk about one such innovation.

*Drum rolls*

Capsule Hotels (also known as Pod hotels) !!!

I have never stayed in a pod hotel but ever since I have seen it on the internet and read about the rise of capsule hotels, I am fascinated. 

It’s one of the coolest innovations that has happened to the hotel industry. So, out of curiosity, I have done my research and I want to share how to start a capsule hotel through this blog.

What is a Capsule Hotel?

Capsule hotel is one of Japan’s best known and unique types of lodging. It is a hotel that features many small bed-sized rooms known as capsules, or in some cases just one bed in a tube.

But do you know about the inception of this quirky hotel? Yes? No?

Never mind! Let’s travel back in time and look at the origin of this hotel.

The History of Capsule Hotel

The first capsule hotel was opened in 1979 in the city of Osaka in the Kansai region of Japan. And it was designed by leading Japanese architect Kisho Kurokawa.

But what is more interesting is the story behind  the need for such a quirky accommodation.

When I was looking at the capsule hotel history, I surfed a lot on the internet. And many resources were directed to one story. Let me share that with you.

There was a time when salarymen in Japan would often visit the Izakayas (a type of informal Japanese bar) for Nomikai (literally means gathering to drink) after working for hours. 

What’s the aftermath? They would either take a nap on the doorstep of a building or catch the last metro train.

This is where capsule hotels came into the scenario. 

Capsule hotel provided tipsy Japanese working men a place to rest and get started the next day. And it was for the same price they would pay for train rides.

But today, they are witnessing a completely new wave of popularity which is not limited to Japan.

Are Capsule Hotels Lucrative?

Capsule hotels are PROFITABLE without a doubt! 

There’s a spike in the number of backpackers and business travellers, over the last few years. And these travellers are now choosing capsule hotels, going beyond the cliché.

And why not, pods hotels are inexpensive yet offer a fantastic experience.

According to a report, in 2016, Booking.com noticed an increase in the number of capsule hotels listed on their platform. That’s not all. They have also seen the number of bookings at capsule hotels increasing YOY.

These were definitely signs that there’s more coming. And currently, we all are witnessing the popularity of these hotels that is only increasing.

I remember talking to one of my friends who stayed in a pod hotel. He said, “It was a great experience. I had no complaints sleeping in that 2-meters long and a little over 1-meter high capsule-sized room. If I am getting a comfortable place to rest with every essential amenity, that too at a budget, why would I go for any traditional hotel?”

And it’s not just my friend, there are thousands of travellers who always prefer pod hotels over the traditional ones. 

According to another report, the capsule hotels’ industry is projected to register a 6.2% CAGR in terms of revenue, over the coming few years. Meaning, the global market size will reach $223.9 million by 2025.

How to Start and Run a Successful Capsule Hotel?

People nowadays are travelling keeping their expenses low. And this is where capsule and pod hotels come into the frame.

If you are thinking about opening a capsule hotel, here are some things to keep in mind.

#1 Understand how capsule or pod hotels work

Whether it’s in terms of business, services, or offerings, capsule hotels are different from traditional hotels.

It is important that you must understand the capsule hotel business plan or model and how it works. Here are some aspects to learn about:

• Capsule hotels serve certain types of guests like backpackers, solo travellers, budget travellers, and business travellers.
• The services and offerings also differ in pods.

For example: Some pods have an in-house restaurant while some prefer to offer a common kitchen.

However, there are no predefined rules, it all depends on the size of the hotel.

• A hotel has a lot of avenues in terms of revenue generation. But, considering the size, capsule hotels mostly tend to generate revenue only from stays. Again, as I have said, there are no predefined rules.
• Determine what are the top USPs of these hotels. Is it only the stay or they also offer some sort of experience? 

#2 Create a blueprint of your capsule hotel

You have to have a proper plan on how you’re going to set up the entire hotel (basically, a roadmap). Let us look at some questions you must consider.

How much does it cost to build a capsule hotel?

To start a capsule hotel, you need a strong capital. Not to mention, there’s a bitter truth — It’s a risky move! If you fail to scale your hotel, then you might end up facing losses. So, a strategic approach is always recommended.  

Have you divided capital according to the necessities of different segments?

Once you have the capital, you need to divide them for different segments of your hotel. This will help you use your hard-earned money appropriately.

If you find it overwhelming or you don’t know how to get started, there are many professionals and agencies who can help you.

How many pods/beds are you going to offer?

You have to figure out how many pods/beds you can or want to offer. It could be single-bed pods or double-bed pods. It’s upon you and your business model. 

How many staff are you going to hire? And how are you going to train them?

This is one of the most important aspects because when you hire staff, you have to be accurate with the number of staff you need. It shouldn’t be less to overburden others and shouldn’t be more to go out of your budget or capability.

On top of that, you have to invest enough time and money in training your new recruits. You need to have clear standard operating procedures (SOPs) for your staff to perform their tasks across departments.

Have you decided on the pricing?

When you’re planning your roadmap, you also have to decide on the tariff you’re going to set for each pod or bed.

I know, the number won’t be accurate but at least it’s better than shooting blindly. With an approximate pricing, you’ll be able to accurately plan for other segments and also forecast your ROI.

What amenities and services are you going to offer?

Do you want your hotel to be a generic capsule hotel or do you want to top it up with a little more luxury? If so, you can invest in amenities and services.

I would suggest you do this after performing an in-depth study of your competitors and your target audience for improved decision making.

What all things are you going to outsource?

Outsourcing is believed to make a business more flexible to change. However, businesses must know whether they need to outsource anything. Further, they need to analyse whether in-house is inexpensive and efficient.

So, make sure, you’re not betting on outsourcing services or commodities aggressively. Because it might shake your budget.

If you want to make an informed decision, I recommend you going through our hotel budgeting blog. 

#3 Select the right location

Without an inch of doubt, the location of your hotel is critical to its long-term success. You have to ensure that the location aligns perfectly with the preferences of the guests you are catering to.

But how do you choose the right location? Here are some points to consider:

How much are you willing to invest?

Remember I mentioned about dividing the capital for different aspects? Location is one of those aspects.

Before you go about looking for the right location, you must keep your budget in mind. And then start searching accordingly.

Do you want to buy a plot or a plug-and-play building?

When you look for the right location, you can either pick a plot and construct your hotel. Or, you can buy or lease a plug-and-play building (the ones that are ready for immediate occupation) and tweak it as per your requirements.

What is the proximity to airports, railway stations, tourist sites etc.?

Considering the type of guests, your capsule hotel must not be far away from the establishments like airports, railway stations, tourist sites etc.

Business travellers, especially, look for accommodation near the airport. They want a comfortable place to relax after a tiring flight or whole day of meetings. So, a pod hotel that offers a great experience at a lesser price and is located near the airport is going to reap the benefits.

What is the proximity to other business services?

Also, there are times when guests want to step out and explore. So, try finding a location that is close to other business services like restaurants, malls etc.

#4 Perform thorough compset analysis

It is also important to evaluate your competitors to improve your business strategies. 

And the same goes for capsule hotels. You have to keep a keen eye on other players in your domain to have a clear picture of what you are up against. 

Here are some things to consider:

• First and foremost, determine who all are there in the capsule hotel segment. Even though it is comparatively a new segment, many players have already started operating and are providing top-notch experience. So the competition is not going to be that easy.
• Once you find all the other existing capsule hotels, it’s time to understand how these properties operate. Are they using any type of technology? How many staff do they have? How do they train them? Try to find out all these answers.
• Next comes the revenue. Do some in-depth research and find out what’s their annual revenue. Find out how much investment they make every year. This will help you enhance your strategies for budget.
• Further, look into their USPs and try to understand why people are attracted towards such offerings.
• Find out the voids they have (simply put, their weak points). Once you do that, try to turn their weaknesses into your strengths.
• There are hotels that go much wider in terms of guests. So, figure out if your competitors are also one of them. If yes, then try to find out what other type of guests they are targeting.

#5 Building your pod hotel

Get inspiration

I am sure, when you came up with the idea of starting a capsule hotel, you must have had a picture in mind. I would suggest putting that image or idea onto the drawing board.

Or, if you want to look for more ideas on how to design your hotel, you are just one Google search away.

#ProTip: Pinterest is an amazing platform to find ideas. Search for ‘capsule hotel’, and it will show hundreds of results. Pick the one that best suits your vision.

Hire the right architect and builder

When you decide on the idea of your pod hotel, make sure you hire the right architect. Meaning, someone with an experience of working with hotels or similar establishments.

Explain the architect your idea about the property and let him/her take care of the rest. 

If you’re wondering about the fees, then it varies widely. It depends on the project, the local economy, the architect’s experience and reputation, and several other factors.

Well, the job is not done yet. Once the architect is done designing the hotel, it’s time to hire a contractor to build it.

Get the right pods for your hotel

You don’t want pods that make your guests feel suffocated. So, you must get the pods that can accommodate everything you want to. 

There are many third-party vendors who provide these pods. You can also get them custom-built  according to your requirements. 

Focus on experience over luxury

When you’re building the hotel, you must remember, most people prefer capsules for budget constraints or short term stays. So, instead of the luxury quotient, focus on the experience.

#ProTip: Give it a theme such as Sci-fi. Make your hotel look futuristic. And if you’re smart enough, you can do it just by using lights.

Categorise your pods strategically

You must have seen hotels with different suites. You can apply the same concept here as well.

For example: You can categorise the pods as bronze, silver, and gold. And allot the amenities or features to each of them according to their category.

However, make sure you don’t include more high-end pods as it will increase the tariff and people might hesitate to opt-in.

Invest only in the essential amenities

I have seen many hotels that have invested in amenities that are hardly utilised. 

I once visited a property in Delhi for a technology conference. At first, I was really impressed by the ambience and all the amenities. But then a vending machine caught my attention. It was filled with items, but the machine wasn’t working. When I inquired, a staff member said it has been like this for months. 

And to my surprise, there were more than 3 such machines.

It was a complete unnecessary investment, I felt. Because, even the working ones were not being used by any guest. 

Only incorporate vital amenities, not the ones you think will be necessary for the future.

The rule is simple. You’re a new capsule hotel and with time, you’re going to improve. So, for the time being, stick to the essentials. In future, if you feel you’re lacking a certain offering, then you can always add (of course depending on your budget and demand).

Set the right pricing

Setting the right room pricing is important for your hotel business to grow. You have to play this game strategically. But considering the factors it involves, hoteliers tend to get overwhelmed.

This is where revenue management software or professionals come into the picture. I would highly recommend working closely with such service providers. They will make your hotel management easy.

In case you don’t know how to choose the right revenue management service, we have a detailed blog on it.

Guide to Hiring Revenue Management Service Provider

#6 Market your hotel the right way

Marketing is critical for hotel businesses. From offline to online marketing, you have to do it the right way.

Here are some of the activities you must consider:

• Social Media Marketing
• Email Marketing
• Content Marketing
• Traditional marketing (TV ads, word of mouth, hoardings, etc.)
• Partnerships with corporates and agents

Resources:

• Social media marketing strategies for 2021
• Word of mouth marketing
• Partnership Marketing for Hotels
• Hotel digital marketing strategies
• Hotel content marketing
• Email marketing for hotels
• Hostel marketing tips to increase bookings
• Social media marketing mistakes to avoid

#ProTip: Many hoteliers have a perception that marketing starts when their hotel starts. That’s not true. Launch your marketing activities even when your hotel is still under construction. It is important to build hype and excite the audience.

#7 Invest in technology

Technology today has transformed the entire hospitality segment. Hotels all around the world are betting big on technology. So, it is important for new players to keep abreast of all the latest tech infusions in the industry.

Here are some of the significant (you can also call them ‘must-have’) tech for hotels:

• You need to build a website and integrate a booking engine for your guests to know who you are and to acquire direct bookings
• Property management system (PMS) to manage and automate your hotel’s end-to-end operations
• Customer relationship management (CRM) system to keep in touch with your guests and retain them
• Channel manager to update your inventory in real-time on all OTAs
• Reputation management system to keep a track of who is saying what about your property and to take appropriate action to maintain your hotel’s reputation
• Revenue management system to make informed decisions and boost revenue

If you have these systems in place, you’re already one step closer to succeeding with your capsule hotel.

#8 Work with OTAs, metasearch engines, Google FBL, offline travel agents

Anything that gets you booking is your friend. So make sure, your new capsule hotel is listed on all OTAs, meta search engines, and even on Google free booking links.

I am sure you already know about OTAs and meta search engines. But Google FBL is quite new, so I will give you an overview.

Google Free Hotel Booking Links (FBL) allow hotels to display their direct booking rates and availability on Google Hotel (Meta) Search and Google Maps. For Free! People can compare a hotel’s rates across various platforms, and book their stay directly with the hotel of their choice.

#ProTip: Google right now is extensively helping hotels make the most out of this program. Ensure that your hotel is listed on it.

#ProTip: While you partner with Google, OTAs, Metasearch engines, don’t forget about the offline agents. They are still in the game and play a vital role.

IMPORTANT: Do you really want to start a capsule hotel?

Now that you have learned all about the capsule hotel business, there’s one thing I would like to address – Do you really want to start a hotel?

I don’t want to demotivate you by addressing this. But as a blogger from this domain, I feel it is my responsibility to let you all know about all factors.

Starting a hotel involves risks. You have to be confident and prepared for it. You put in a lot of money and if things go wrong, you might end up incurring severe loss. So, think peacefully before stepping into the arena.

Word to the wise: Take insurance into consideration, as it can allow you to manage the numerous risks involved in launching your capsule hotel business and serving your customers.