This post is not about central banks, not specifically. But the high inflation and rising interest rates that have been in the news are amongst the reasons the rates for our lodgings are sharply higher for 2023. Yes, everything, from power to poolside furniture is more expensive than it was 12 months ago, and price increases seem likely to persist. Other factors are also driving Poggiosole's rates skyward. For the benefit of legacy guests that may be suffering from sticker shock, here are three:
Deferred maintenance: As my folks aged, surprise surprise, they slowed down. They paid more attention to getting through each day, less attention to maintaining the property. Over the last eight years or so, a lot less. Stuff piled up. Exterior lighting went on the blink. Our photovoltaic system became unreliable. Our swimming pool's plastic liner detached from the pool's concrete basin, trapping hundreds of liters of water against one curved section of the basin and under the steps. Looking out towards our groves today, our tool sheds are an impenetrable mess. Half are filled with old, useless furniture. The rest are packed with rusty tools, expired sacks of fertilizer, and decrepit string trimmers and gas-powered lawn mowers sprinkled with rodent droppings. Yuck. And don't even get me started on the tractor shed perched above our lower grove, which was already a horror show when mom and dad were still active. In summer it's not always easy to find, with waist-high grass providing ample cover for a 50-year-old rusting hulk of a tractor and equally old dilapidated sprayer. These need to be removed (how? they won't start!) to make way for foundation work, roof work, and, to the tune of at least 80 thousand euro, a new tractor and sprayer if we're going to properly take care our olive groves going forward.
Raising the bar: Since our "post-covid" renovation in early 2021, our standards of comfort, equipment, cleanliness and care for guests have moved up significantly. Beyond the numerous refinements listed on the website, this year we've added a new saltwater chlorinator, new poolside furniture and parasols, 15 exterior lighting fixtures, a property-wide nebulising system to beat back mosquitos, new all-electric gardening equipment, and, coming soon, a motorised front gate and security cameras. Our larger lodging Le Rose added a bathroom at the start of this year. Over 250 new plants and 3 new fruit trees plus a new liner, plumbing, LED lighting and skimmers for our swimming pool will be installed by the start of our 2023 season. CAPEX is amortised over periods of 10 to 30 years for businesses like ours; I opt for 10. The impact on our rates is there.
Water scarcity: This summer, for the first time since 2003, we paid for multiple water deliveries to our underground cisterns. The water in our cisterns is normally sourced from one of two wells, and used nightly to irrigate and fortnightly to top up our pool, which, in warmer months, evaporates around 150 liters a day into the air. The hotter and dryer the summer, the less water our wells provide and the more we need to irrigate and top up the pool. Heading into 2022 we hadn't budgeted for the cost of water deliveries, and it isn't clear to what degree we'll need to hire water trucks in 2023 and beyond. But with extreme weather becoming more common, and regulations forbidding the use of municipal water to irrigate and fill pools in the dry season, we can't assume that a summer of water trucks will be a 20-year event going forward.
Bottom line, Poggiosole has gotten (about 35%) pricier, and consequently more exclusive. I have mixed feelings about this. There's the concern that legacy clients, whose visits we especially look forward to, will stop coming. There's the prospect of becoming a "luxury resort" (our listing on Plum Guide went live in late 2022) and the perfectionism that brings. There's the possibility that young families, in particular, will look elsewhere, leaving only DINKs and the comfortably retired. Historically, other than our particular appeal to German, Dutch, and Belgian guests, we've gotten a pretty broad cross-section of folks, and have liked it that way. But, if quality is to remain our priority and inflation is what it is, we have little choice but to keep calm and see how it all plays out in 2023.
Postscript about 2 ½ years later, December 2024: So how did it all play out in 2023? Well, rate hikes notwithstanding our P&L showed a €5700 loss (7.5% of revenue) over the course of that year. Relatively speaking, 2024 was better: preliminary calculations show a €500 net profit: call that break-even.
Inflation has fallen (so we're told) but I think it takes a while for higher prices to sink in: our eyebrows are still raised by how much dearer bread, cheese, poultry, and power, house paint and insect repellant have become. And, again, in part due to the inflationary period now ending, in part due to continuing investment in our lodgings, grounds and farm equipment, our rates increased about 30% year-on-year from 2023 to 2024, and I've set them 15% higher for 2025 (relative to 2024). Add all those increases up and in the three years from 2022 to 2025 Poggiosole's rates have more or less doubled. If demand doesn't crater (that's a big if considering the state Germany is in) we should see a profit of around €15K euro in 2025, just under 2022's record figure of €16K. But I'm not holding my breath.
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