As occupancy levels continue to drop or remain subdued because of the pandemic, there seems to be less talk about the so-called “forgotten middle,” those seniors who can’t afford, but may need or want, some sort of senior living option. The NIC presented the findings of its study on this topic last year, and it created a lot of excitement. But the focus has shifted to dealing with declining census and profits.
Mary Ann Donaghy, formerly the Chief Marketing Officer at NIC and now an independent consultant, recently posted an interesting article on LinkedIn about the topic, specifically how to move from theory to reality in developing a real plan for dealing with this underserved market.
It will not be easy, and will require a significant change in mindset. That may be one of the biggest problems as many providers and developers think they know what the customer wants, but in reality, most of them don’t really know and it has been part guessing game, part gut feeling based on experience. The other reality is that the “middle market” is not just one market, but many ethnic, cultural, regional, economic and age sub-markets, and one size does not fit all, as Donaghy points out.
The biggest issue obviously is cost and how to get the monthly fee down, most likely by 25% to 40% lower than what is currently being charged. To do that, one has to look at what has driven the cost of senior living so high over the past five to 10 years. Unit sizes, amenities, food service and finishes, both in the units and in common areas, have been the main culprits that have pushed costs. There would appear to be some low-hanging fruit there. For a lower monthly fee, you certainly do not need three dining venues open 12 hours a day, nor granite counter tops.
One of the biggest problems for investors is how to make a decent return in the middle market. But there are a few ways to tackle that. First of all, if your potential market size widens, perhaps 50% more potential customers, as she points out, that will not require a 50% increase in marketing costs. She calls this the marketing return on investment (MROI).
Next, because you are offering a lower price point, more people can move in at a younger age because they will not be worrying as much about spending down as they would in a $5,000 per month community. If they move in younger, they stay longer, and the “lifetime value” of that resident goes up (to put it crassly). This is very similar to what proponents of Active Adult communities have been talking about. The longer the lengths of stay, the lower the turnover and the lower future sales and marketing costs. All of this contributes to a positive return on investment. But the first step is to get the operating and real estate costs down without sacrificing quality of care. That can be done.
We do not expect to see a lot of activity in the middle market until the pandemic begins to wind down and providers and investors can breathe again. But, it is the largest potential market out there, and the need certainly exists, and will continue to grow. So, thank you Mary Ann for bringing this topic up again, and congratulations on your special day.
