BusinessTN

There’s little question that tourism is a critical driver of Tennessee’s economy, generating nearly $10 billion annually. It’s the lifeblood of many businesses in Tennessee, including the over 700 tourist-based businesses based in Pigeon Forge alone. Government at both the state and local level also certainly has a vested interest in seeing the tourism industry flourish in Tennessee to support their sales tax bases.

As far back as his gubernatorial campaign, Gov. Phil Bredesen has touted the prominent role of tourism in his administration’s plan for the state’s economic growth. He campaigned to revamp the state Department of Tourist Development—better marketing of the state to the nation and globe. A two-year effort led to new state marketing slogan and campaign, “The Stage is Set For You,” meant to be more attraction-specific and appealing to people from all walks of life. The governor stressed the need to balance traditional successes with innovative, unconventional approaches—not just the tried and true.

Business Tennessee’s Drew Ruble recently sat down with industry experts to discuss the current state of tourism in Tennessee and where the industry is headed in the near future.

Our roundtable participants include:
• Pace Cooper, president and CEO of Cooper Companies, builders and managers of hotel properties across Tennessee and the Southeast
• Jim Fyke, deputy commissioner of state parks in the Department of Environment and Conservation
Kay Powell, assistant director with the Pigeon Forge Department of Tourism
Kyle Young, director of the Country Music Hall of Fame and Museum

Business Tennessee: Tourism in the United States grew 6.7% in 2004. Kay, has that up-tick been reflected in Pigeon Forge?
Powell: That parallels what the city did in 2004. Our increase was at 7%. Some categories did better than others. We have a “craft, gift and specialty shops” category, which showed an 11% increase due mainly to Boyds Bear Country opening its second retail store here in November. All in all, we had a very good year in Pigeon Forge.

BTN: Jim, what about you? At what level were visitations at state parks in the last year?
Fyke: Well, visitation is also up in the same range of 5% or 6%. Of course, that’s not totally directed to what would be defined as tourism, but attendance at state parks and occupancy in our inns and cabins and campgrounds is also up.

BTN: Kyle, what would you say about the museum? I know it’s been a tough couple of years for attractions. How was 2004 and what’s your outlook?
Young: We were pretty much flat in 2004, though at the gate retail was up double digits. This year we are tracking at about 9% up on museum admissions and 13% ahead of budget on the dollar front. So, it looks like a better year this year. We’ve changed our strategy a little bit. Gas prices really hurt us last year.

BTN: How are the rising gas prices affecting your strategies?
Young: Gas prices have risen 73% over the same time period two years ago. As a result, we’re looking much more aggressively at the group market, which is a significant percentage of our overall visitation. And though it’s really early in the year, it seems like that refocus in strategy is paying off for us.
Fyke: In state parks, we also have adjusted our strategy somewhat. While we are presenting ourselves nationwide as a tourism opportunity, especially through the state tourism department and their marketing efforts, we’re concentrating more inside the state and to the bordering states. We’re promoting three- and four-day-long weekends as an alternative to driving long distances.
Powell: We’re in a unique situation here in Pigeon Forge and around the Great Smoky Mountains National Park. Traditionally, when the gas prices get higher, we do better because we are within a day’s drive of three-fourths of the nation’s population east of the Mississippi. But we’ve found out that Americans are going to take their leisure trips, because we virtually believe that’s a birthright. So, higher gas prices affect us since visitors have less discretionary funds to spend as a result when they’re in Pigeon Forge. But it has not in the past really affected the number of people who come here.
BTN: Pace, what about gas prices, and how has the hotel industry fared over the last year?
Cooper: The industry is definitely on the rebound. I’ve been crying the blues from 2001 to 2004, but things are really doing better. As for the gas prices, we experience it from two directions with our company. Many of our hotels are leisure destinations, and Kay is right: people will travel no matter the obstacles for leisure purposes. On the business side, we see some impact from rising gas prices. It’s not so much because it’s so expensive to drive, but the higher cost of fuel drives costs higher all around in terms of a person’s travel experience, either renting cars or flying on airplanes and so forth. So the gas price jump does somewhat negatively impact our business travel hotels, but in general, the economy is lifting for the hotel industry.

BTN: A recent state report showed that Tennessee was twelfth in the nation in visitation. What must it do to crack the top 10?
Young: I obviously can speak most knowledgeably about what’s happening in Nashville. I would say that we’re moving in the right direction. It started with a lot of investment in the downtown area of Nashville. In the last four or five years, conservatively, over a billion dollars has been invested in downtown Nashville. We’re part of that picture, as are the Frist Center for the Visual Arts, Gaylord Entertainment Center, the Coliseum and soon, a new concert hall for the symphony. For the first time ever in this city, the mayor called a tourism summit, and many good things came out of that. Not least among them was a real re-examination of our brand, and I think, a wholehearted acceptance of the fact that we are Music City.

BTN: Kay, what’s the new bold idea that takes tourism to the next level, statewide?
Powell: Tennessee really has a good story to tell and is an appealing and diverse destination. But I’m not sure that there really is a new, bold idea. If there is, it hasn’t come to me. But policy-makers really need to see tourism as an industry. We’re the second largest industry in the state of Tennessee, and policy-makers don’t recognize that. We’re twenty-first in spending for advertising. They need to understand that the state needs more money to do promotions and advertising. It isn’t a bold idea; we’ve been working on it for years.
Young: I would really like to echo that. If you looked at local ballot initiatives around the country last November, there were 34 state and local initiatives, and 28 were passed. Basically, these were funding mechanisms that would fund general bond obligations to improve infrastructure, or that really moved toward a percentage of the existing taxes moving toward cultural tourism. Denver is a great city to look at. One-tenth of one percent of a sales tax, mostly directed at cars and movies, generates $35 million a year that goes to cultural institutions in that city. This not only boosts advertising budgets, but is gives museums an opportunity to reinvest capitally. That means more exhibitions more frequently, and so on and so forth. It would be great if somehow we could get state and local legislatures to focus on tourism as a big business that improves the quality of life in a city, attracts new businesses, etc.

BTN: Pace, is there a need among policy-makers for greater recognition of what tourism does in the state?
Cooper: Absolutely. First let me say that we’ve made great inroads. I don’t know the exact facts and budgetary figures, but it felt like advertising was non-existent just two years ago. Gov. Phil Bredesen and leadership in the state have made a huge difference in putting it back on the radar screen of priorities in terms of state funding. That is the bold new idea—to recognize that some states are doing better than others. States like Florida and California are putting tremendous resources into touting their tourism benefits. Government can make a big difference by making it more and more of a priority.
Young: We should give Gov. Bredesen credit. We’re all aware that he has proposed a one-time, $4.5 million appropriation to the Depart- ment of Tourist Development to launch this marketing campaign.
Powell: And I would agree with that, because in general terms, the state does well with the budget it has, but it is outspent by its competitors. But Department of Tourist Development Commissioner Susan Whitaker and Gov. Bredesen are working on that.

BTN: A two-year effort by the state, pushed by Governor Bredesen, led to a new state marketing slogan, meant to be more attraction-specific and appealing to people from all walks of life. How do you grade the state on its new marketing strategy?
Cooper: I don’t think I’d give it an “A” yet, but I think you’d have to call it the most improved student in the class. We were at a low point a couple of years ago, and the governor, along with the department under Susan’s leadership, is making such a difference. It just has to go faster. There’s no easy way to do that. There’s no big pot of gold to go steal from some other area of government. It just has to be a continued lobbying effort, continued singing from the same hymnbook. The music scene that they’re using resonates all across our state.

BTN: Jim, how have state parks and the natural beauty of Tennessee played into the strategy?
Fyke: I had the pleasure to work for Gov. Bredesen when he was the mayor of Nashville for eight years, and then came here two years ago. He absolutely believes in leisure activities and the quality of life for all Tennesseans, which is why he has put a major emphasis on state parks and our natural areas, which I consider one of the best-kept secrets around. As a lifelong Nashvillian, I didn’t realize the diversity and the beauty the state of Tennessee has to offer—from the mountains to the lowlands in Memphis.

BTN: Kay, in terms of what the state is doing, it’s working well in concert with all of your individual efforts in Pigeon Forge?
Powell: Absolutely. We’re pleased with it. We just need to get more money in the coffers so that we can extend that message farther.

BTN: How important is the attraction of the overseas traveler? What kind of things is the state or your organizations doing to attract that traveler?
Powell: We have a company over in England and Germany that represents us. It works out well. For instance, the latter part of March and April, we have a huge familiarization tour coming into Pigeon Forge. Those writers have a combined circulation of 13 million readers. For a small investment on our part with the state, we’ll get huge benefits.
Young: Over the last three years, we have seen international travelers as a percentage of overall attendance increase, so that it is now roughly 12%. That takes into account gate receipts and international dollars or travelers. But we’re seeing that as an area that can grow. Locally, the Convention and Visitors Bureau, headed by Butch Spyridon, launched a program four or five years ago called Rhythms of the South. It’s a collaborative program between New Orleans, Atlanta and Nashville, and Butch and his gang deserve credit for the rise that we’re seeing from the international market.

BTN: Jim, how much does Tennessee’s natural beauty aid in attracting the international traveler? And what emphasis has gone into that?
Fyke: That’s not a market that we’ve been able to concentrate our small amount of marketing dollars on, so while it could have some impact on us, I do not see that as a good return for us based just on state parks, natural areas and the beauty of the state. It’s just not part of our market.

BTN: We’ve discussed the need for additional state revenue for the state’s tourism industry, yet there’s legislation pending in the General Assembly that could potentially shrink these tax credits for tourist destinations in the state, or expand them. What are the pros and cons of the use of that type of incentive?
Powell: I suppose we’re talking about premier resort, so I’ll step into this. Let me explain exactly what the concept of premier resort is. A small community, like Pigeon Forge for instance, that has 5,400 permanent residents, generates an inordinate amount of tax revenue for the state. This past year, Pigeon Forge alone sent $50 million to the state. Now, though we only have 5,400 residents, we have 11 million visitors a year, so it requires the infrastructure for a city of 40,000 to 50,000 people. On any given day, we may have that many residents—so to speak. They may be transient, but they’re here. They need water, roads, police and fire protection—all of the things that a city of that size needs. So the “premier resort” designation reinvests a tiny portion of the extra sales tax we generate to help us with these things. Last year, the premier resort amount that we received back was $3.5 million. While that number might not mean much to the state, it means a lot to us.

BTN: Certainly Nashville Mayor Bill Purcell is of the opinion that Nashville ought to qualify for these credits. Kyle, what’s your opinion?
Young: Well, this designation is pretty specific, though the mayor is right on target in recognizing how important this industry is to the city. In effect, the dollars spent in this city from outside sources allow us to make investments. So, I understand what the mayor is saying. Nashville tourism is a driving force, a key to the economy of this city.

BTN: Switching gears—Pace, a number of cities across Tennessee have built new meeting or convention space. Is the business demand out there to meet it?
Cooper: That’s a tough question. If you’re in the convention business or about to open one, you want to say absolutely they’re needed. But if you’re not, you start to wonder. I fall in the second camp. We’re not heavily in the convention center business, although large conventions drive us. The size of the big ones, the ones that we have across the state in the larger cities and in some of the private properties like Gaylord’s Opryland, certainly move economies and make a big difference. So many communities feel like if they don’t get in the game, then they’re left out. At the end of the day, so much of that capacity goes unutilized. From a tourism standpoint, I wonder if there aren’t better ways to drive business to communities. Bringing in a new corporate headquarters is so much more significant to me and to the local economy than the creation of a new executive conference center. In regard to smaller conference centers, there’s just way too much capacity today.

BTN: Along those lines, given the current levels of supply and demand in the hotel business in Tennessee, is there an overbuilding going on in that sector as well?
Cooper: I don’t think there’s an overbuilding going on across the state because the new and attractive facilities are really what helps us put our best foot forward. Rather, we have an under-demolished situation, where people aren’t letting go of product that needs to be retooled. I’m not saying there’s no place for budget hotels, but I’d sure rather have a brand new budget hotel than some of the old stuff that we have now.
Powell: I agree 100%. That’s what we’re trying to do in Pigeon Forge because we do have some that need to be upgraded. They’re outdated, and then they wonder why they’re losing business to some of the nicer properties that have great curb appeal and amenities.

BTN: Jim, with your position in the state, I’m sure you get a look at what other states are doing. What specific things are you and others in the group seeing done in other states that Tennessee should be doing?
Fyke: Kentucky has long done a good job in the hospitality end of this market. Kentucky and Tennessee are about two of the larger markets that are still in this business, so we have to address that most states across the country are not in the hospitality end of it—they’re more into normal leisure activities or natural areas that you would see in state parks. So many states don’t even have some of the facilities that we have in Tennessee, with marinas and golf courses and restaurants and inns, and cabins throughout most of the state. And it’s an hour for anyone in the state of Tennessee to a state park, so I think we’re holding our own in that regard. But I stress, most states are reducing and getting out of the tough business of hospitality centers in remote locations.
Powell: Tourism is more competitive than ever. Other states look to Tennessee to see what we’re doing, or look to other states like Hawaii or Florida. Consumers have more choices than they’ve ever had, so what that means is that in destinations such as Nashville and Pigeon Forge or wherever, we have to work harder than ever to stand out.

BTN: Thanks, all.