Senior living developers have shied away from the low middle market for a reason . . . but what if there were a radical way of making it different?

By Steve Moran

In a kind of technical point of disagreement, I see the senior living middle income affordability problem as being a part of the low income senior living problem, not as two separate problems. It is just that in some ways having some financial resources gives you more options and in other ways it actually and stupidly reduces your options.

As We Think About It Today . . .

Today, according to NIC, about a million middle income seniors are living in some type of congregate housing setting, which means they are in some fashion able to afford something. While NIC does not attempt to spell it out, I think it looks like these options:

  • Family members are contributing money every month to make up the difference.

  • They are living in low-cost states with lower cost senior living options.

  • In some states, there is a robust cottage industry of board & care or residential assisted living that provides at least adequate care (and often great care) at a lower cost, but without a lot of the frills of a large community.

  • The Medicaid Waiver program works pretty well in some states.

  • People stay at home with the help of family members or friends.

  • Some are living in nursing homes even though they don’t need that level of service because it is the only thing available.

Opportunity or Not

So far with a few exceptions, senior living developers have shied away from the low middle market because of low margins, no margins, or even negative margins. Right now things are getting more difficult not less. Occupancies are down and costs are trending up particularly labor. But what if there were a radical way of making it different?

No Frills . . .

In the last couple of weeks, CNN published a story titled “How a cheap, brutally efficient grocery chain is upending America’s supermarkets.” Aldi is a German-based discount grocery chain that is 100% focused on being the lowest cost grocery store in Germany and now in the US. What is remarkable is that while cutting costs at every turn their customers love them and give them great marks for customer service, even though customers have to do most of the work. Here are some of the things they do:

  • They stock mostly store brands; this means fewer choices for customers but also lower inventory and stocking costs.

  • They use fewer square feet.

  • You have to pay a quarter in order to use a shopping cart, which is returned when you return the cart.

  • At checkout, your items are scanned then dropped back into a shopping cart, which you then take to a different part of the store to bag your own groceries.

  • They have much less staffing, 2-4 people at any given time.

No Frills Senior Living

I continue to think one of the solutions to the cost problem for senior living is for someone to create a “no frills” option. Here is what it might look like:

  • Much smaller rooms

  • Shared showers

  • Some services provided by a resident’s family members, residents, or family earns credits by taking a weekend day to do activities or front desk shifts, maybe even working in food service.

  • Back-to-basic dining services that would look a lot more like home dining fare; maybe even breakfast in their rooms and not the dining room.

There is sort of this sense of “that would never work” but, on the other hand, if that becomes the only option it might look a lot better than the alternatives. I don’t see this as “the option” but rather one of many like the residential homes.