Embrace Market Disruption and Adapt, Urges InterFace Keynote Speaker

John Cochrane III, president and CEO of HumanGood, believes the seniors housing industry has the expertise needed to adapt to big disruptions still to come. "We know our customers in many cases better than they know themselves," he says. Above, Cochrane speaks at the nonprofit's annual meeting held Feb. 24 in Santa Clara, Calif. John Cochrane III, president and CEO of HumanGood, believes the seniors housing industry has the expertise needed to adapt to big disruptions still to come. "We know our customers in many cases better than they know themselves," he says. Above, Cochrane speaks at the nonprofit's annual meeting held Feb. 24 in Santa Clara, Calif.

As people live longer, seniors housing must find new models, according to CEO of California’s largest nonprofit operator

By Matt Valley

LOS ANGELES — Increased longevity is a disruptive force that promises to have a profound impact on our workforce, Social Security, the economy, healthcare and even our politics.

That’s the message John Cochrane III, president and CEO of HumanGood — the largest nonprofit provider of seniors housing and services in California and one of the 10 largest organizations of its kind nationally — wants to impress on the industry. (HumanGood recently changed its name from Cornerstone Affiliates, which was created as a result of last year’s merger between be.group and ABHOW.)

Globally, life expectancy has risen 30-plus years over the past century, according to Cochrane. Two-thirds of everyone who has ever lived to age 65 is alive today thanks to advancements in medical care and science as well as sanitation, he added.

By 2025, there will be more people 65 and older in the United States than children under 15, according to an August 2016 article published by Bloomberg and titled “Demographic Shock Sweeps the Globe.”

Meanwhile, scientists say that the first person to live to age 150 has already been born.

“Even 20 years ago that would have been a laughable concept. People just didn’t think that was possible. That was the stuff of science fiction,” said Cochrane during his keynote address at InterFace Seniors Housing West on Thursday, March 9. The daylong conference at the Omni Los Angeles drew 322 attendees.

The significance of this demographic trend is that a person who retires at age 62 today can reasonably expect to live at least another 20 years, said Cochrane. “And increasingly those are healthy years. They are active and vibrant years. We are living and aging very differently than we have in years past with very different expectations. And with all that change there are going to be winners and losers as we go along. There always are in times of disruption.”

The seniors housing industry needs to embrace this disruption and reinvent itself or run the risk of getting crushed by outsiders, cautioned Cochrane.

“In many cases, we are providing the market the equivalent of the 1972 Buick.  If you ask most consumers to picture in their minds what a retirement community looks like, this is what they are thinking,” he said, highlighting a power point slide showing a row of rocking chairs on a front porch.

“It’s not what we picture. We have a very different view of our market than the market itself, and that needs to shift. Our service expectations do not match what people are looking for in communities. We provide too much stuff people don’t want, and we do it in a mediocre and inconsistent fashion.”

And that rejection by consumers shows up in the data, according to Cochrane. Ninety percent of older adults, prospective customers, won’t even consider what seniors housing has to offer, he said. Of the remaining 10 percent that are willing to give it a look, only three out of 10 actually move in. “What’s interesting is that because that pie (of older adults) is growing, it’s masking the fact that we’re actually slipping in market share. That should be alarming to us. We’re getting a shrinking slice of a growing pie, and that’s not a sustainable model.”

The occupancy rate across the industry for independent living communities and continuing care retirement communities hovers around 91 percent, which concerns Cochrane. “We’re in a fabulous economy with fabulous demographics, and we’re getting 91 percent occupancy. That should be an alarm bell going off for us.”

Affordable housing crisis

HumanGood’s 3,600 team members serve nearly 10,000 residents in 84 communities across California, Arizona, Nevada, Washington and Idaho. Its portfolio includes 18 continuing care retirement communities. The majority of the communities are affordable housing. The need for affordable housing by far exceeds the available supply, said Cochrane.

“If you look at the demographics, we can’t begin to meet the needs today. Layer on the aging population, the declining financial preparedness, and this market is going to explode. The need is simply off the charts,” said Cochrane.

“We have an average eight-year wait list at our 63 affordable housing communities, and it would be longer than that except we stop taking people after eight years because it seems kind of ludicrous,” said Cochrane.

While the traditional financing sources are drying up to develop and subsidize affordable housing, Cochrane said the industry has the opportunity to explore partnerships with different sources to solve the problem.

“By giving people safe, attractive, affordable housing, access to reasonable services that allow them to age well with dignity and good health and human connection, then we save resources on the other end,” Cochrane emphasized. “We can either pay $10 to take care of someone in affordable housing, or we’re going to pay $100 when they show up at the county nursing home and the emergency room. So, we have a tremendous opportunity in affordable housing. It’s not just the housing, but it’s the supportive services that allow those residents to have the rich, purposeful life as well.”

Adapt or wither on the vine

Cochrane cited examples of adaptation from outside the seniors housing industry to drive home his point. The famed Ringling Bros. and Barnum & Bailey circus was a healthy business for many decades. But when market share started to slip, management’s response was to create a bigger version of the traditional circus.  Declining ticket sales and rising operating costs ultimately forced the closure of the traveling show. The last performances will be this May.

Ringling Bros. was unable to adapt and innovate, a problem shared by the seniors housing industry at times, said Cochrane. “I talked to a sales person at a community last year about the need for innovation. She said, ‘Oh, we’re innovating. We’re putting in stainless steel appliances in all our units.’ I just wanted to put pencils in my eyes. That is not innovation.”

But Cirque Du Soleil figured out many years ago there was a viable circus to be had, said Cochrane. The concept just needed to be fully reimagined. Cirque Du Soleil has been viewed by 150 million people in 300 cities around the world over the past 30 years. “It’s a phenomenal success. They did it by taking everything that people do like about the circus, the theatrics, the showmanship.” Cirque Du Soleil amped up the performance and jettisoned everything circus goers didn’t like. In doing so, it created a new model out of an old, tired model.

In another example of innovation, Procter & Gamble (P&G) saw the writing on the wall for one of its signature brands, Oil of Olay. The product had become stagnant and was declining in market share. “Now if I had been on the board of Procter & Gamble, I would have thought the hardest thing to do would be to reposition a product that was in a trough. It turns out that’s exactly what they did.”

P&G created Olay. The brand offers a whole array of beauty products designed to alleviate the seven signs of aging. P&G has created a multibillion-dollar brand out of Olay.

“They did it by doing deep consumer research. They actually went into the homes of their consumers as they got ready to start their day. Out of that research they found the seven signs of aging,” said Cochrane. In short, the unwelcome disruption turned out to be a positive for the company.

The seniors housing industry has the same opportunity to benefit from such disruption, Cochrane believes. “We have the expertise that P&G has. We know our customers in many cases better than they know themselves. But we’re going to have to act on it if we’re going to be the field that the world is waiting for us to be.”

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