Over the last 10 years, a lot of efforts have been made to separate ownership from operation. Lenders and investors believe the industry structure results in more focused management, better run businesses, higher profits, and higher asset values. In our view, these outcomes will only arise if the hotel industry addresses the inputs. The reshaped 21st century hotel industry must remember that its roots are in hospitality.
We are seeing a lot of new hotel brands being rolled out by the big chains, by operators catering to particular market segments and by entrepreneurs. Creating a hotel brand is a holistic process involving setting brand standards, service standards, Standard Operating Procedures (SOPs) and design guidelines. Hotel brands need to recognise what retailers have discovered – that the mass market is gone and customers want to be treated as individuals with their own specific requirements.
Today’s guest-facing staff are often not equipped to deliver the brand promise due nor are they able to leverage the brand to increase sales. They often lack the training to deliver sales messages or are sometimes not provided with the right selling tools.
The proliferation of brands in the market means more competition between branded hotel operators. Hotel owners seeking hotel management contracts or hotel franchise agreements now demand more flexibility, They want to design their own relationship with the operator/brand – not just the fee structure – but which services the operator/brand owner provides. That’s where hotel management service consultants can help. We help negotiate the right agreement between owner, operator and ‘Brandco’.
Evolution not revolution
A well run hotel business must invest in innovation throughout the economic cycle – and these investments will contribute to the evolution of the hotel industry and the brands that make it up.
The Development of a Brand
Clearly a hotel brand is not part of the natural world, but perhaps it shares some of their characteristics. Since Darwin, mankind’s understanding of the natural world has changed almost beyond recognition. Most of us accept the idea of evolution by natural selection. The struggle for existence, often referred to as the survival of the fittest, is made up of four key assumptions:
1. Organisms vary one from another, even within a species
2. New variations can arise from time to time
3. Some of these variations are passed on from parent to offspring
4. More individuals are born than can exist in the available space or can be sustained by the available resources
Can we relate these assumptions to changes in the hotel industry?
There are different types of hotel (urban vs. resort, convention vs. boutique, five star vs. one star), which reflects Darwin’s thesis that organisms, even within a species, vary one from another. The introduction of the limited service hotel, the extended stay hotel and the ‘lifestyle’ hotel and the mash-ups between these concepts, all suggest that new variations arise.
We know that some elements of these variations will reflect back into the mainstream so that the variations these segments utilise are taken forward.
Some hotel brands have been around for decades; the successful evolvers include Hilton, Holiday Inn and Sheraton. Yet others have only come into existence recently. These include Aloft, Cambria, and Citizen M. Will they too last for half a century or more? They will if they learn how to evolve.
Brands are also withdrawn from the market. Recently, these have included Amerisuites, and Folio Hotels. These withdrawals reflect the fact that some brands can no longer be sustained – usually due to evolving customer and/or investor needs. The mega merger between Starwood and Marriott will undoubtedly mean that some of the brands that compete head-to-head within these two organisations will be re-positioned, spun off or maybe even retired. This will ultimately result in hotel owners having to spend money on renovating to meet new brand standards or replacing signage and collaterals.
Looking back is helpful, but it doesn’t help us anticipate the future or implement processes to ensure the long-term survival of our hotel brand. To understand this, let’s remember that business economics and psychology are merging. The concept of ‘rational’ consumer behaviour is being replaced with understanding how customers/guests actually behave. Evolutionary influences mean we are more reluctant to act as ‘rational’ consumers, e.g.:
* Over the years, the herd mentality has been shown to be useful. It’s relatively safe for me to take the family on holiday to Costa del Sol because my neighbour has been there with his family and they enjoyed the experience. Copying what other hotels do successfully means our hotel is also more successful. Copying how successful retailers sell, can help hotels be more successful in selling. Avoiding major price differentials with our competitors ensures that we both trade successfully. There are limitations and sometimes the ‘master stroke’ is to make an independent assessment of the market rather than follow-the-leader.
* It’s now widely accepted that the ‘endowment effect’ means we value objects we own more highly than similar objects we have never owned. Hoteliers will do well to remember that their target guests will almost always prefer to stay at home than in a hotel or at friends.
How often have we heard that a hotel general manager has become too proprietorial and can’t see the competitive threats because he is basking in his own achievements? How often have we seen hotel owners valuing their hotel at a multiple of X times EBITDA but turning a blind eye to the fact the one down the road was sold at a multiple of less than X?
The Evolutionary Path
Help your hotel business develop further by understanding its evolutionary path and by recognising the mechanisms and rules for its future success.