by Pádraic Gilligan, Managing Partner, SoolNua
Inflection Point for Global Hotels
We’re right in the middle of a curious inflection point for global hotels. Just when we were about to declare the victory of the independents over the global chains, Marriott buys Starwood and Accor buys Fairmont to create two global behemoths with almost 50 individual brands between them – “… to meet all your desires” as the Accor publicity puts it. So despite appearances to the contrary “bigger is better” continues to attract lots of Wall Street support and the hotel industry undergoes yet another major consolidation. But will it work?
Global chains are challenged by the often gaping dichotomy between owners and operators – owners want ROI, operators want brand loyalty and sometimes the two don’t meet. The global brands are also experiencing difficulties because the current zeitgeist has a definite preference for authenticity over luxury, local over global, personalisation over standardisation.
Hotel industry has evolved
The hotel industry has evolved far beyond Conrad Hilton’s vision of a global hotel brand delivering a consistent product experience all over to world. Today we take the standards thing for granted and crave a highly customised hospitality experience that fully immerses us in the unsanitized edginess of the destination. We want it to be real. We want it to be authentic. We want it to offer up a unique story to tell.
At the moment there’s nothing I’ve experienced at global chain level that can compete with a great airbnb encounter or a stay at an independent hotel property. I admit to being wowed by the personalised bathroom amenities at the Fairmont Copley Place in Boston but I wonder how long it’ll take for such touches of surprise and delight to be eliminated as Accor starts to rationalise its brand portfolio the better to deliver shareholder value?
Deloitte and Global Hotels
This reflection on the hotel industry is partially stimulated by the recently published “Hotel of the Future” white paper from consultancy gurus, Deloitte. The consultants consider the current business model for hotels to be unfit for purpose and in need of a major overhaul.
They identify the many threats that hang like the sword of Damocles over the hotel industry. These include radically evolving customer preferences, the rise and rise of OTAs (and their clam-like hold on distribution channels), the growth of airbnb and other non-traditional competitors and the far too narrow definition that hotels apply to their current assets.
Evolving Customer Preferences
In all cases the global chains are under severe threat while the independent or boutique sector is actually thriving. The independent sector is bang on trend in terms of current preferences: for instance, walk into the lobby of Ace Hotel in New York city at any time of the day or evening and you’ll find the classic “third place”, vibrant and lively, locals and out-of-towners all hanging naturally together.
The hotel dining room (that global hotels have been struggling to make a buck from for decades) is dispensed with in favour of direct access to a gastro-pub (the superlative Breslin), an Oyster Bar, an artisan cafe and a sandwich shop. Naturally all of these operate as stand alone outlets but also integrate seamlessly with the hotel. There’s also a culture spot featuring work by local artists and the entire environment exudes fun and overflows with creative energy.
It’s virtually impossible for global hotels to compete with this type of hospitality culture as it’s a bit like a natural spring that flows only where it flows and cannot be artificially created or repeated. Global hotels try to bottle these innovative impulses and replicate them around the world but, by the time they’ve identified the ingredients and assembled them for universal distribution, the trend is over, about to be replaced by another new kid in town!
The OTA sector appears to have won the on-line battle with global hotels despite their best efforts to drive booking to their own websites. Today’s customers are increasingly brand agnostic and have grown accustomed to searching and comparing before confirming any bookings. And when OTAs like booking.com allow free cancellation why would you book on a proprietary site? So global hotels are stuck with the crippling overhead of an expensive global sales deployment along with the gouging commission levels demanded by the OTAs.
For the Independents, on the other hand, the OTAs are their best friend giving them immediate global profile and penetration. You’ve effectively got a global sales force working 24/7 but you only pay when they bring in something. Even at 25% of room revenue this is a good deal. If you surprise and delight your guests and use reviews and social media effectively then a tiny luxury property in Portland or Panama or Pistoia can compete effectively with Ritz Carlton, St Regis, Mandarin Oriental or Waldorf-Astoria.
Airbnb prospers because this generation of travellers is the exact opposite to the generation of the 50s and 60s that constantly sought the comfort of home whenever they travelled abroad. The tourists looking for hot tea and full English breakfasts under a Mediterranean sun are quickly being replaced by intrepid explorer types looking for freshly pressed olive oil and artisan bread.
Global brands like Hilton, Marriott and Accor have immense credibility when it comes to global standards of product and service delivery. You know exactly what you’re buying and that’s hugely comforting when you’re travelling to an unfamiliar place. However, today’s traveller, increasingly, will willingly eschew these standards in favour of access to authentic local experiences and independent hotels, run by locals, are a much better bet if this is what you want.
Multiple uses of assets
The Deloitte report criticises global hotels because they “too narrowly define the purpose of their current assets”. Their raison d’être and revenue model pivots around getting “heads in beds” and “bums on seats” so they’re designed to maximise the number of guest rooms and the size of their ballrooms. If you look at the Daniel in Vienna a different picture emerges – the internal and external public spaces are integral to the entire hotel experience and are configured to encourage “hanging out” and to integrate the hotel into the surrounding neighbourhood. In fact the lobby area has its own fully operational bakery.
Patrick Delaney, Pádraic Gilligan and Aoife McCrum run SoolNua, a specialist agency working with destinations, hotels and venues on strategy, marketing and training. Check us out at SoolNua and give us a call!