Why some of the most successful hotel companies are small or mid-size and independent.

The impact of choosing Great before Big.

Context

Some of the best innovations and successful concepts in Hospitality have been created by people without a background in hospitality. When Ian Schrager created the first Boutique hotel ‘Morgans’ in New York 1984, he did out of his personal conviction and goal to always do something new and truly innovative. When Schrager received the the Lifetime Achievement Award in in Hospitality at IHIF in Berlin 2014 he mentioned that it is important for him to always push boundaries and break with convention. The hotel design icon who is behind the London Edition and its restaurant Berners Street Tavern mentioned that he has never done any focus group. He is of the opinion that if he likes it, somebody else is likely to like it as well. It was with the same philosophy that Steve Jobs created the iPhone and iPad. He believed that it was such a great idea that people would use it.

Until recently the hotel industry was dominated by the big groups with often standardized and industrialized hotel concepts and approach.

Innovation in the hotel industry

If we mark the starting point of the modern hotel industry around 1960, one will notice that since then, there has actually been very little innovation within the hotel industry. The hotel room has been relatively standardized and the same can be mentioned for public and reception areas. Interestingly enough, during the last 50 years, the most significant innovations in the hotel industry were driven by technology and distribution: The Global Distribution Systems in the 70ties and Internet / OTAs starting the 90ties.

The start of the Hotel Industry as we know it today was within the 1960s

New hotel brands such as CitizenM and Yotel can be considered game-changers in the hotel industry. Not only have they changed the guest experience by a total different approach to the guest journey, they have also challenged the status quo from an operational point of view.

Other innovative brands in terms of guest experience, concept and process are:

Mamashelter, 25Hours, Zoku, the Student Hotel and Meininger.

Big hotel groups, recognize the fact that they are not always able to drive innovation in the way small groups or start-ups can do. Instead of building themselves, groups choose to buy.

Gamechangers in Hotel Concept and Guest Experience

Where in the past the investment strategy of the big hotel groups has mostly been driven by an objective to increase market share, we have recently seen hotel groups investing in some innovative new hotel concepts. For example Accor’s investment in Mama-Shelter and 25Hours and Carlson Rezidor investing Prizehotel. Hotel groups more and more realize that these small and innovative brands are doing a great job in delivering a unique guest experience. Accor’s Chairman and CEO Sébastian Bazin was commenting that their investment in 25Hours was bringing the group one step further in Accor’s strategy to be a global leader in lifestyle hotels. Recognising that lifestyle Hotels was a competence that Accor did not have.

Direct bookings, to be or not to be?

Legacy brands / hotel groups have also received their wake up call in terms of distribution. Online Travel Agencies (OTA’s) have been doing extremely well in their engagement with the client. In Europe in particular, brand loyalty is not of the same level as in the US. This is partly driven by the fact that the hotel market in Europe is not having the same level of brand penetration. Where initially OTA’s were merely capturing a lot of leisure clients, they have meanwhile also strongly penetrated the corporate and business travel segment. The booking experience on a OTA App is often considered to be more efficient than on the average hotel App when it comes to navigation, search and bookings. Another important plus for bookers is related to availability (OTA’s can offer much more complete availability on a single destination than most of the hotel groups can do). Last but not least the marketing budgets of the OTAs are of such a significance that they can easily ensure to be on top in terms of ranking in almost any relevant google hotel search.

During one of the recent hotel investment conferences, Arne Sorensen, President and CEO of Marriott Hotels and Christopher J. Nassetta of Hilton mentioned that the hotel industry has probably underestimated the impact of OTAs in their battle for the customer. There was not a proper response towards the fact that OTAs gave the consumer the impression to have the best rates available. Also the groups such as Hilton and Marriott were strongly relying on their big base of Loyalty program members. They realized however that they put too little emphasis on the loyal guests with low volume, i.e. guest that are booking less than 5 stays. Groups such as Marriott, Hilton and Accor launched strong initiatives to convince the customer to book direct. On the other hand, OTAs such as Booking.com and Expedia have launched initiatives to become more attractive for hotels and bookers, such as Booking.com’s private label solution for Hotels and Expedia+ the rewards program for bookers.

The opportunity: all tools available

Todays Hotel companies and owners are in a unique position.

One can learn from the recent history of the hotel industry and take advantage of the many tools that are available to create an attractive and relevant hotel proposition.

One of the first decisions to be made is related to the hotel brand. Will I built my own or will I use and existing brand.

Regardless if the hotel company choses to either built or buy a brand, the success of a hotel will be driven by proper handling of three critical areas:

  • Guest experience
  • Financial performance
  • Marketing

For these critical areas the key drivers are:

Guest experience Financial performance Marketing
  • Hardware / Product
  • Software / service
  •  The right revenue
  • Efficient cost structure
  • Sales & distribution
  • Reputation
  • Online-offline

Where in the past hotel management companies were almost exclusively owning the above competences, in todays environment most of these competences can be developed either internally, supported by, or acquired through, a variety of commodity solutions available in the above areas.

The final challenge: Human Capital

With the availability of all tools to be able to run a successful hotel business, there is only one challenge remaining. The challenge of Human Capital.

Labour cost represents on average 33% of total revenue, making payroll one of the most important cost factors for a hotel business. At the same time staff turnover is as high as 31%.

Being attractive as an employer is critical for a hotel company. Recruiting or casting the right people remains one of the biggest challenges. Companies that master the process of recruiting, motivating and developing loyal staff members will be able to deliver the above mentioned critical areas of Guest Experience, Financial performance and Marketing.

Conclusion:

Tripadvisor ranking as well as Conde Nast ‘best Hotel’ listings confirm that according to guest reviews, a majority of the best hotel experiences are created in hotels that are not part of a big Hotel chain or brand.

The cases of Ian Schrager’s Hotel Morgans, or lifestyle hotel brands such as 25Hours, plus many small, mostly independent business and leisure hotels with high reputation rankings confirm that autonomy, creativity and agility are important success factors to a successful hotel business.

Successful hotels companies have understood that Human Capital is critical to becoming a great business.

About the Author

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Robert Hornman Hospitality Advisor, CEO and Product Evangelist

A passionate hotelier, Rob Hornman secured his first General Manager position in Jakarta at age 28.

After managing his first hotel for ACCOR, he held various positions, including Vice President Sales & Marketing – Asia; Vice President Global Sales and Business Development at the ACCOR head office in Paris; and Managing Director of Accor Dorint SMARD GmbH in Germany. His last position at ACCOR was Vice President SOFITEL for Central Europe and Eastern Countries.

In 2008, Rob joined Worldhotels, an exclusive global group of then 500 independent upscale and luxury hotels. He was CEO and Managing Director at Worldhotels till mid-2014.

Since 2014 Rob has held various board and advisory positions in Hotel and Hospitality technology related businesses as well as start-ups.

He is co-founder and Chairman of ‘The Hotel Agency’, an agency specialized in value creation for mid-size hotel groups through creation of digital and physical brand concepts.

Rob is Member of the Supervisory Board and senior advisor to Groupe Azalaï Hotels – the first African private hotel chain in West Africa.

Also Rob is Product evangelist and advisor of conichi. conichi is The Hotel App that connects guests and hotels and helps ease the time-consuming elements of hotel check-in and check-out for business travelers.

Finally Rob has co-founded ‘Talisman-Solutions’ a Portuguese company that uniquely specializes in Hotel Development, Turn-Key hotel construction, interior fit-out and decoration.

Rob holds a close relationship with École Hôtelière de Lausanne, where he was member of the International Advisory Board from 2013 till 2015. Meanwhile he is also acting as facilitator for some of the Lausanne executive training programs.

Rob Hornman is a Dutch national, lives in Cascais near Lisbon, Portugal with his wife and three children.