Is the hotel sector broken?

Manfred Abraham, CEO

 

BrandCap CEO, Manfred Abraham, shares his insights into the shape of the hotel sector, what to focus on and where the industry is set to go.

Is the hotel sector broken?

It depends what segment we are looking at. But, in the main, no, it isn’t. The lifestyle market is thriving; the luxury sector is growing and the budget segment is also performing well. It’s the mid-level offering that is having difficulties however. This is because typically hotels in this market are bland and undifferentiated. Their brands don’t stand for anything and their pricing is unremarkable. It is a myth that hotels are a service industry. Today they are in the experience business. If they don’t provide an experience they fail on every level.

Everyone talks about Airbnb and short let websites as the hotel killer is this a little over dramatic?

Yes it is. There is room in the market for both. At the end of the day, short-lets have existed forever, as have traditional B&Bs. The key is the customer. Some customers actively want a hotel and all the amenities it provides. For instance, legendary New York hotelier Ian Schrager has unveiled Public, a hotel concept designed to counter the threat of Airbnb. With its 367 guest rooms, interior designed apartments, two restaurants, three bars, rooftop terrace and multimedia performance space that can be configured for film screenings, theatre performances, talks, readings, art exhibitions and dance parties it’s no surprise it is being vaunted as the ‘Airbnb killer’. The concept redefines luxury. It’s no longer about how much something costs but how it makes the customer feel. The hotel has removed costs that are superfluous like room service and bell hops and passed these savings onto the customer and added the things that are important to today’s hotel guest.

What is important to today’s hotel customers?

It’s all down to the experience. One of the reasons for Airbnb’s success was its early positioning of enabling its guests to live like a local. Many hotels in comparison couldn’t compete as they were seen as culture killers. You walk through the doors of a hotel into an identikit lobby, which serves an international menu and caters specifically for its guest. But this is now changing. Hotels are recognising that guests don’t necessarily want to be cosseted from the outside world and are therefore encouraging the locals in. Take The Hoxton in Shoreditch, people that live and work in the area regularly frequent the bar and restaurant meaning that hotel guests don’t just get to feel like they are part of the local scene, they genuinely are. Moreover, the forces of geodemographics – ‘birds of a feather flocking together’ – means that these social spaces become a meeting place for like-minded people and the hotel curates this.

There are no second chances in today’s hospitality market. There is so much pressure on guests to have a good time whether travelling for business or pleasure due to their busy and stressful lives, this means that hotels that disappoint will lose that customer forever. This is why the lifestyle offering is booming as hotels can tailor their offering and frame their brand to their guests. For instance when Firmdale Hotel opened its Crosby Street, New York location its ADR was $260 its now $1,000 (Forbes) and there is never a room unoccupied. Part of the reason for this was its positioning to appeal to the film industry and West Coast visitors which included building a cinema which is now used for private screenings and Premiers. It is now the place to be for anyone in the film industry. 

The issue for hotels is that it’s an expensive business to be in. The capital costs are immense and the operating costs are pretty eye watering too. Therefore, when times are tight, the temptation is to cut corners to reduce costs. Hotel brand, Public, has been strategic in reducing its overheads rather than focusing on the things that really matter. For example I recently stayed in a hotel that had an inordinate amount of grubby marks on the walls – probably where guests had accidentally scraped their cases. Ordinarily these marks are painted out on a regular basis but to save money the hotel had halved its maintenance team. This left the hotel feeling shabby and cheap and I won’t stay there again. The mantra is therefore to cut slack but not corners.

If you had to sum up the most important considerations for hotels today what would they be?

Taking a forensic approach to the customer, framing the brand around the guest and not cutting corners.