by Giorgio Rondelli, Director

Every industry – the consumer sector leading the way – is going through seismic changes, brought about by technological advance, the new possibilities that the internet has opened up, as well as a shift of needs and wants for the increasingly powerful Millennial generation.

This new consumer is taking over older segments in terms of spend (in the US alone they wield about $1.3 trillion in annual buying power), whilst showcasing a new set of aspirations, tastes and lifestyles.

Technology has helped define the way they spend the money they have. They use their digital prowess to access online reviews, seek opinions within their digital tribes and compare prices. They also do not attach the same meaning to ownership as their predecessors did – opening the door for businesses like Spotify, Uber and Airbnb to disrupt their respective industries.

Millennials are less concerned about status and more interested in authenticity and originality.

According to Deloitte, more than half (56%) of European 18-34 year olds are turned off by big brand names. And with one in four stating their preference to spend money on experiences rather than products, they’re extremely discerning when choosing what they want: they look to be inspired, to discover something new, to be surprised and delighted along the way. Their influence in shaping the hospitality sector is huge and a cookie-cutter approach just won’t cut it.

So how is the industry responding?

We’ve already mentioned Airbnb. Its exponential growth is fuelled by the promise of allowing people to LIVE THERE, in other words experience the authenticity of a place living like a local instead of opting for the standardized hotel option. With 17 million travellers staying in Airbnb accommodations in the summer of 2015 (compared to 47,000 in 2010), the appeal is undeniable.

In the hotel world, the clear response to the Millennial mindset is the proliferation of boutique concepts – from the Edition Hotel by Ian Schrager to Soho House and 1 Hotels to name a few – which offer individual, immersive, well-designed and well-executed experiences that are increasingly more integrated with their locality. Experiences that have a clear point of view on lifestyle and therefore connect with their audiences on a deeper emotional level.

So what’s happening to the hotel giants?

Consolidation. Whilst M&A activity seems to be the antithesis of where the industry is going – for example in April the shareholders of Marriott and Starwood Hotels approved the tie-up of the two organisations creating the world’s largest hotel chain with 5,500 properties in the portfolio – the way it’s happening is not by swallowing acquired businesses into a monolithic brand, but rather expanding the number of individual brands sitting under the big parent brand (the aforementioned Edition is part of Marriott, for instance).

According to Skift, the world’s 10 largest hotel chains now offer a combined 113 brands at various price points, 31 of which didn’t exist a decade ago. And there’s no sign of this proliferation slowing down.

This approach allows the big players to use scale to mitigate against economic shocks and improve their bargaining power with online comparison sites (travel agents like and trivago can take up to 18 per cent commission), whilst at the same time appeal to an increasingly segmented audience with ever evolving tastes and desires.

So in today’s market it seems that hotel chains need to both grow and be small at the same time. The sweet spot between David and Goliath.

And this trend towards multiple brands means that portfolios are becoming increasingly complex and significantly more expensive to manage. Even more important, these widening portfolios still carry legacy brands, especially in the sub-premium segments, which offer a generic experience where at best the only differentiator is the number of boxes ticked in the list of facilities and services. Whilst this might work for some segments, it just won’t fly with the Millennial consumer.

Brand plays a key role in ensuring this new approach to building portfolios yields maximum returns in this new landscape. There are four specific areas of focus:

  1. Having multiple brands – with different equities – connected with a big group requires careful consideration in terms of not only the branding (how explicitly linked should all these brands be?) but also operationally – from the booking experience across different platforms all the way to how the economies of scale in running their operations translates into the consumer experience. Ultimately, the challenge is to ensure the big group adds equity to its brands that need it, without “polluting” the ones that don’t
  2. Growing the portfolio in the right way is also critical – which brands should you acquire? How are they complementary? Is there risk for cannibalisation? Brand becomes a crucial element in the analysis of each opportunity
  3. It is paramount that each brand has a clear point of view, which translates into a distinctive experience if it is to appeal to the Millennial generation. What lifestyle does it embody? Why is it appealing to them? How is it delivered across the entire experience?
  4. And finally, portfolio management is also a challenge at individual brand level. In an industry where big brands are increasingly more management companies than real estate players, having a clear concept that is widely understood across the business is key. It means there are higher chances of business development teams pitching the brand to the right property owners and signing up hotels that are fit for purpose, thus ensuring the customer experience stays consistently high and in keeping with expectations

With industry experts predicting a period of intense M&A activity in the hotel sector, stretching until at least 2020, branding decisions are going to be key to hoteliers. Success will come to those that have a razor-sharp focus on building portfolios of brands with clearly defined and complementary concepts that can appeal to the Millennials as well as maintain the connection with their existing consumer segments.