by Georges Panayotis
The hotel industry has come to an important turning point in its evolution. It is both a sign of its maturity and that of a necessity to reexamine itself. In each of the trades that constitute the foundation of the hotel economy: Development, Management, Marketing, Distribution and Finance, traditional hotel groups are now working with –challenged by?– powerful partners that limit their maneuvering capability and make them compromise.
At the same time, newcomers to the industry rise up with a dynamism and boldness that challenge established businesses. Obliged to control all trades at once, these start-ups progress in a coherent manner by sticking to the needs of current clientele, but, nonetheless, do not have the strength needed to go global. The two models live side by side with their own issues for survival and development. Between restructuring and adapting to market conditions, the mutation is underway with enormous challenges to be faced and strategic choices that must be made that are key to the future.
The American way of separating businesses has been embraced by the majority of hotel groups, or at least those leading the race. The asset light strategy, driven by will -obligation?- to increase results distributed to shareholders, led to a generalized form of externalization of essential trades. Hotel asset management lies in the hands of real estate and property investment funds, REITs that assume the risk of major investments and the burden of the Capex, but naturally demand return on their investment and stronger control over management. Financing has changed hands and the golden rule of the payer is impacting decisions. The same logic encourages relying on franchisees to develop brands and guarantee daily management of properties. But hotel groups no longer deal only with individual entrepreneurs, who are loyal to a brand; now they are faced with structured interlocutors who are adept at multiple contracts, have large teams and juggle the brands of competing groups. Financial interests matter more than emotional ties.
In addition, the favorite turfs of hotel groups, brand marketing and distribution, are also challenged by unavoidable partners. Search and comparison engines, e-reputation managers, and more generally all the new players in the digital economy have more impact on brand perception than communication campaigns and marketing operations that are limited by groups’ weak budgets. Hotel CRMs race behind the innovations of these giants of the Net to not be outdistanced. After an arms race attempt through technological innovations, relations between hotel groups and OTAs are now moving towards non-aggression agreements and commercial arrangements. In the name of multichannel distribution, each tries to establish their territory and justify their added value with regard to hoteliers who connect to the pipelines.
At this point in the cycle of our industry, hotel groups need to find space and validate their growth model. The first way is to set power against power and lead a new restructuring phase at the top of the ranking of global groups. The recurring rumors about mergers and OPAs are fed by financial strategists who count on new economies of scale to gain a few points in their gross margin. The other option is to combine the dynamism of the newcomers with the experience of well-established corporations around the world. They are able to bring new energy and revive the pioneering spirit, facilitate connections to new generations. Groups, meanwhile, can provide access to countries and partners that are otherwise difficult to reach without proven experience.
The months to come will show which direction is preferred or if several are being kept at the ready. The next Global Lodging Forum on April 13 and 14 in Paris will raise these questions and associate actors from across the generations, to compare their visions of change.
