by Georges Panayotis
According to Machiavelli, there are two major motives that make men act: fear and innovation. Today, hoteliers are living up to the rule. As new concepts abound, traditional players have entered a veritable competition to integrate (and take over) innovations launched by innovative start-ups. And this is good since the practices of yesteryear are no longer. It is not a reform, it is a revolution, one that is cultural and affecting the economic model, and it will have to be accomplished by all the actors without exception.
The hotel industry has experienced several blows in recent years: while the finance industry impoverished it with cash extraction and rate increases that degraded its competitiveness, digital technology gnawed away at its margins… and then the sharing economy put the very core of its offer in question by offering accommodations to overnight visitors. The sector shown with a thousand lights, and attracted predators like a light bulb attracts moths. Where there is a herd, there will be shearers and those that eat the herd, said Bakounine…
And yet, it is necessary to accept the idea that innovation may come from external sources. After all, the start-ups and new technology giants that have upset the industry do no less than what Conrad Hilton and John Willard Marriott accomplished in the United States and the Dubrule and Pélisson team did in Europe when they launched hotel chains.
In order to move forward, hoteliers need to make way for innovation driven by new players. In the automobile sector, where technological disruption (Tesla) and changing habits (Uber, Lyft…) are also very strong, traditional actors no longer hesitate to change their business models: Volvo will only develop electric or hybrid vehicles, BMW is partnering with Intel and Fiat Chrysler to develop autonomous vehicles… With the enormous sums at stake to absorb technological developments, and considering the end consumer's interest in having compatible systems, automobile groups are quick to gather around shared platforms. It may be necessary one day for hotel groups to also stop staring icily at one another, while they scream bloody murder at Airbnb, Booking and other innovators.
It will also be important for them to recognize that boundaries between different sectors of activity have become obsolete. When Amazon buys Whole Foods, Ford develops a prototype for a baby bed that rocks newborns to imitate a ride in the car, it is because their technologies and their respective know-how offer them a capacity to innovate and legitimacy in areas that may be new, but fit their DNA. Innovation has become transversal. This means that tomorrow’s competitors will surely hail from other sectors.
The first challenge is to maintain a strong position and values. “Fruit and nothing else”, says the slogan of a successful fruit juice brand… Indeed, while price and location were key to yesterday’s success stories, the product must also play an important role in the strategy.
Since increasing their prices to serve financiers and digital players while salvaging their operating accounts, hoteliers have sacrificed their competitiveness. Who suffered? Consumers first, then (when they rebelled) small franchise owners and hotel personnel, and tomorrow the government once the industry has completed the necessary restructuring –and job destruction inherent to such restructuring. Disinflation, and in some cases deflation, is the only option.
Within this context very few strategies are truly winning. A first, indispensable one, will be to launch new concepts with an attractive quality price ratio to freshen the supply. Another strategy will be to invest heavily to modernize non-competitive assets and put them back on the market. The real question is who will finance that, but that’s another matter.
Finally, there is a third option: take advantage of “nearly zero marginal cost” that has been theorized by Jeremy Rifkin, this innovation doesn’t cost more to produce since it is already developed. Is that enough to rent out a room once a day (or night, in our business)? Aren’t some travelers ready to share a room under certain conditions (think of the credo of Joe Gebbia, cofounder of Airbnb: “design for trust”)? Is the room’s space or that of the common areas (working and F&B areas) used efficiently, particularly outside sleeping hours? Remember: from Uber to Airbnb including new players, all great successes in the sharing economy were built on untapped existing customer bases, extracted from consumer habits in the old economy. The wealth of tomorrow will rise out of the best use of today’s assets.
The good news is that everyone can innovate, from the biggest global groups to the smallest independent hotel in the middle of the desert. There is always a fount somewhere …
