Targeting Gen Z: A recession proof demographic for Hotels?

In June 2022, Generator and Freeland Hotels announced its highest ever quarterly profits recorded in Q2, after seeing an 11% year-on-year increase in profitability Q2 2022 versus Q2 2019. The company heralded it as the group’s “most successful month ever” with almost 30% YoY growth in profit for the month alone, easing concerns surrounding the sector’s ability to bounce back post-pandemic.

The company points to its strong demographic base as a key reason for its success: Young travellers, part of the ‘Gen Z’ and ‘Millennial’ generations. More spontaneous, flexible and less anxious to travel in the midst of a pandemic, the demographic’s bounce-backability has led to Generator Hotels planning new expansion avenues, and diversifying its portfolio.

‘Recession-Proof’ demographic

Generator’s key demographic is young travellers looking for inexpensive and flexible accommodation, and it’s one that has been least affected by the numerous issues over the past few years, according to Alastair Thomann, CEO of Generator, who calls it relatively “recession-proof”.

Despite accepting that Generator “needs compression in the market” so that overall the hotel industry doesn’t suffer and enable it to achieve true peak rates, it has been protected to a certain degree by its normal clientele. As Thomann outlines, younger travellers were “less risk-averse” and keener to jump back onto planes as soon as travel restrictions allowed, while older travellers were more wary about a lingering threat of covid, despite travel channels being open.

Thomann noted that, for Generator, “as long as there were no travel restrictions, we were running with really good occupancy rates, which showed how resilient the business model is. It’s a great demographic to work in, even in bad times, and now that restrictions have eased, we are seeing the best ever July”. Its EBITA for the month was 60% higher than July 2019.

While they have had to raise levels of accommodation rates and food and beverage costs due to inflation, at the moment Thomann says that it hasn’t made much of a difference, if any, to booking rates.

Shifting patterns

However, Generator has also sought to diversify its portfolio, aiming to take advantage of a greater range of travellers looking for cheaper options.

The biggest change Thomann outlines is with families; While budget friendly options traditionally appealed to younger travellers, he notes that families have increasingly seen the benefit of more budget friendly options for a base during city breaks. “If they’re going to Amsterdam for a weekend break, two rooms in a three or four star hotel in Amsterdam this summer is about £500 a night. With us, they can have a private room for £300,” he says.

One potential dilemma that might arise from integrating younger, more sociable travellers with families in the same building is creating an atmosphere that satisfies customers looking for entirely different experiences, however Thomann notes that, while it was an initial pressing concern at Generator, thus far it hasn’t been an issue. He says: “The interesting thing is there is actually a very natural solution to that – they operate on different schedules. Families are up and back earlier, and there’s very little crossover between the different demographics.”

Another change is in the single traveller demographic, which Thomann says Generator has seen a “slightly lower percentage of, probably as a result of the pandemic”. He notes that the solo traveller market has shifted into small groups of two to four, a factor influenced by the fact that travellers “haven’t been able to travel together or see each other for a couple of years”.

However, one area Thomann is keen to move away from is the long-term guest. Airbnb CEO Brian Chesky said that the number of long-term stays (over 28 days) doubled in the first quarter of 2022 compared to 2019, and the company has recently introduced an “I’m Flexible” search functionality aimed for travellers with more flexible office schedules. While Generator has space for remote workers, longer-term stays mean slightly lower rates, and Thomann says it has “pretty much gone back to the way things were before the pandemic”, targeting last minute bookers who will pay premium rates.

The future for Generator is “ all about growth”, Thomann says, but it’s not just growth going forward by the company buying its own real estate, as it has done traditionally. It is now also focusing on managing third party owners. It will now offer management contracts, franchises, licensing deals in the next couple of weeks and months, and has plans to announce its second management agreement for property in Europe.

It will follow the acquisition of the Freehand hotel brand, and Thomann expects the company’s asset light strategy will enable the company to expand “a lot quicker” and establish Generator as a third-party operator.