What is shaping the future of the hotel business

As I write this article, I’m pretty confident that never before have we seen so many relatively complex issues converging to create the current trading climate for those leading, owning or working in the hotel or hospitality business. Some 12 months post Covid, the changed market dynamics are a fascinating arena to witness and present a steady stream of near-constant choices, challenges, and I’m glad to say, opportunities when the right strategies are applied. It is to this end I’ve set out some of the most significant dynamics shaping the industry and where companies should focus to grow back with resilience and improved value. As good as it was to see the surge in bookings post Covid and the pent-up demand for travel, for many it was a huge commercial relief just to see business begin to revive; many are still coming back from the brink. It’s against this still relatively recent backdrop that changes and new forces are beginning to show themselves, which means it’s still not plain sailing for anyone. What has become apparent is that there are new trends and changed patterns of consumer behaviour that are shaping the future of the industry, and there’s still work to do to take advantage of the opportunities now present. The bottom line is that we are still in a period of strong transition and adaptation created by the three Cs - Covid, Climate Change and Cash, to quote Mark Carney. And along with these, our industry has some extra specific challenges to navigate, which the future of the hotel industry will be shaped around. These hotel industry extras feature widely in boardroom discussions right now. These are the consumer needs and behaviour changes, rising digital maturity, sustainability, and rising levels of competition and consolidation within travel and hospitality sectors. All are interlinked to some degree or another and are driving companies to develop new strategies across the sector. Sustainability Of all the factors driving change, the most prominent is a greater focus on sustainability. It’s here that consumer expectation is growing exponentially, and in our experience, those hotel businesses and brands that have invested in this area will win out time and time again. They have adopted a credible approach to sustainability across their end-to-end operations, marketing, pricing and customer experience. However, it’s not an area that can or should be entered into lightly and we strongly recommend an expert-led approach to businesses approaching this for the first time. Sustainability and responsible travel are fast becoming a must-have business initiative, so ensure that your approach not only reflects legislation, investor sentiments and reputations, but also considers customer needs and how brands can help guests make sustainable choices. Changing Patterns of Demand Factors impacting the profitability of every business are a bigger commercial priority for us all. How we price, sell and distribute our product is ever more complicated in the current climate. The underlying changes in these areas, how consumers buy and how the travel and hospitality industry operates, has forced competitors to change how they compete. For many, the rapid consolidation within the industry and the speed of branded supply growth has left some in a difficult position. Banks and investors are more confident in established brands and their less risky returns, which means net growth in hotel supply is almost 100% through branded compared to unbranded hotels. Whilst underlying growth in demand will continue over the next decade, the patterns of demand are fundamentally changing, creating new needs and opportunities for brands to disrupt and grow. In turn, consolidation of hotel brands by the largest hotel groups is changing the industry by intensifying competition and placing more pressure on pricing, marketing and differentiation. Consolidation and increased competition are also impacting independent hotel businesses and smaller brands, which have a sizable opportunity to be able to disrupt faster because they are more agile and closer to their customers. Those who act cleverly will be able to exploit gaps in the market to maintain their competitive edge. Staying Competitive Guest experience still sits centrally to this. Delivering an outstanding experience and service every time is what many must continue to focus on, particularly in upscale and luxury segments, where average rates have skyrocketed. Doing what you do really well, whilst embracing the advances in technology to delight the customer and your finance director, is key to success. improved and intuitive guest experiences are made possible by advances in technology, enabling systems and digital maturity from a supply and demand perspective. This will see a shift beyond marketing and distribution to impacting customer experience, enriching the proposition more, whilst also solving labour productivity challenges. We see investment continuing to accelerate in these areas. Niche and consistent investments that are planned and not opportunistic also present a chance for conscious growth and stability. By defining a smaller brand or independent hotel on satisfying a specific customer need or market, it is possible to create a secure footing as the brand focuses its resources on specific customer segments. Playing into the hands of the customer searching for the perfect stay or location presents a huge opportunity for the informed, data-led hotel marketer; never before have consumers been able to select stays with such confidence, using search tools to filter and to be specific. Location and price are now compared alongside personal ideals and priorities. In a few clicks, the market size, normally so big, is defined and condensed into a few choices. And so, despite the seismic forces of change in play right now, there are many opportunities for the bold and the data and customer-led. Play this well, continue to adapt, refine and improve the relevant areas of change identified above, and your business will see the return on investment of time, passion and money.

What is shaping the future of the hotel business

By Tim Davis, managing director of management consulting and research company PACE Dimensions

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