NYU Hospitality investment conference: The Boutique Bonanza

Cautious optimism was the mood amongst boutique and lifestyle hoteliers at the 38th Annual NYU International Hospitality Investment Conference.

Moderator Philip Gordon, Partner, Perkins and Cole was joined by panellists: Mike DeFrino, CEO, Kimpton Hotels and Resorts; Niki Leondakis, CEO, Commune Hotels and Resorts;  Joseph Long, Managing Partner, KHP Capital Partners; Jay Shah, CEO, Hersha Hospitality Trust and Jay Stein, CEO, DREAM Hotel Group.

The panel explored the future of lifestyle hotels and boutiques: How much room is there for these types of experiences? Can smaller brands differentiate themselves in the marketplace? Can owners (and their lenders) continue to gain traction with boutiques versus main- stream brands?

Despite oversupply conditions affecting London, New York and Miami the general consensus was the boutique and lifestyle hotel sector is in generally good shape, and panellists turned their attention to growth opportunities.

Guest Acquisition,  Psychographics, Pricing and Design

Shah outlining three reasons as to why guest acquisition is “beyond demographics, with fundamental changes happening to drive independent hotels and boutique lifestyle hotels, namely:

Cost of acquisition has come way down, requiring only a modest investment to drive share.

Consumer taste and preferences are changing with millennial thinking being front and foremost as a part of our culture.

Increased transparency with the likes of Trip Advisor means the average consumer can within a few strokes get a clear understanding on what their peers think of the hotel.

“It’s not all about targeting Millennials” continued Shah, “they are renouned for great taste, high expectations but no money. They travel more, are more value sensitive and demand elastic.”

Don’t count out the baby boomer, they are responsible for around 60% of US wealth and 40% transaction void and demonstrate a frequently less but longer length of stay.

Asked to define the Kimpton boutique and lifestyle hotel guest and approach to pricing, DeFrino said they craved “adventure, spirit, exhuberence with a sense of style, we’re experiencing a change in attitude which crosses generations. People don’t price us into a box, and we can flex with the market very easily.”

Leondakis said knowing your guest and target market is key. “The consumer is getting more sophiticated, and an ‘authentically local’ approach is not enough. Differentiation is challenging due to replication, and execution is key.” Picking up on the differentiation point, Shah said “the hotel sector is getting closer together on look, citing the Courtyard and Garden Inn as examples of two brands becoming closer to the boutique and lifestyle sector by design.


Loyalty dilemma, guest engagement and ‘soft brands’

Panellists outlined their thoughts as to why the boutique and lifestyle hotel sector is experiencing exponential growth: “Leisure is urban. The counter punch is that the big brands can allocate more to research and development” said Shah touching on the impact the main hotel companies had on launching boutique and lifestyle hard and soft brands. ” Loyalty will continue to drive market share” he said.

Stein said the boutique and lifestyle hotel industry had been slow to get up to pace but felt there was plenty of growth remaining for bespoke and more nimble operations like DREAM hotels, “it started with Ian Schrager and was stylised and authentic. Big brands won’t be able to replicate this. Loyalty is diminshing for big brands, points are secondary, we won’t have critical mass.” Defrino felt the price premium the sector achieves will continue as ” people don’t price us into a box, and we can flex with the market very easily”

“The ‘soft’ collection brands are inconsistent in service and expectation, hotel owners should consider whether the incremental distribution gained would be worth the cost of affiliation” said Shah.

Owner perspective and cross border activity

Long gave an owners perspective, ” we think it’s a good business plan (the boutique and lifestyle hotel) but we’re not sure. Although when a downturn does arrive, the brands are not as safe as previous recessions. You have to consider whether developers and operators will be able to deliver on the promise they make.”

The conversation moved on to cross border expansion challenges and opportunities with Leondakis quick to highlight cultural differences, having recently announced overseas expansion plans.

“In third world countries, training with a focus on hygiene is so important, we buy staff their first pair of shoes and ensure a quality staff housing component, there’s a focus on education and how staff communicate with guests. Consideration for staff spiritual beliefs is very important, as is taking care and support within the community.”

From a transaction perspective, Long said “there’s considerable friction cost and there’s admin tax for overseas deals – it’s harder. If you do it, you need a 30 year vision to ensure economical viability and that it’s efficient and effective – it’s more a hobby, than business plan. However, the boutique and lifestyle hotel sector has as much opportunity with lenders and instituitional investors, as other hotel categories.”

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