Strategy vs Tactics
The HDE retuned this year for its second outing and is focused on the strategic hotel distribution rather than tactics. Preceded by Hot.E Hotel Investment Conference Europe on the previous two days, this well attended and highly informative event was an opportunity to “deep dive” into the all important area of (hotel) inventory distribution.
Billed as “where hoteliers debate technology strategy” the conference is organised by Andrew Sangster, editorial director of Hotel Analyst Group who opened the event declaring “we want to shake things up and encourage discussion”. Commenting on the reluctance some of the major brands to get involved in the discussion, Sangster added that the real challenge for operators is to avoid being left behind the curve in terms of hotel distribution technology, to engage in the OTA (online travel agent) debate and regain control of their inventory. The hot topic among delegates, the commoditisation of inventory, is a major issue for hoteliers whereby the OTAs have literally moved into this space as middlemen and captured an ever growing slice of profits to the detriment of the incumbent operators.
OTA profits double that of hotels (per room let)
The first presentation focused on the distribution revolution and the impact on the hotel business model which led nicely into “An investment banker speaks” aka Tim Ramskill, analyst at Credit Suisse who mused on the effect of the OTAs on distribution. He reminded delegates of his earlier publication in 2013 “The Distribution Revolution” which showed how OTA’s (Online Travel Agents) are generating more than twice as much profit per room sold compared to hotel companies. Ramskill added “we are experiencing a rapid pace of change” in the sector and he focussed on three main areas:
1. Growth of the OTA’s – Priceline has a 60% share of the market and is now valued at $62bn; IHG has been dwarfed by Priceline’s $2.2bn marketing spend of which $1.8bn is online, mostly Google. OTA revenue from rooms in 2009 was 1.5% but will be 4% by 2017 or 300 basis points of margin that has shifted from operators to OTAs
2. Critical success factors for hotels include ensuring websites are mobilised for mobile devices which sounds obvious but many are still not; IHG is still controlling its level of direct bookings but OTA’s are gaining traction
3. Who adds value? Brands or OTA’s? Branded v’s Independent RevPAR values track closely so there is no real difference and only 70 basis points in favour of Brands according to Ramskill; Interestingly the business model of an OTA is incredibly similar to an asset light hotel company in the industry and here is the most telling metric – $EBIT (earnings before interest and tax) per filled room (the profitability that each operator is able to generate is a measure of value added); hoteliers generate $2.80 for every room filled and OTA’s generate almost double at $5.40 which tells it own story – hoteliers’ profitability is rapidly being eroded by OTAs
4. So whats next? IHG’s strategic relationship with Amadeus and Accor’s push to challenge the digital divide is aimed at leveraging loyalty and CRM in the world of big data. Operators must leverage tech and mobile and quickly get a “mind set shift” away from RevPAR premium to CPA (cost per acquisition) and customer lifetime value. For example, Paddy Power (betting agents) can predict the lifetime value of a customer after just 2 bets +/-15% which is a staggering advance in the use of technology.
Hotel CEOs speak
Moving on to the DEBATE session, leading hotel group CEOs discussed the “challenges and disruptions being caused by new technology: linking distribution strategy directly with business strategy.” Moderated by Andrew Sangster, contributors were quizzed “just how far behind the curve are the groups in terms of technology?”
Duncan Berry, CEO Europe, Choice Hotels stated that Choice’s strategy is to convert to hotels to its appropriate hotels and that Choice is now making investment into switches and rate control and to make it easier drive RevPAR; Choice has invested in RapidBook a 3 click book process on mobile devices.
Frank Fiskers, CEO, Scandic Hotels opined that “digital reach” is vital in terms of engaging with customers. He added “OTA’s are customers as well as competitors”.
Beware of OTAs bearing gifts
Tim Ramskill, analyst, Credit Suisse admitted that he “struggles to find any friends with hotel brand loyalty”. Accor originally planned an aggressive approach to dealing with OTA’s but now its more of a partnership agreement and there is no other real way to deal with them. Sangster warned “Beware of OTA’s bearing gifts!” while Ramskill noted “hoteliers are toughening up and this leaves independents vulnerable and open to brand takeover”. He added “we will see more independents being converted to brands and that IHG will argue that owners will get cheaper access to OTA’s as brands can negotiate lower commissions”.
Bricks, Brawn & Brains
Sangster referred to the split between “Bricks (real estate), Brawn (Operators) and the Brains (brands)” and that investors are focussing on the quality of management and this should be factored into the valuation of any business. Hotel Analyst has a substantial quantum of research on the three “B’s” which is well worth reading.
The Internet of Things
In a hotel context, how are hotels employing the Internet of things? What can the technology add to business in the future? Simon L’anson, VP business development, Swisscom Hospitality Services posited “what is a thing?” and suggested its “something you can attach an IP to and extract data from”.
The internet of things has a tangible value (e.g. by marketing to hotel residents) and can be turned around to cover the cost of investment. Swisscom has installed a 700 unit residential trial in the water system sending information to users on usage: The benefits savings and reductions of 8,500 litres per year. Lanson concluded asking “how do we gather the info and what do we do with it?”. Hoteliers need to take note that technology can dramatically improve interaction & understanding with guests.
Katherine Doggrell moderated the following debate: Hype or substance: what is the potential impact of the internet of things on the hotel industry? Paul Squires, wireless manager, Hewlett Packard, Constantine Valhouli, principal, The Hammersmith Group and Paul West, CTO, Cardola all agreed (to varying degrees) that hoteliers and the brands need to up their (IT) game and quickly.
Reference was made to a trial at a theatre where patrons were asked to leave their mobile devices powered “on”; at the interval two random people were picked out that techies had hacked into their devices and could tell with a startlingly degree of accuracy about their profile, purchasing history and most scarily predict their future likes and dislikes based on data mined in the first act. Doggrell was horrified at this intrusion and vowed not to go back to the theatre anytime soon! Paddy Power eat your heart out; this takes “profiling” to a new level.
Piers Brown from Boutique Hotel News questioned loyalty in the context of Tesco reportedly planning to drop its loyalty scheme; What about budget hotel brands with no loyalty scheme that are doing well: Is loyalty dead? The panel responded that loyalty needs to be managed effectively for a return on investment and that reports of the demise of loyalty are premature.
Hard Talk: OTA under fire
Post lunch, an intermediary was put into the hot seat and asked to justify his existence. Rapid fire interrogation by Hotel Analyst Distribution & Technology’s journalist team sought to determine whether one specialist in mobile and last-minute is a friend or foe to the industry.
Marco Saio, country manager of HotelTonight (same day website booking app) was suitably barbecued/grilled by the HDE team commandos: He opened saying that HT is “laser focused” on same day distribution. Sangster retorted “is it not just commoditisation?”
Saio countered “No, its not – Hotel Tonight only works with selected hotels that want to work with HT; and they can book in less than 10 seconds in only two taps!” Katherine Doggrell and Peter O’Connor continued to put HT on the spot in quick fire succession. Sangster pressed “you are exploiting the hotel’s bad yield management?” in mock horror but Saio hit back stating “no, it’
O’Connor heaped on the pressure “so you buy the rooms for peak dates and you scalp the customer? …. or sell at an agreed rate?” Saio responded that they give 85% of profit over the original purchase price to the hotel. When asked why can’t hotels sell at higher prices than HT Saio responded “well then put up your rate higher and see which channel sells better!” in reference to the his assertion that HT always outsells the hotel’s website based on price.
Further sessions (too many to include here) included The battle for customer relationships in a SoLoMo world – What should hoteliers be doing to secure that they are in touch with their guests and are they being left behind by the latest developments and are they making the most of the latest tools? Moderated by Katherine Doggrell delegates heard how data mining of all guest information is key to driving increased personalisation of the business – guest needs should be centre stage for all we do. There is lots of information on our guests but this is not integrated and mined to give real valid touch points; information too silo’ed (that means one dimensional to the rest of us)!. The retail sector is way ahead of what we do in hospitality; just look at the ability of Walmart to know that someone in aisle 3 is looking for a product and how they send somebody to guide and help!
Distribution, Cost & Power
In a candid interview with Vivek Badrinath, Deputy CEO, Accor (with a technology background) about the threats and opportunities for existing hotel companies, Vivek identified three key issues for the business: Distribution; Complexity and Cost; Power and Energy and Resources. As an outsider to the business coming from an IT background he noted “web presence very important for all Accor properties working on local content through a defined template structure”.
Kudos to Andrew Sangster and his team for organising a highly entertaining and informative event matched with some OTA bashing and all round good networking! The next HDE conference takes please in the same venue on Sept 30, 2015 so put the date in your (electronic) diary.
Weldon Mather is an independent hotel asset manager and tourism consultant in the hotel, restaurant and pub sector. He works with clients in throughout the UK and Ireland including banks, owners and managers, receivers/administrators, liquidators and investors. Contact: www.wmconsultancy.eu