Michael Driedger, CEO at Operto, explains why scaling back services and using technology wisely is critical for the recovery of hotels.
I’m a huge fan of history. There is so much to be learned about what is ahead by looking at the past. During the past two recessions (after 9/11 and after the financial crisis), luxury brands were hit the hardest and limited service segments fared much better. Resort and airport hotels were affected significantly, while interstate and small town hotels performed better. In the US in fact, Interstate hotels didn’t post a 12 month RevPAR decline following 9/11, but instead a 0.7 per cent growth rate.
It would seem that history is once again repeating itself. This time the landscape is more complex with new boutique hotel entrants playing a larger role in the accommodation landscape, and rates of technology adoption changing how fast some will recover compared to others.
Homesharing was born out of the last recession with Airbnb, which launched in 2008, proving that the travelling public was simply happy with a unique experience as long as it also had a clean toilet, shower and bed. These trimmed back basic amenities (which today includes wifi), have proven to be what has driven a growth in smaller units and more affordable unit economics in the lodging industry.
According to JLL’s Hotel Investment Outlook 2020, one of the big trends will be the rise of affordable lifestyle brands. Investors appreciate that smaller guest rooms allow such properties to be built in dense urban areas. This along with the sector’s appeal to both leisure and business travellers, and the emphasis on open lobbies, which tend to boost a property’s food and beverage income.
Yet food and beverage is a difficult proposition in the best of times. Even before the pandemic, having a restaurant is a tough specialised endeavor better left to experts in that arena. This is not usually hoteliers. According to an article in FSR, most restaurants only average 6.2 per cent profit. With such slim margins it is not so surprising that 80 per cent of restaurants don’t survive their first five years – even in normal times.
Boutique hotels have been well aware of the challenge of in-house dining for some time. Many new properties are being built without a restaurant component or removing their restaurants all together; it’s better to be located near good neighbourhood restaurants. Ryan Killeen, general manager of The Annex hotel in downtown Toronto, said: “For us it’s not a matter of reinventing the wheel. We know what we’re good at, and prefer to rely on the strengths of local experts for other services. We always partner with relevant providers in the city. For example Aunty Lucy’s is a pop-up burger joint that’s had tremendous success, so we just found them a home at The Annex. It is just a natural fit. It brings locals to a community-driven hotel but also ensures that we stay focused on what we are good at and brings in the most profit.”
Slimming back a model to the bare essentials and using technology wisely, is critical to the success of the hotels that will lead the recovery. The successful businesses will be 100 per cent focused on room cleanliness, remote and keyless guest check in and out and cleaning efficiency, with no thought to restaurant subsidy, spa booking, gym equipment or pool maintenance. These stripped back offerings are built for a quick recovery.
This summer, lakefront, beachfront and other destination locations have perhaps seen the greatest success. This has been true of North America and Europe.
However, it’s not accurate to say that only remote locations are faring well nor are they likely to lead the recovery. Cities have always been the lifeblood of economic growth and also of past recoveries. According to AirDNA cities like Philadelphia and my hometown of Vancouver are growing in bookings. So too are European destinations like Marseille and Rome. Select urban areas are likely to lead the recovery as they have in the past.
That’s not to say that providing a unique offering that has to rely on landmarks or natural wonders won’t result in higher occupancy rates, nightly rates and brand loyalty. Many players inside the newer apartment rental sector, and with models that already use contactless technology like keyless entry and remote check-in, have been seeing an increase in direct bookings and with new e-commerce partners. By partnering with Operto, Breakfast LLC in Hiroshima Japan has a greater than 40 per cent occupancy rate compared to the market average by offering a stripped back model and contactless entry while also focusing on local Japanese travellers booking through Rakuten. Mint House, another Operto partner, has kept their occupancy above 80 per cent throughout the pandemic in most of their key cities by offering “hotel amenities, with no contact”.
Kasita, a boutique hotel developer and operator is leveraging the increased number of consumers who now use digital channels by an an average of 20-25 per cent. While convenience helped with a shift to digital bookings, safety is now the main priority and will likely remain so. Almost 40 per cent of consumers expect to socially distance for more than six months, with 60.4 per cent expecting to retain changed behaviours by continuing to have less physical interaction after coming out of quarantine, according to Coresight Research.
If history does indeed repeat itself, and limited service hotels do lead the recovery, then many boutique operators are well situated. The lessons from the past are to focus on rooms, distribution and cleanliness. The lessons from the last few months are that you will also need to focus on providing something entirely new that wasn’t needed in past recoveries. That being a strong technology focus so that you can make guests feel comfortable in a new world where physical distancing will be preferred.
