The hospitality industry experienced an historic pace of growth in the decade between the financial crash and the current pandemic era. Some would argue that we are in the midst of a secular industry decline, but it is far more likely what we have just experienced was actually a cyclical bottom for travel and tourism.
The hotel industry has a habit of going through significant 10-year cycles dating all the way back to the dawn of automotive travel. When we truly examine hospitality through that historical lens, there are many insights that can be gained and applied in today’s market conditions. Most importantly, we can observe the early market recovery story that is being revealed through big data.
Contributed by Pranav Bhakta and Edward Maynard, managing partners, Revelo Hospitality, Dallas, Texas
We have three predictions that will define the early market recovery in hospitality:
1. Biz-leisure was a growing category for the hospitality industry even before the pandemic. The number of remote workers in the United States has grown consistently over the last decade, but the COVID phenomenon has advanced the trend in ways that were impossible to predict. Recent studies have shown a large disparity of opinion for the future of working from home between CEO intent and the workers they employ. In a BPI survey, more than 80% of c-suite executives responded that they want everyone back in the office this year, while less than 20% of their staff agreed. That dynamic will likely lead to a compromise somewhere in the middle which tells us a hybrid work environment is the most likely outcome.
The biz-leisure hospitality category has been a beneficiary of the new normal in work conditions as keyboard warriors are looking to escape zoom fatigue by changing-up their scenery. The drive-to-leisure “rubber markets” will recover especially well as digital nomads are motivated to leave the home office to explore possibilities within driving range.
This begs the question about what type of product will these digital nomads want to stay at. The answer is Upper Midscale Boutique as a fast-growing segment to watch out for. Look for emerging independent brands, “no name soft brands” that are technology enabled taking root and growing regionally to nationally. Examples include The June Motel concept in Canada, digital marketing platform companies like 9th House and hidden gems like Skyview Motel Los Alamos, California. They also rely less on OTAs given their innovative digital marketing to convert direct bookings. In some cases, they are less than 10% reliant on OTAs for business.
2. Non-discretionary demand has been relatively insulated during the pandemic but still has significant room for early recovery, as well. Government, medical and military have remained critical contributors for this segment. Ensure segmentation is diversified in your business plan and rates offered are optimal for each segment. For example, know the government per diem that has been established for your local market and verify room rates for this segment do not exceed the government per diem.
The rapid evolution in consumer habits has also created a new paradigm regarding which industries are considered essential. Construction, manufacturing, logistics and warehousing operations have become a key stabilization factor for hospitality demand in many submarkets. In a recent New York Post article, a dire prediction was made that up to one-third of New York City hotels would fail to reopen post-pandemic. Even in primary markets like New York City, hotels with the ideal market positioning could expect to have a significant baseline of non-discretionary travel. That dynamic can be a powerful force by bridging the gap to a time when tourism and major business travel returns.
Pay particular attention to U.S. interstate transient demand across secondary and tertiary markets between larger primary MSAs (for example, markets like Blythe, California, between growing Phoenix MSA and Riverside and Los Angeles Counties).
3. Start-up mentality will be a necessity for hospitality leaders that are motivated to participate in the early market recovery. As we approached the pandemic era, hospitality values had reached what most considered to be hyper-inflated conditions. The cost-revenue models for many hotels had become distorted. The industry lost sight of which services were provided as a necessity, and what items only added ancillary value.
Early market recovery will be defined by innovation across all areas of hospitality operations. Innovative staffing models, renewed focus on technology such as kiosk check in and keyless entry, and flexibility in management style will create the agility needed to thrive. Innovative staffing for full-service hotels means breaking historical staffing roles and shifting the paradigm of traditional GSA, bellmen, doormen and concierges. Consider combining these roles into a single source role of an Ambassador that still provides services guests expect but with reduced personnel.
The hunger of an aggressive start-up mentality will be a driver of success for leaders seeking to participate in the early ramp to recovery. Winning RFP strategies will require a new level of creativity and finesse that was taken for granted at the end of the last cyclical boom. The data is showing that the industry has retained its traditional resilience, but it will take a new wave of innovation to define the hospitality opportunities of tomorrow. We all know the challenges of opening a new hotel, gaining market share, and thus, in recovery, we all must have the mindset of ramp to stabilization and regaining market share when the demand comes back. Be ahead of it and invest in digital transformation and marketing.
Although there are never any guarantees for the future, we can have a level of optimism about what the current patterns are revealing. While it is true that not every market will recover equally, it has become clear there will be meaningful opportunities in the year ahead.
Growing categories like biz-leisure combined with stabilizing demand boosters in the non-discretionary segment will generate the baseline needed to build upon. Leaders with an appetite for innovation and lean operations will benefit from stabilization of runway capital needed to thrive in the post-pandemic hospitality world.
The most important lesson that hospitality leaders should gain from big data during the pandemic is that successful strategy must be guided by more than past performance and instinct about the future; most importantly, it must be informed by what the market conditions are predicting.