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Modern Hotel Asset Management, Part 2: How The Internet Has Transformed Hotels

June 12, 2016
Alex Slors

Recently we spoke with Alex Slors, a renowned asset management consultant, known for his keen ability to help hotels better manage the relationships between owner, operator, and hotel staff. In part one of our asset managment series, which you can read here, Alex explained what it's like to be an Asset Manager in the hospitality wold today. The fact that technology has changed his line of work and the industry at large seemed to be a common thread in the article. So we asked Alex to explain his thoughts on that in further detail. Just how has technology transformed the hospitality industry from the perspective of a seasoned Asset Manager? Read below to find out.

The internet has revolutionized the hotel industry.

To understand how technology, the internet, and data have transformed the hospitality industry, we need to understand in what ways these things became important. And at the crux of all of it is data.

Data is very important, really, because good decisions are based on data. The seismic shift that's taken place in our industry over the last twenty years has happened because the internet has made pricing essentially as good as transparent. Before, as a hoteliers I could easily say, “You're my friend, I'll give you a ten percent discount off rack rate,” which really meant that I'd still give you a high rate but you'd feel like you got a discount. Today, all of that is gone thanks to online travel agents and metasearch. You can see based on supply and demand what the best available rates are in the market.

At the same time, technology has become a lot cheaper. You don't necessarily need a large hotel management company to get decent access to global distribution systems anymore. There are specialists and products that can help a hotel in a more cost effective way. They know how you can market and distribute a hotel effectively via the internet. So what you see in North America and in Western Europe is that the value of a large brand like Sheraton, Hilton, or Marriott has significantly diminished. As a result of transparent distribution, access to data is easier for all bookers and this in turn has had an impact on the value of loyalty schemes. That's why you see companies like citizenM and 25hours aggressively entering the market with very limited overheads and small but effective head offices. Legacy hotel managers are dealing with legacy systems and a workforce that was structured 15 years ago. The new guys on the block achieve similar occupancies and average rates in a product that is smaller and cheaper to build. This is a seismic shift in our industry.

So the data is available to the market, and people are better enabled to make decisions for themselves. As such you see that the large operators are becoming increasingly nervous because they know that the days of signing a management agreement for twenty-five years, which is somewhat favourable to them, are gone.

From a hotel perspective, it’s now important to ask: “How am I going to adapt to this?” And this is where we are at the moment.

Saying all of that, it is important to note that in the less developed markets of Africa, Eastern Europe, and large parts of Asia, a brand can still add material value: systems and distribution are not yet at levels we encounter in Western Europe and North America, loyalty can still go a long way, and the quality of management and work force is not at required levels. Interestingly enough, you can see in parts of the Middle East a shift towards more franchisisng and a growing interest in newer brands and formats.

What major brands are doing right and what they’re doing wrong.

One way major brands are attempting to adjust to these changes is by creating so-called “collections”– alternatively branded hotels that target specific demographics in certain markets without significant requirements for brand standards. Accor went a step further by accepting individual properties into their distribution system, which is a good move. The large brands are indeed well aware of the trends but, to date, have not yet come up with models that are in direct competition with newer brands.

A major issue here is that when you sign a management agreement, you sign for an average of twenty-five years. That’s longer than the average marriage lasts! At the same time, an owner or investor must commit to brand standards set by a company that is not always aware of local requirements and what makes commercial sense. Similarly, you will have to pay for a global marketing system that doesn't always benefit your property.

As an example, several years ago, I was looking after two-thousand bedrooms in Paris during a very challenging eceonomic period. The brand standard was fifty milliliter of shampoo, conditioner, and body wash. Fifty milliliter is certainly not cost effective, and at an occupancy of 80% where rates were the challenge, we were losing one euro per-room, per-night. Anyone can do the maths! Hotel valuations are based on Net Operating Income so we were seeing direct impact in our valuations. Unfortunately, the brand was not willing to move until much later, which directly impacted our results.

Recent tech growth is changing relationships between owner, operator, and staff.

As a result of the changes mentioned above, we are slowly seeing more flexibility from the large hotel management companies. This is very welcome and evens the playing field, benefitting all parties involved. Franchises are slowly becoming the norm and this creates all kinds of new opportunities. White label management (where there are separate franchisors and operators hired by an owner) can also add value if utilized correctly.

Talking about tech related matters, I should note that IT platforms need to be adapted to modern times as well. Cloud-based technologies are only slowly coming into the industry and "software as a service (SAAS)" concepts are also a long way behind, compared to other industries. Once again certain large companies have developed their own systems which are compulsory for each hotel. These are driven by a status quo set around fifteen years ago and are very costly and not as flexible as many newer cloud-based SAAS products. I recall an IT executive at a large hotel company who stated that they needed to sign more franchises and management agreements in order to justify the platform. Wouldn’t it make more sense to let everyone do what they are set out to do and hire experts just when required?

Hotels must adapt quickly to stay up-to-speed.

Last year I worked with a major hotel company who were very excited about their Facebook page. They must have gone through a myriad of management and vice presidents who all said, “We've got to be on Facebook!” So they decided to go on a major Facebook campaign. But by the time they got there, the target market for Facebook had essentially moved to Snapchat and Instagram.

If you compare that to a smaller modern company, they're often sitting in one building with a handful of people and are very fast at making decisions, adapting to the market, and can aggressively compete with any major brand directly within their competitive set.

Today the traditional big-brand businesses often end up being this very slow-moving, top-down machine where people don't really understand what's happening in real-time.

Data is the key.

Data is the key factor in all of this. It's why the more forward-thinking companies are getting an edge, and why the slower-to-act traditional brands are being challenged and even getting left behind.

The tables are turning and if you want to maximize on an opportunity, you've got to be on top of what's happening in your market today. Organize your data, understand what's happening in real-time, and be able to act with agility and knowledge.

Otherwise, you may just get left in dust.