Moving together at times of Social Distancing
At this point in time the entire industry is, quite rightly, focusing on how to mitigate the damage to all the stakeholders, but most importantly, those whose livelihood depend on a functioning hospitality industry.
On this note, it has been reassuring that we are moving together - socially, politically and emotionally - to overcome this common threat: strangely at a time, though, when the steps are taken to combat the virus - isolation - are the polar opposite to what the industry stands for.
Empirical Strength at times of Great Stress:
There are historical examples that show how events of similar or greater magnitude than the present COVID-19 Virus have had some of the most creative innovations resulting from them. Such events that tend to put an enormous demand upon a nation's resources, that include everything from materials to civil society to military personnel, can also have beneficial effects on economic and technological development. In general, such disruptors tend to accelerate technological development to adapt tools to solve specific (military) needs. Later, these military tools may evolve into non-military devices. Good examples are the Space Race to the moon or the radar. It would take a cynic to suggest that we owe all our inspiration to conflicts with other people or black swan events. Our world would look very different had we never waged war, but the lack of conflict wouldn't necessarily result in a lack of inspiration. Presently we are again living in a time to takes great mines to solve issues that concern us. One such concern relevant to our industry is how we can better protect our people and our investments. For the avoidance of any misunderstanding, no measure would entirely protect our industry in case of an event like COVID-19 recurring. However, we can strive for it to have a lesser impact on many levels.
Food for Thought
In this column, I endeavor to do the impossible and try to drag your thoughts into the future with the objective to protect the very people who make up the industry.
Most protagonists in our industry do sign up to the idea that technology has to be taken on more broadly to enhance improve the service aspect, to develop guest experiences for the guests and subsequently protect the team members on the front who make it all come to life. However with the adaptation of a business model, that has virtually remained the same for over hundred years, the roles of these team members have to change now. A serious adoption of the present environment is overdue.
Refocus the industry – or align the Hospitality with the Present
Regardless what industry we turn to every single one is striving to achieve the following:
- high customer service
- high entertainment and experience factor
- a high value of orientation and convenience
Although there is general acceptance that data drives the ability to provide superior customer experience, it is the employees who drive the experience.
"TE" versus "TMD": Technologies Enable – Team Members Deliver
A study produced by PWC states the following: "Technology can't solve experience problems. It's only an enabler. Realign your priorities. Great employee experience leads to stronger, smarter, more innovative ideas. These will drive future business and superb customer experience."
The hotel is a theatre – a stage
For the hotel industry that means a monumental shift in approach to technology and how we chose our team members: As technology does all the hard work, the team members often represent catalyst, who makes the experience come to life. Some hotel operators have already moved away from the traditional interviewing process but are staging audition – exposing prospective team members to typical scenarios in a hotel operation. The operations manager of one particular operator told me that the first interview is always getting to know session without the potential misleading knowledge of the professional background. In the first instance the hiring of talent is a check of personality without having seen any CV or biography beforehand.
Speed – Convenience - Knowledge
It is not surprising that a study carried out by PWC suggests that consumers say that
- Knowledgeable help and
- Friendly service
are the most critical elements of positive customer experience. Prioritise technologies that provide these benefits rather than adopting new technologies for the sake of being cutting edge.
Seamless & Personalised
For the hotel experience in the hotel and or the Food & Beverage Offering that may mean:
- Seamless reservation,
- seamless check-in,
- seamless check-out,
- personalised welcome in the room rather than "Welcome Mr. Smith" or a standardised static image that portrays the company rather than the guest.
- team members that are trained to communicate pro-actively rather than experts on Property Management Systems or an armada of highly qualified chefs and bartenders who might be a liability because of the product being synonymous with these team members
- to make the hotel more than a sole place to stay consider
- the hotel as a place for a retail experience
- beyond the one-time guest stay of 1,5 days but identifying new tribes as a following by creating
- Similar to the availability of rooms and the location, the right service offer.
- The service offer that becomes a key criterion
- and lack of service is not only perceived as unfavorable but is considered an exclusion criterion. After all, you can buy almost any product online. Exclusive feel-good offers are, therefore, becoming more and more attractive.
Proximity to our guests over Location, Location, Location
Creating closeness, urban planning as well as socio-cultural embedding in the environment, will be more decisive in the future than pure centrality. To this extend, location is no longer everything. In essence, proximity to our guests in terms of mindset and experience becomes the differentiating factor: we also need to interact with the local community on different levels to stand out from the crowd.
Taking advantage of the fact that consumer temples become lifestyle hubs, the quality of the experience/stay can be improved by developing hybrid concepts with a mix of retail, gastro, entertainment, education, and health services – keep in mind: all of it is technology in enabled!
ESG - Black Swan - Opportunities
Considering that some hotel operators have offered their facilities to temporarily be used as make shift hospitals and state officials have officially ordered hotel operators to provide their beds and rooms during the ongoing COVID-19 crises, there might be a value add to goes far beyond any financial implications, taking into consideration ESG (Environmental, Social and Governance) on board of any concept design.
“All in One”: Forward Thinking – Guest Experience – Lean Operation – ESG – Risk Averse – Greater Returns
Finally, there is the aspect of the financial viability of all the above. Arguably the initial investment/development cost for technological infrastructure will be higher than a traditional hotel. But considering that most of the above essentially requires the infrastructure from the outset rather than having to continuously upgrade as new aspects of services evolve, the asset will enjoy a more significant appreciation relevant to its competitive set. This value will come through
- Greater guest experience that will demand premiums on the ADR.
- Higher level of guest satisfaction resulting into more direct reservations and greater conversion rate
- Increase revenues through incremental sales of services previously not available.
- Greater satisfaction of team members that directly relates to less fluctuation.
- less future CAPEX.
More technology will inevitably yield a higher level of guest satisfaction, creating a USP and provides for more flexible manpower, increased revenues (both traditional as well as incremental revenues) less payroll and operational costs.
Evidence for higher then industry standard returns
There are some example in the marketplace, such as Motel One, Premier Inn and Ruby, CitizenM, that have adapted some of the aspects above and that have produced considerably higher returns than their pears.
A desktop study that was carried out amongst full-service hotels at similar ADR levels however 60% Room Revenue contribution to Total Revenue versus 80% Room Revenue Contribution of a Limited Service Hotel in the same market place that has equally stressed the RevPAR of both asset types have shown completely different bottom-line effects.
Although Room Revenues are similar the total topline of the Full-Service Hotel naturally exceeds the Total Revenue of a Limited Service Hotel by some 25%. And this ratio remains appr. The same in times of stress.
At EBITDAR level all of this superior income stream is diminished because the obvious higher Food and Beverage Costs and other costs of sales related effects. Further there are a number of other fees that are generally based on Total Revenue that impact the EBITDAR and that are generally disregarded as an essential Cost factor: Sales and Marketing Contributions, Royalty Fees, Base Fee, Incentive Fee and FF&E.
As a result the bottom line in both operational models is almost similar at best of times. At times of stress these full-service hotels have displayed a considerable greater degree of vulnerability.
Although it is early days some numbers in London would suggest that a contraction in RevPAR 9,7% in February 2020 compared with 2019 has only effected the GOP Percentage decrease of 290 basis points.
There is a general consensus that the world will not be same once COVID-19 is gone again. Let us take this opportunity - following an exogenous shock - to take monumental steps, question decade long practices and stigma and eventually rise to the occasion by implementing steps to permanently to ensure the proximity to our guests, providing outstanding experience, employing versatile team members, enhancing the returns of our operations and as such becoming more resilient at times of crises.
Theodor Kubak, is head of hospitality, Arbireo Capital and is a founding member and served as the first president of the Hospitality Asset Manager Association, where he still serves on the board.