Where would we be without the wonderfully whimsical Kellyanne Conway? For one, the term “alternative fact” may never have entered the everyday lexicon. Thank god for Kellyanne Conway.
In the hospitality industry, customers today have a lot more alternatives than in years past. Alternatives in the way they book and the way they stay. One thing is certain: Though traditional lodging hasn’t been knocked off its perch, it’s sidestepping cannon fire left and right.
That’s because more and more hotel companies are being forced to reengineer product to fit not only a new generation of travelers, but a cultural shift in the way people consume—which is why good customer segmentation is so important today.
Alternative lodging is the Uber of the hospitality industry, and, like ride-sharing, more and more people are trying it out and sticking with it. Numbers suggest that in only around five years time, one in three travelers have now tried out what’s called alternative lodging—lodging other than what some of the large hotel companies offer, more akin to what you find on Airbnb or HomeAway or even a hostel (more on those later).
Make no mistake: Companies in the travel space see the long-term growth prospects of alternative lodging. There’s a reason Expedia paid close to $4 billion for home-sharing platform HomeAway and why Expedia CEO Dara Khosrowshahi has referred to it as fundamental to Expedia’s long-term success.
One of the most striking things I witnessed during the International Hotel Investment Forum, last week in Berlin, was the sheer enthusiasm felt toward alternative accommodations. Airbnb and the like have struck a collective nerve and—like the OTAs—there is no going back. The genie has been let out of the bottle!
What, then, is a hotel company to do? Succeed or fail miserably, from my vantage point, no hotel company is doing more to stay on trend than AccorHotels. The Paris-based hotel company, whose brands include Sofitel, ibis, Mercure, Novotel and now Fairmont, hasn’t just pivoted into the alternative-lodging space, it has dove right in the deep end. Its investments speak for itself: onefinestay (home-sharing), Travel Keys (rental brokerage), John Paul (digital concierge) and investments in boutique-and-millennial-minded brands 25hours Hotels and Mama Shelter. On top of the deals it’s made, it’s organically building brands that incorporate some element of alternative lodging, like its Jo&Joe brand, which seeks to blend private-rental, hostel and hotel formats.
Hostels? What might conjure backpackers on a dollar a day trekking through the European hinterlands is now becoming mainstream in popularity—to even those who have never dared share a room with a stranger. Consider Generator Hostels, a progenitor in the space that turned hostelry on its head design wise and was recently snapped up for €450 million by London-based real estate fund manager Queensgate Investments. It shows there is not only customer appeal for hostels, but also private equity and institutional appeal for the hostel business. “As the hostel sector is gaining momentum we see significant potential for investors to take advantage of this growing market,” noted Anna Eck, a senior consultant at Christie & Co. “Aside from the opportunity that the fragmented nature of the sector offers, the hostel business model presents an attractive growth and yield proposition, with good margins through significant volume and generally low costs… As the image of low rates is slowly changing, investors are increasingly attracted by hostels because the high bed-to-room occupancy rates and low margins generate good profits.”
Other brands, such as Zoku, which has been described as “Airbnb meets WeWork,” and Light Human, are just a few of a growing number of new hybrids that are plugging into the global demand for alternative accommodations.
Where does that leave other hotel companies? Will they, too, embrace cues from the alternative-lodging space? The seedlings are there. Consider Marriott International, which is using its Aloft and Element brands as kind of testing kitchens. Element is piloting a new guestroom design with a communal room in the center of four guestrooms, which sounds eerily similar to my college dorm, but I like how they are thinking!
Traditional hotel companies have historically been reactive—acting in response to a situation rather than creating or controlling it. If traditional hotel companies want to thrive and sustain growth, their future must involve disruption from within. And that’s no an alternative fact.