Budgeting for change

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Citizen M has inspired the latest wave of budget brands

The budget hotel sector has seen its focus expand to look not only at price, but at design and concept, as guests have become more demanding.

The segment was now investigating how to provide service and experience without losing sight of costs, as more challengers circled.

Max Luscher, managing director, B&B Hotels, told us: “Looking back there was a big trend in the industry, saying that budget and luxury hotels would expand, but the midscale sector grew strongly too - brands like Moxy, Hampton Inn, everything happened at the same time. There was a pure hotel boom, nine to 10 prosperous years.”

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Wytze Van den Berg, managing director BWH Hotelgroup, agreed, adding: “What we’ve seen is that there’s more attention paid to the design, to the concept. Budget was seen as not cosy, as concrete hotels in bad locations where you have to pay for the remote control. Now they are in good locations, with smaller rooms but better social places, where people can go to the lobby to meet people, maybe to co-work. It used to be a place to sleep because it was cheap. Now it is a really good place to meet.

“In the past 10 years we’ve seen the guest satisfaction scores go up and we have seen in the industry that hotels which are new and have better attention to design to get better reviews - and when you get better reviews there is a correlation to the revpar.”

As the segment has changed from being just a bed to use as a base to explore a destination, to being part of the destination, so too have demands on what service is expected from the properties. At one time the trend looked to be towards full automation, then operators realised that some service was required. With staffing costs rising, they needed to choose when to use technology and when people.

Matthias Huettebraeuker, strategist, told us: “There’s a lot that could be learned from CitizenM and Mama Shelter as they are select service - Ibis and easyHotel are basically no service. There is a move to selective service, giving the guest what they really want and not what they don’t want. Adding meaningful service and community - which should be about giving people the chance to connect to staff as people not servants. As people are changing and are more isolated in work and in life, where social contact is on line, a little more of the human factor is much wanted.

“As much as they all follow the road to automation, there should be a humanisation of interaction. The transactions which could be automated should be, but it is good to get recognition in the hotel itself. Companies are obsessed with using Big Data to predict what sort of coffee I want, which is less of a wow factor than they think. The budget sector is about adding comfort to a journey, rather than it being a destination.

“Hostels are the reintroduction of community as a quality of accommodation. They’re more hotelly as they have upgraded their service. The first 25hours was meant as a hostel 2.0. It had a bed and a shower and then common areas which you share with guests - you make friends without leaving the hotel.

“A lot of the trendy hotel brands were an imitation of the hostel idea. That has returned and hostels can compete with hotels by being cheaper. The idea of dorms, which you used to ditch as soon as you could, are now back in fashion - you can now share a room with friends if you want. Traditional hostels were too cheaply done. Hostels, like the entire budget market, learned their lesson: there is no reason to be an ugly hotel.”

The growth of the branded hostel market, led by flags such as Generator and Meininger, has meant a resurgence in the sub-budget category, which last year saw interest from investors including KKR and BlackRock. The latter acquired a pan-European hostel portfolio as part of a €100m joint venture with Amistat International and planed to acquire hostels across the region.

Thomas Mueller, European head of value-added real estate, BlackRock said: “This transaction presents an opportunity to gain early-mover access into an increasingly institutional but undersupplied asset class. The demand profile for hostels is particularly appealing given the lack of quality, modern stock in the market, which is characterised by fragmented ownership and very low brand penetration.”

Van den Berg was unperturbed by the growth of hostels, commenting: “It’s big in some cities  - the new hostels are hip and happening, where people drink gin ’n’ tonics and Margheritas. It’s called a hostel but it’s almost a hotel. For the consumer in the leisure market, it’s a competition, not as yet in the business market. They’re full of energy and we’re always interested [in the sector] and we have looked at it, but we decided to put our energy into hotels. The technology is completely different. Hotel technology is not set up for hostels.”

As for competition from other quarters, Huettebraeuker said: “Airbnb is playing a huge role. It used to be live with a local, now it’s more live like a local, but you have a host who does everything that a hotel used to do, but the interface, the transaction, is done by Airbnb and there’s a split between that and the hyperlocal experience. It’s a very smart combination of high tech and high touch.

“A lot of the trendy hotel brands were an imitation of the hostel idea. That has returned and hostels can compete with hotels by being cheaper. The idea of dorms, which you used to ditch as soon as you could, are now back in fashion - you can now share a room with friends if you want. Traditional hostels were too cheaply done. Hostels, like the entire budget market, learned their lesson: there is no reason to be an ugly hotel.

“Airbnb is playing a huge role. It used to be live with a local, now it’s more live like a local, but you have a host who does everything that a hotel used to do, but the interface, the transaction, is done by Airbnb and there’s a split between that and the hyperlocal experience. It’s a very smart combination of high tech and high touch.”

Luscher saw little overlap for B&B Hotels with Airbnb, commenting: “Airbnb from a German perspective is either a holiday flat or a loft-style unit where the alternative is a four-star upscale hotel. Our brand promise is strong, our customer service is high.” He said that the group was continuing to grow at over 15 sites a year in the country, was also in Austria and was expanding into The Netherlands. He added: “We have enlarged to take over hotels from competitors, taken over former Motel Ones, taken over independent hotels, done a little M&A work to strengthen the portfolio.

“In Germany it is all about leasing. Franchising is the end game where you work with partners to expand. We’re asset light. We can buy, we can build, we’re growing by all means. The classic management model is now what we do.”

Of that other rapidly-growing upstart, OYO, Huettebraeuker said: “It was a fantastic idea in India, it gave a stamp of approval and security. Compared to the most properties in Europe and the US the role they play might not be a great.

“An interesting playground in Europe is where there are faded properties where the owner is in their 80s and the next generation is not sure if they are going to carry on. In some areas it’s relevant to separate the touch and the tech and that’s where the big operators need to go, to allow the properties to be more local, with just the infrastructure in the background. They should take a step back; the big operators don’t understand boutique hotels. They should give more space to the brands; a platform at the end, not a logo at the front.”

With the budget and economy segments holding their own, the sector continued to face polarisation, with the mid-market likely to miss out. Huettebraeuker concluded: “There’s a bright future for hospitality but you need to be at the top, at the luxury end, or at the bottom with quality. The hotels in the middle might have a few challenges.”

 

 

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