What do hospitality players need to consider for success in the post-pandemic reality? What changes should be made and how to compete better for changing customer demand?
Matthias Huettebraeuker, the hospitality strategist and founding partner of Denizen, shared his thoughts with Hospitality Insights.
Hospitality Insights: How can the hospitality industry take advantage of the crisis? What changes are long overdue, what new opportunities will the post-pandemic world present?
Matthias Huettebraeuker: I think the hotel industry had been operating as a self-referential club for quite a while now and with or without a pandemic, as Marcus Aurelius wrote 2000 years ago, “some of what now exists is already gone”. The final chapter of a lot of concepts and business models was already prefigured by the excesses of its recent past. The opportunity that arises now is to embrace fundamental change, after decades where nothing happened, maybe these are the months where decades happen (that’s Lenin’s quote, I think).
If I should name three opportunities, it would probably be:
1. Refocus on the guests as the target group for hotel brands and not on the owners and growth by inventory and the landlords.
2. Learn how to create demand because business hotels have been an ingredient brand of business travel, not the creator of the original demand.
3. Try and create concepts that are original, bolder and not so many copies of a copy of a copy.
Hospitality Insights: Which hospitality sectors do you expect to lead the recovery in 2021 and beyond?
Huettebraeuker: If we are talking about recovering to what was before then obviously sectors catering to demand that is stable at least in kind, like leisure in general, or that seems to be most adequate in a still-not-completely-safe world like domestic, drive-to travel seem best equipped to bounce back or beyond 2019 numbers.
The more interesting question I guess is who will lead the back-to-the-future race when it comes to new paradigms of business-related travel, new realities in the long haul, air travel (and I am thinking more climate change-related than pandemic induced changes) and what that means for travel, new models in how cities work, how new generations think and which mixed-use, space with a service concept will have a winning answer for the new jobs-to-be-done.
For that, if we extrapolate what has happened in the last three or so decades it will probably be rather the small and independent players, it will rather be innovators from outside the industry, maybe more tech players like Airbnb who will come up with innovative or disruptive ideas that will lead to a new better-than-normal. And that is not even surprising, studies from Harvard’s Karim Lakhami have shown that people with a certain distance to a problem are far more likely to find a solution.
To me, it is clear that the industry needs to rethink and up its game. Despite the increased consolidation activity on the market, M&As are a form of consolidation, not of innovation, the exception being when a Gorilla like Accor (“Gorilla” being CEO of Accor Sébastien Bazin’s term, not mine) “merges” (brilliant euphemism) with someone like Ennismore in an attempt to just buy the future. (The classic make-or-buy question applied to innovation).
So yes, I believe the new small and independent players will lead the change which then in many cases will again be bought by the big boys - whether they take the lead to the finish line is a different question. Innovation and disruption are what’s needed and those don't happen at the big ones - normally, someone like Amazon is the exception, but that is thinking you find at Airbnb more than at Accor, Marriott, IHG etc.
Hospitality Insights: How has the pandemic impacted the relations between operators, owners, lenders and all stakeholders in hospitality?
Huettebraeuker: Like every ecosystem, the hotel industry, or the system of owners, operators, lenders, financial institutions etc., is stable as long as there is an agreed-upon certainty about some basic rules. Now the pandemic has disrupted those certainties, and not only short term with the travel restrictions but potentially long-term with for example the changes in business travel behaviour. If we look at financial institutions, there is a lack of trust in the asset class. If we look at owners, there was a situation where office spaces seemed to deliver better returns on the capital than hotels (and now that certainty is crushed as well).
At the owner's level, there is a lack of trust if the operator brands have the answers to the new questions etc. And as capital-intensive and investment-intensive businesses depend on trust, there needs to be some recalibration. There is money galore to buy and there is hardly any truly interesting material in the market, but that’s in part a play with real estate-backed assets where people bet on hardware, not on the business model per se or portfolio strategic acquisition plans.
Now add to that a general shift in real estate asset classes, think the decline of ground-floor retail spaces, think new demands towards office space, new residential concepts and in general the need for real estate owners to put an operational model as a layer on top of the physical asset. All that is both an opportunity for hospitality players to broaden their field to adjacent spaces models and provide “with a service” model for all kinds of asset classes and a challenge not to be replaced by new players from outside the hotel industry.
In essence, there are a lot more questions out there than certainties in the ecosystem right now and I think we will need until circa 2025 until a new kind of balance in those relationships can be predicted beyond the level of speculation – and until we will see major transactions and movements on a level that truly change the landscape.
Hospitality Insights: With hotels embracing adjacent spaces, is a hotel even a hotel anymore? And with the hotelisation of everything else on the other hand, what’s in store for adjacent spaces and hotels?
Huettebraeuker: On the broadest definition, a hotel is an enterprise that provides spaces and services for travellers, so I guess a certain part of the space needs to remain accommodation focused for a place to keep its hotel-ness. But there is no limit as to which other use cases you can cater to (work, entertain, etc.), which audience you are targeting (people who travel the world, or people who roam the hoods of their hometown), what kind of “as a service” you offer, from on-demand (classic hotel bookings for a few nights) to subscription with a service (co-living, long stay, etc.). The discipline should be in not trying to be everything just because some trend says so and in not trying to convert spaces into another category by pure proclamation as in “this lobby is now a co-working space”. The distinction will be whether you make a convincing offer for an actual existing demand in a location or not.
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