Global Hotels & Motels Market - col.ent.sirsidynix.net.uk

Global Hotels & Motels Market: Value Chain Analysis- ML00027-043

Global Hotels & Motels Market

Value Chain Analysis

ML00027-043


Table of Contents

2

Complete Value Chain: Overview

Complete Value Chain: Overview (cont’d)

Construction: Overview

Construction: Analysis

Construction: Burning Issue – Modular Construction

Service Providers: Overview

Service Providers: Analysis

Service Providers: Outsourcing can risk reputational damage

Hotel Operators: Overview

Hotel Operators: Analysis

Hotel Operators: Burning Issue – Covid-19

End Users: Overview

End Users: Analysis

End Users: Burning Issue – Rapidly changing consumer tastes

Appendix


Complete Value Chain: Overview

3

The value chain for hotels & motels can be divided into four segments: construction, service providers, hotel operators, and end-users.

Construction

Site Identification

Design

Construction

Refurbishment

Service Providers

Catering

Laundry

Maintenance

Software & IT

Transport

Hotel Operators

B&B

Hotel Chains

Independent

Motel Chains

Apartments

End-Users

Businesses

Families

Groups

Individuals


Complete Value Chain: Overview(cont’d)

4

The value chain for hotels & motels can be divided into four segments: construction, service providers, hotel operators, and end-users. While the construction chain is dominated by large-scale companies, the service providers and hotel operators stages provide a great deal of scope for independent businesses to thrive.

Construction

Manhattan Construction

McAleer & Rushe

Structure Tone

Swinerton Builders

Service Providers

Compass Group

ISS

Prestige Laundry

Johnson Service Group

Independent Companies

Hotel Operators

Hilton

InterContinental Hotels

Marriott

Wyndham

Independent Operators

End-Users

Emirates

Sport teams

Schools

Governments

Individuals


Construction: Overview

5

The construction stage can be divided between operations that occur before and after the actual construction of the building and those that are directly connected to construction.

Construction

Pre- and post-construction

Site Identification

Architecture

Safety Inspection

Refurbishment

Construction

Building Decorating

Outfitting


Construction: Analysis

6

Hotel construction is highly specialized and consequently, it is dominated by large companies capable of fulfilling big contracts for major hotel operators.

• Hotels, particularly large ones, are specialized properties with idiosyncrasies. For example, they can contain hundreds

of bedrooms, each with its own dedicated bathroom, several dining areas, bars, elevators, and storage rooms. There is

also the need for a large, welcoming reception area. This differs greatly from other types of construction and as a

result, a number of large firms have established themselves as go-to contractors in this space. These include the likes

of Manhattan Construction (famous for projects like L’hotel du Lac in Lake Charles, Louisiana and the Colcord Hotel in

Oklahoma) and McAleer Rush, which undertakes work on behalf of Hilton in the UK.

• Some smaller, specialized work like kitchen and bathroom fitting may be outsourced to local companies.

• Site identification is critical to the viability of a hotel. Being in the right or wrong location can make or break a hotel as

certain hotspots are much sought after. Buying or renting land in these areas will typically cost more but in the long

term this outlay often proves worthwhile. As a result, hotel chains work hard to identify the right areas and the major

chains sometimes have divisions specializing in project managing new builds and refurbishments of existing properties.

One such example is Hilton’s architecture and construction arm, which supports the design and construction process.

• Once construction is complete, certain processes must be followed. This focus in particular on health and safety issues

as hotels leave themselves open to litigation if somebody suffers as a result of them neglecting these areas. Safety

inspections are therefore critical and are carried out by the construction firm, hotel chain and by local bodies.


Construction: Burning Issue

7

Modular construction has progressed to become a serious option for hotel operators looking to save on construction costs.

Traditionally associated with low-cost housing, prefabricated

construction is making leaps into the luxury residential market and also

into hotel construction. Modern freight systems enable components to

be shipped anywhere in the world and only require small teams to put

the pieces together. Better still, the time required to pass from a box in

a port to a completed unit can be as little as a few days. With

construction output inflation touching 2.8% in the UK in March 2019 for

private commercial work, cost savings are a boon and modular

construction is the saviour. CIMC has entered the business. Its model

builds two hotel rooms and a section of corridor into a steel box with the

dimensions of an oversize shipping container. These boxes are fitted

out with bathrooms and finished interiors, and then shipped on regular

container ships and trucks to site. The model is proving popular in the

UK as the company has delivered modular structures for a number of

developments including several Travelodge and Premier Inn sites.

Travelodges in Heathrow, Uxbridge, and Warminster, and Premier Inns

in Hull, Gatwick, Blackpool and Manchester have used the construction

method, first for extensions, then for complete hotels.


Service Providers: Overview

8

Services such as catering, cleaning and laundry are performed by both in-house staff and by companies that specialize in providing these services. Outsourcing firms are often large, like ISS and Compass Group, but hotel chains typically use a mix of in-house services and outsourcing.

Service Providers

In-house

Catering Cleaning

Maintenance Grounds Keeping

Outsourced

Catering Cleaning

Laundry


Service Providers: Analysis

9

Big chain hotel operators typically strike a balance between in-house and outsourced services, both of which have advantages and disadvantages.

• The hotels & motels industry exhibits a great deal of consumer price sensitivity. Review and price comparison sites like

Booking.com and Trivago allow prospective holiday makers to look at and compare prices and reviews of large numbers of

hotels.

• When many hotels have similar ratings and are in similar locations, price is the determining factor in whether somebody

books or not. Cost control has therefore taken on great importance and outsourcing can be a good way to reduce fixed

costs. It can also help to improve the quality of specialized services like cleaning and laundry.

• The major downside to outsourcing operations is the loss of control. If the hotel company provides the services in-house, it

can control quality levels, training and the timeliness of delivery. The latter is particularly important because services are

delivered as they are being consumed. Hotels must be confident in the service provider and this gives large companies with

proven track records a big advantage. Consequently, companies like ISS and Compass Group are active in this space.

• Security is also a factor. Hoteliers are reluctant to leave data in the hands of other companies. Data must be secure,

confidential, and available. This is why some hoteliers prefer to manage information internally.

• The fact that there are advantages and disadvantages to outsourcing means that hotel operators typically strike a balance

between performing services in-house and outsourcing them. Larger hotels will often have a laundry room while smaller

ones typically outsource this task. For smaller, local hotels, there is scope for small independent businesses to act as a

supplier of laundry and cleaning services.


Service Providers: Burning Issue

10

Several hotel chains have garnered unwanted headlines due to outsourcing.

As noted in the analysis slide, hotel operators lose control when they outsource provision of services like cleaning and in some

instances, this can lead to unwanted headlines that can potentially damage corporate image and reputations. In the UK in

2013, Hilton, IHG, Premier Inn, and Travelodge all had to respond to allegations that the sub-contracting of housekeeping

services led to the exploitation and abuse of staff. The allegations centered on strict targets that often required overtime that

was unpaid. This reportedly meant that many housekeepers were paid less than minimum wage. In Australia, an inquiry by the

Fair Work Ombudsman found that several hotels were effectively underpaying staff but again, outsourcing played a role. Oaks

Hotels and Resorts signed enforceable undertakings with the Fair Work Ombudsman to avoid civil court proceedings. Its

cleaning contractor, Housekeepers Pty Ltd, had engaged its workers as independent contractors instead of employees. It too

signed the undertakings. These kinds of scandals can damage corporate image and show that hotels must carefully decide if

and to whom they outsource as they look to minimize this risk


Hotel Operators: Overview

11

Hotels & motels vary in size and consequently, are operated by both individuals/families and multinationals. The former type of owner/operator is typically found in smaller establishments like B&Bs, while multinational chains usually operate larger scale hotels with hundreds of rooms.

Hotel Operators

Chains

Accor Hilton

Marriott Wyndham

Independents

Hotels Motels

B&B

These chains have engaged in diversification practices, operating

to different brands to cater to different market segments.


Hotel Operators: Analysis

12

There is room for large and small players in this industry.

• The hotels & motels industry offers opportunities for both large multinational chains and small, independent businesses. The

types of establishments operated by these two types of player differ greatly.

• Large global chains like Hilton and Marriott typically operate large-scale hotels in tourist hotspots. These hotels are usually full

service, offering accommodation and food as well as additional services like laundry and transport. They often house

hundreds of rooms and consequently require a great deal of management given the number of guests and the associated

turnover.

• These major chains operate many different brands as they seek to attract customers from across the price spectrum. The

most evident example is Marriott, which categorizes its brands as: Luxury, Premium, Select, Longer Stays and Selection.

They are then sub-divisions within these categories such as Distinctive Premium and Distinctive Luxury. As an example, the

eponymous brand Marriott falls into the Premium category, while The Ritz-Carlton is classed as Luxury.

• Some of the properties operated by chains include additional facilities, golf courses are a good example with the likes of

Marriott and Macdonald operating a number of golf resorts across the UK. This is not necessarily the exclusive domain of

chains, with Donald Trump’s investment vehicle owning the exclusive Turnberry golf resort in Scotland for example.

• Independent operators play a significant role in the industry operating B&Bs in particular. These serve people looking for short

stays. There are also hotels that are operated by non-chain companies. For example, Dalmahoy Hotel & Country Club near

Edinburgh is now independently run following a split from Marriott, which managed the property, in 2016.


Hotel Operators: Burning Issue

13

Covid-19 pandemic is causing major disruptions to hotel operators globally.

Travel restrictions are causing extremely low demand which is manifested in low hotel occupancy and suppressed load

factors for airlines. Travel domestically has seen drastic decline as social distancing measures are put in place and even in

the US, a country synonymous with high levels of domestic travel, a potential voluntary shutdown of domestic flights is under

consideration. Initially focusing on travel in and out of China, travel restrictions are now a global phenomenon. These

restrictions, coupled with some travelers adopting a safety-first approach, have had huge ramifications for all segments of the

travel & tourism industry, including the hotels & motels segment.

Hotels are now seeing a greater impact. Marriott is furloughing

about two-thirds of its corporate employees and thousands of hotel

staff face the same fate. CEO Arne Sorenson said “We are now

seeing revenue down 75% plus”, illustrating the extent of disruption

being experienced by even the largest hotel operators. Government

support is now inevitable to ensure the industry remains viable.

Significant economic stimulus packages have been announced by

governments in many countries, most notably the US, however

which industries will be prioritized remains unclear. The pandemic is

likely to have a huge impact for hotel operators for the foreseeable

future, while countries remain in lockdown.


End-Users: Overview

14

Broadly, end users can be divided between leisure and business. In the case of the latter, the use of hotels is not as dispensable.

End Users

Leisure

Individuals Families

Schools Other Groups

Business

Businesses Sports Teams

Airlines Governments


End-Users: Analysis

15

Business and leisure have very different needs and reasons for booking.

• Leisure users are people on holiday or leisure trips. They are travelling out of choice and so to this type of user, the

services offered by hotels are not essential. This means that during times of economic hardship, it is easy to cut back

and not engage in this form of discretionary spending. This boosts buyer power for this type of buyer.

• Leisure guests can be individuals, families, schools on trips, or other groups such as non-professional sports teams

and scouts. In this respect, buyers are a broad category.

• This leaves hotels at the mercy of economic trends because they depend greatly on this type of guest. In 2018,

according to MarketLine data, leisure accounted for 75.3% of industry revenues, versus 24.7% for business.

• Businesses often need to send employees to different locations, both domestic and international, for professional

reasons. This gives them less buyer power , although companies that send employees away regularly become lucrative

clients and benefit greatly from loyalty schemes. This improves their negotiating position and also helps hotel chains

retain them as clients.

• Business clients could theoretically come from any industry, but companies active in business like finance, consulting,

and airlines are heavy users, the latter for obvious reasons. Sports team playing away from home, such as football

teams in the UEFA Champions League, are also notable business clients.

• Governments are also a source of custom as ministers often travel for meetings and conferences. Special measures,

particularly with regards to security, must be undertaken and consequently, upscale chain hotels in central locations are

often favored.


End-Users: Burning Issue

16

End user tastes are changing with social media playing a key role. Hotel chains must adapt quickly.

End user tastes are changing, particularly where younger

travellers are concerned. Just having a nice hotel in a good

location is no longer enough. The so called ‘instagramability’

of a location is a factor influencing where millennials wish to

travel. Desirable locations are often showcased by travel

accounts and are replicated by travellers who wish to increase

their social standing. The use of travel hashtags also

demonstrates the rise in travel content on the platform,

hashtags such as ‘travel’ and ‘wanderlust’ have been used on

over 300 million images and are a major source of inspiration.

This is changing the destinations and type of accommodation

being sought out. The classic city breaks of Paris and Rome

have been replaced by the likes of Bali and Belize.

Furthermore, new, unusual types of accommodation are in

demand. AIRDNA has studied its data to compile a list of the

hottest 18 Airbnb rentals for 2018. The list includes four

treehouses, two castles and an Afghan Yurt in Germany; a far

cry from a Hilton hotel in Paris for example.

Hotel operators need to react to these changes are

millennial focused brands like Hilton Tru are a start.

Unusual , ‘instagrammable’ accommodation is now a

must and Marriott has taken a pioneering approach by

using its Courtyard brand to partner with football club

Bayern Munich. The brand is developing an executive

box that is a hotel room, complete with bed, furnishings

and a bar; thus giving the feel of a hotel stay. The

difference, the box is in the club’s stadium so guests can

take in a game.


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