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Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
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
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Complete Value Chain: Overview
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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
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
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
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Construction: Overview
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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
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Construction: Analysis
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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.
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Construction: Burning Issue
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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.
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Service Providers: Overview
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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
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Service Providers: Analysis
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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.
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Service Providers: Burning Issue
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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
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Hotel Operators: Overview
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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.
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Hotel Operators: Analysis
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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.
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
Hotel Operators: Burning Issue
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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.
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
End-Users: Overview
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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
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
End-Users: Analysis
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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.
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
End-Users: Burning Issue
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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.
Global Hotels & Motels Market: Value Chain Analysis- ML00027-043
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Appendix