How Has The Hospitality Industry Evolved Since Its Origins?
Although the original concept of hospitality remained largely unchanged since its origins - i.e. meeting travelers’ basic needs such as providing food and accommodation - the idea of building hotels for the sole purpose of hosting guests emerged alongside technological advances and the emergence of better means of transportation towards the end of the 18th century.
Today, the hospitality industry is made up of four distinct sectors:
Lodging: Luxury palaces, boutique hotels, bed and breakfasts, camping grounds, hostels… the lodging sector covers an extremely diverse spectrum of properties.
Food & Beverage (a.k.a F&B sector): the largest sector in hospitality, it is made up of properties delivering food, snacks, drinks for immediate consumption, on- or off-the premises.
Recreation: recreational establishments focus on the entertainment and relaxation of guests. Properties such as movie theaters or amusement parks fall into this category.
Travel & Tourism: comprises means of transportation to move travelers from one place to another. Airlines, cruise ships, buses, trains fall into this category.
While all sectors are interconnected and reliant on each other, all hospitality sectors are quickly evolving due to new technologies and a changing customer mindset.
HOSPITALITY AND TOURISM GROWTH
How Fast is the Hospitality Industry Growing?
Along with the overall economy, the global hospitality industry has enjoyed a spurt of massive growth over the last decade since the end of the financial crisis. According to the World Bank, the global economy has grown at a pace of more than three percent per year during this period. This unprecedented expansion has benefited the hospitality and tourism industry by stimulating the world population’s travel activity, adding countless room nights in both leisure, as well as business travel.
Key Hospitality and Tourism Statistics
1 - International arrivals have increased from 900 million to more than 1.3 billion over a span of just ten years.
Not only has this boosted the number of rooms on offer, but has also led to a major contribution of global employment opportunities.
2 - The World Travel and Tourism Council (WTTC) names the hospitality industry’s importance as a main driver in global value creation.
3 - The hospitality and travel industry accounts for one out of every ten employment opportunities.
Bringing the number of people earning their living in the sector to a stunning 319 million in 2018 alone. The rise in revenue does not only benefit international companies and hotel owners, but also acts as a major factor in job creation for local populations and destinations.
4 - The overall growth in the travel and tourism industry of 3.9 percent in 2018 is still outpacing the global economy (3.2%).
For the time being, there is no indication of the expansion slowing down.
What Macro Trends are Driving Growth of Hospitality and Tourism?
1 - The booming global economy continues to create a positive momentum in the sector by contributing to the overall income per capita.
Since 2009, this number has constantly increased at an average pace of almost two percent per annum, leading to a growing demand for both international and domestic travel spending.
thanks to lower fuel prices, carrier competition and the rise of low-cost airlines. While these are not happy news for the airline industry, which is using ancillary fees to increase profit margins, it benefits travelers who can get more from their purchasing power.
3 -Corporate travel is yet another contributor to the healthy outlook and is projected to keep growing.
In China and India, the growth of business travel is particularly steep due to the relentless pace of economic expansion in this part of the world.
4 - Hotel operators are seeking to expand their portfolios through targeted acquisitions of smaller regional chains.
What Major Challenges is the Hospitality Industry Facing Right Now?
#1 - The threat of climate change
The threat of climate change will adversely impact many major tourist destinations. Threats resulting from climate change, safety and security issues, as well as unprecedented migration streams are tomorrow’s game changers. The main challenges for the hospitality industry are the lack of predictability and the magnitude of such events – and how fast the industry can react and adapt. Hybrid operations might be one of the hospitality industry’s possible response to increased risks.
#2 - Industry consolidation
Corporate consolidation has led to increasing concentration of size and power among the top players. Hotel operators will seek to expand their portfolios through targeted acquisitions of smaller regional chains. While the ultimate goal is to create value through cross-organizational synergies, this development also comes with downsides, as the management of structures with a diverse selection of geographies and a plethora of brands generates more complexity and threatens to increase overall rigidity.
#3 - New competition from tech and digital players
Are major technology firms such as Google or Facebook threatening to replace hotel brands by offering technological solutions and creating novel markets to attract new types of customers? Thanks to their control over all types of data related to customer behavior both off- and online, tech behemoths could oust traditional incumbents into niche markets. Companies that fail to identify their niche are at risk of becoming mere revenue generators for technology companies. Some big enough brands may survive, but their business will get tougher.
Sustained disruption from online travel agents (OTAs) and digital players
Online Travel Agents (OTAs)
Well-established OTAs are continuing to look for new ways to challenge the hotel industry.
Expedia, for instance, has been expanding its global presence by focusing on "brand-agnostic customers" through more relevant local offerings and content strategies. A world in which we no longer search for information via browsers and apps as we do now, but instead ask a virtual personal assistant – whether it be Amazon’s Alexa, Apple’s Siri, or Google Assistant – to book holidays or business trips for us - may not be too far off.
In the wake of these changes, there are many aspects for hoteliers to pay attention to, but there are also lessons to be learned in order to better equip traditional providers for what lies ahead.
Airbnb’s rapid expansion - embodied by its strategy roadmap aptly dubbed “Airbnb For Everyone” is another example of aggressive efforts for non-traditional hospitality industry players to play on traditional hotel business’s territories: the digital giant has drastically expanded the type of properties available to customers - from vacation homes and B&Bs to experiences or collections.
Google has clearly been placing bets on the travel and hospitality industry by consolidating its various offerings into its Google Trips interface - tapping into its gigantic trove of user data and delivering highly relevant information to users across the various stages of their trip planning. Its tools range from Google Assistant to flight and travel data and put the company in a comfortable position when competing not only with major hotel chains but also OTAs.
Big Data, AI and customization in the hospitality industry
Data is everywhere and for companies that know how to collect and store it correctly it can be a major success factor. Big Data Analytics can help operators correctly predict whether high-rolling guest spending thousands of dollars on expensive food and drinks are merely celebrating a special occasion or if this behavior is the clients’ usual behavior while traveling. This sort of information is crucial in efforts to determine a customer’s lifetime value.
A deep understanding of customer needs through the collected information also enables hoteliers to stay relevant through their ability to offer personalized services to every guest, thus increasing their likeliness to return.
Unfortunately, many hotel owners tend to confuse personalization with simply selling upgrades or improving their email marketing. Hoteliers need to understand the limitations set by these challenges, but should not be discouraged since there are multiple steps that can be taken to stay relevant.
When it comes to ensuring that each room is sold at the highest price possible, revenue management is used to focus primarily on setting room prices and optimizing room inventory. Today, Revenue Management strategy goes beyond those aspects, and revenue managers should look for new ways to optimize revenue growth and profitability through data integration.
Digital transformation in the hospitality business
In today’s ever-connected environment, addressing current challenges head on means embracing the possibilities offered by an end-to-end customer experience. It is not about merely relying on a loyalty program anymore, it is about creating a broad and connected ecosystem across all brands and touchpoints.
Major players in the industry - such as Accor - have already realized the immense potential of new technologies and are currently looking for ways to incorporate them into their client offering.
An area where traditional hoteliers are lagging behind their more advanced opponents is online visibility and brand recognition. In the past some brands were able to create their markets based on the number of properties or an outstanding service offering. With the dawn of the internet and the connected rise of OTAs however, this trend has been disrupted. Because of the immense amount of indifferentiable hotel brands, hotel chains can already barely compete with online travel and booking players, making new competitive strategies inevitable.
Millennials and Generation Z travel trends: experience economy an customization
Millennials are a hugely attractive market, representing two billion people globally. Their collective spending is set to overtake Generation X by 2020, so it is not surprising that hotels have picked up on this trend.
Many are discussing how to best approach this group of customers and how to stay attractive in the light of changing values and behavior. Hotel chains have launched brands designed to appeal to this demographic segment, often by reducing guest room sizes and putting more emphasis on creating convivial common areas.
On the horizon however, the post-millennials of Generation Z are already picking up speed.
Both generations’ need for unique experiences has led to the surfacing of the experience economy. This buzzword describes the transition from a product- and service-driven economy to an experiential one. The combination of advances in technology with the changing values of consumers led to the success of social media and sharing networks as commercial platforms. This provides an opportunity for traditional hotel brands to leverage their existing brand equity to offer a range of more focused services and experiences that go beyond hotel stays.
Beyond the traditional hotel brand
After detaching themselves from physical assets, the time seems right for hotel brands to capitalize on their brand equity and find opportunities beyond traditional hotel stays to become universal travel and service brand. Wherever service and design elements are key to the experience delivery, hospitality brands have an opportunity to add and improve on the existing product.
In turn, this allows hospitality brands to create significantly more customer touchpoints with their target markets and collect more insights to help them create an ecosystem of services that could leverage off each other. As a way of circumventing hypercompetitive markets, hotels will also increasingly have to focus on niche markets, where customers are looking for a specific experience or service.
We categorize niche markets in the sense they could be royalty, they could be fashion, art, entertainment. They could be anyone of those items and we’ve actually been operating our business based on that for a long time - Mathew Nixon, Business and operations transformation at Dorchester Collection.
Towards sustainable hotels
With the impact of climate change becoming more and more apparent all over the globe, societal pressure on providers in all industries is mounting. First steps are being taken, for instance, in the fight against single-use plastic products that are part of the roughly 300 million tons of plastic produced each year. Many major corporations and businesses are opting to ditch single-use plastics from their day-to-day operations and the hospitality space is no different.
Hotels and airlines find themselves with a unique opportunity to really impact the effects of global plastic consumption as they often provide disposable products at mass scales. Many critics say that the practice of reducing plastic waste is, while commendable, not nearly enough to make a true impact in the fight against rising temperatures.
A growing number of hotels are rising up to the challenge of running a sustainable business. Beyond plastic usage, general waste production, food waste, usage of local produce, energy and water consumption and many other factors are to be considered for operators that are serious about their claim. Going one step further, the term sustainability is also often used in relation to not only environmental protection, but also corporations’ approach to managing their people and their finances. All across the board, resources of all kinds are being used more efficiently in the hospitality industry and while there are various strategies being adopted by hotels, a paradigm shift is becoming more recognizable.
What Do Top CEOs Have to Say about the Future of the Hospitality and Tourism Industry?
As an industry that depends on a stable environment in order to successfully operate - societal and environmental changes are having a greater impact on hospitality businesses compared to other industries. A recent global survey among CEOs by PwC has shown that heads of hospitality and leisure companies are notably less confident about their companies’ prospects for revenue growth in the near future than their counterparts in other sectors.
With disruptors in the industry, a wave of consolidation, and many external factors impacting their operations, hotel operators must find new ways to overcome these hurdles. Solutions to future challenges that companies are currently coming up with are the result of new thinking among the world’s business leaders and CEOs.
We have been a super good hospitality group for the last 50 years. We are not shying away from it. We are shifting and expanding the hospitality notion to Augmented Hospitality. We are being even more audacious and going one step further by saying: Since people want to be recognized, want to have something extremely personalized, why don't we try going from Augmented Hospitality to a Lifestyle Augmented Hospitality player?
Other ways that are often discussed when dealing with the impending changes are the implementation of new technologies, training employees to move away from standard SOPs to become true high-touch experience providers and modernizing the service offering towards individualization and “lifestyle” to create true differentiation.
What will hospitality leaders do to remain competitive in an ever-evolving market environment?
Fully take advantage of technology and personalization to create experiences
A generational shift towards how travelers are consuming hospitality services is making hotels evolve from being mere suppliers of accommodation to experience providers, leading to a need for outstanding customer relationship across all stages of their guests’ customer journeys.
Focus on talent acquisition and retention
From targeted recruitment efforts to a meaningful interview process and to the actual hiring and onboarding process, organizations that are well-equipped to recruit in the era of millennials think holistically about the overall experience delivered to potential hires.
Embrace sustainability as part of your business model
What Will Hospitality Management Careers of Tomorrow Look Like?
Reshaping the future of hospitality jobs
Over the past two decades, the hospitality industry has experienced significant growth, with international arrivals doubling from 600 million to over 1.4 billion in 2016. In 2018, the travel and tourism industry saw a growth of 3.9%, outpacing that of the global economy (3.2%). In that same year, the hospitality and travel industry accounted for one out of every ten employment opportunities – bringing the number of hospitality professionals to a remarkable 319 million.
Travel and tourism may be up as global levels of wealth increase, but there are fewer qualified hospitality workers across the entire industryand the ever evolving market dynamics are leading to the creation of brand new types of jobs in the sector.
On the horizon for current and future hospitality professionals:
Employers across the board are looking for professionals with a combination of both hard and soft skills. In hospitality, developing skills such as cultural awareness, multitasking, customer service and communications - is paramount to effectively deliver outstanding customer experiences.
The increasing complexity of the hospitality sector and evolution of its modus operandis - due to the expanded use of technology and data, the evolution of business models with the separation of management from operations or the ever-increasing trend of brands becoming publishers - is leading to the creation of new job profiles, such as; asset managers, data scientists, or content marketing specialists.