Will globalization fragment or consolidate the hospitality industry?

By 2030, multiple changes will occur and will influence the hospitality industry due to globalisation, one of them being a shift of market power.

In the first thesis of the Lausanne Report, EHL - in cooperation with hospitality experts - discuss this trend that will disrupt the industry depending on the economic stages of a market and its geographical position.

1. Shift of market power

The shift in market power that will take place in the coming decades is predicted to yield the following two potential scenarios: consolidation via mergers and acquisitions or fragmentation by splitting companies into smaller entities.

Scenario A: Consolidated hospitality

Representatives of consolidated hospitality businesses, like major hotel chains, argue that, as in other sectors such as banking and aviation, size does matter: the bigger, the better. In fact, some imagine that they would then be too big to fail.

Here are some key consolidation rationales:

• Hotel chains argue that horizontal integration via mergers and acquisitions will locally and globally enable the extention of their supply capacities
• The same chains vertically integrate and team up with travel services partners to put considerable pressure on OTAs which are considered a "necessary evil"
• Chain hotels with a separate real estate ownership may benefit from economies of scale and shareholder value
• Negatiation with owners and electronic distribution channels is generally easier for global brands
• A consolidated hospitality industry will result in the generation of new types of contracts to control brand standards

Scenario B: Continuous fragmentation

On the other hand, independent hotels and hotel groups, representatives of fragmented hospitality businesses, argue that being smaller allows them to be more adaptable and survive the competition.

Here are some key fragmentation rationales:

• The hotels will remain highly agile and be able to adapt and quickly react to customers’ changing needs and behaviours.
• The hotels will keep their authenticity and be able to create personalised customer experiences.
• The developement of these tailored experiences will lead to a better reputation and increase loyalty.
• The creation of hybrid models will continue to show significant growth potential in the years to come.
• The mixed-used development models will offer a diversified revenue mix from commercial sectors of activity and thus reduce development and ownership risks.

Let's co-exist

Fragmentation and consolidation go hand in hand and could co-exist by creating both risks and opportunities for the hospitality industry. Different situations are however encountered depending on a market's economic stage and its location. In the USA, for example, the industry is already consolidated and durably so; while in Europe, it is likely to remain fragmented.