EHL Hospitality Business School recently hosted a conference entitled “Transformational Resilience in the Hospitality Industry” where a panel of industry players, ranging from academics to executives to practitioners, discussed the current state of hospitality. Among the topics discussed, the labor shortage was a recurring theme as were the potential solutions to overcoming this global issue. Coping with hospitality’s labor shortage is proving to be a tall order; there's no magic wand but solutions exist - some bolder than others.
Vacant positions - why so many?
For Laura Hingel, Vice President of Talent Management at Accor Group, “in this war for talent, we’re seeing huge disruptions in our service: hotel restaurants can’t open for lack of staff and are ‘walking’ guests to Starbucks for breakfast.” All segments are suffering. The phenomenon is global but also local, affecting bus drivers in Paris, lifeguards in NYC public pools, and nearly all sectors of the hospitality industry. Roughly 10% of her company’s open positions are unfilled worldwide, with this number jumping to 15% in Europe.
Why? There are many reasons, including: People are afraid of working with customers because of Covid; pay continues to lag behind other sectors; hospitality workers have found less taxing work with better hours elsewhere; unemployment benefits were generous in many countries; lack of daycare professionals has kept many parents at home; and many people struck a more favorable work/life balance during the pandemic.
What do hospitality workers want now? An overwhelming majority seek more flexibility and many want to focus more on their wellbeing to keep burnout at bay, according to Accor. For Hingel, “We need to think more holistically,” she said. “This is an opportunity for us to change, to break a lot of bad habits because we’ve been quite comfortable in how we operate.”
Sometimes hospitality is a career path, but for others it is just a stop-gap along the way, and it is important for employers, Ms. Hingel pointed out, to understand “how hospitality fits in with people’s lives”. “I think the linear GM track is dead”, she conceded.
“Chipotle pays more than one of our luxury hotels” Hingel rued. Accor has rolled out the heavy artillery in the labor shortage war, including: getting in on the “uberization” of the economy (though she admits she hasn’t “cracked that code yet”); eliminating references on CVs (“Who gets a bad reference?” she asked the crowd rhetorically); activating the ‘employment value proposition’; offering same day pay and ‘pick your own perk’; centralizing the hiring process; coaxing pensioners out of retirement or even reintegrating non-violent criminals. “It’s been a bit of a wakeup call. There is no magic wand but everyone, including at the C-suite level, needs to come together to find solutions—not just HR.”
New tactics needed
Even before the pandemic, turnover had been notoriously high in hospitality. The U.S. Bureau of Labor Statistics (2015) reported that the turnover rate (i.e., the percentage of workers who leave their job within one year) in the hospitality industry has steadily increased, from 58.1% in 2010 to 67.6% in 2014, then leaping from 78.9% in 2019 (before Covid) to a staggering 130.7% in 2020.
Even in Switzerland, total employment in the hotel industry decreased by close to 4% from 2013 to 2018, according to the Swiss Federal Statistical Office. Zheng et al. (2012) found that more than 50% of the hospitality employees in Taiwan left their job during the first year, while researchers in 2017 (see McGinley, Hanks and Line IJHM 2017) were already sounding the alarm on how difficult it was to attract new hotel employees in the U.S. because of low pay, dim career prospects, work-life imbalance and workplace-induced isolation.
For operators with skin in the game, the labor shortage has had dire consequences. Philippe Ravinet, who owns several independent hotels in France, says that Covid meant 17 months with revenues close to zilch. Now that rebounding demand has sent his room rates rocketing (some rooms fetching €600/night!), he has struggled to find workers - three of his open positions recently attracted exactly zero applicants.
Consequently, he has resorted to other tactics such as using Facebook as an HR tool, tapping into current workers’ networks, and employing workers with no previous hospitality experience.
As has often been stated, “Covid is the biggest challenge the world has seen since WWII,” opened Emmanuel Fragnière and Roland Schegg from the Institute of Tourism at the HES-SO Valais university. The pair spearheaded a 2021 study that looked into the future of urban hotels in French-speaking Switzerland.
Their research found that the vast majority of urban hoteliers believe the crisis has sparked “major changes” in the nature and habits of their clientele. Also, urban hotels are increasingly repurposing some of their space (long-term rentals, co-working areas, etc.), particularly as the MICE segment has struggled to find its footing post-pandemic.
“That’s what saved us,” chimed in Inès Percynska - a graduate of EHL’s class of 2020 - from the audience. Even amid the lockdown, in Zakopane, which is Poland’s premier winter sports destination, her hotel was authorized to rent about one-third of rooms for long-term stays because they contained their own kitchen.
For Nils Panchaud, an official with the Valais government, “multi-usage needs to be built into the business model at the design phase of a hotel.” The events departments of larger hotels have had to get creative by adding pop-up stores, co-branding opportunities, etc. to make up for lost revenue.
Similarly, researchers using data for Taiwan found that international tourist hotels with higher versatility (e.g., many different room types) and five-star hotels suffered a greater loss in revenue than other kinds of hotels, while hotels located in scenic areas and international hotel chains were less affected. Additionally, Kim and Han (2022) suggest that brand value, which includes reputation and outward appearance (e.g. size and an impressive lobby), was essential to attracting tourists during Covid.
Could a demand-side boost absorb some of this glut in hospitality supply? “People aren’t afraid of the virus; they’re afraid of the hassle,” according to Simon Bosshart, Head of Eastern Markets at Suisse Tourisme, the country’s umbrella organization for hospitality. He stressed the importance for domestic operators to “build on the strong 'Swiss' brand, stay agile and react quickly, and maintain a diversified and balanced market mix.”
For Bosshart, the travel bubble is real, as seen in so-called revenge tourism in China and in intra-European travel that has reached 'madness' levels. “It means huge pent-up demand and not enough supply,” he summarized.
Every crisis is different, he continued, pointing to the debt crisis of 2008 where overseas visitors helped buoy the Swiss tourism market – as opposed to today where this client segment has evaporated. Like the market for Swiss watches, sometimes being a more exclusive - and expensive - destination can be a competitive advantage, and many affluent tourists have come through Covid relatively unscathed, Mr. Bosshart hypothesized.
Several participants, however, asked whether HotellerieSuisse could ramp up pressure on the Swiss government to loosen restrictions on non-European workers in Switzerland, which could ease the hiring logjam. Indeed, the labor shortage has forced industry players to push beyond their comfort zone and find innovative solutions that could be around for a lot longer than the current crisis.
1. Rethink business models
The paradigm of the hotel industry has changed. It is imperative that the sector rethinks its business model as it faces a twofold challenge: attracting new talent and retaining existing, while maintaining operational service excellence.
The Covid-19 crisis has triggered a real aversion in hospitality employees as to whether they want to remain in the sector due to employment uncertainty. This is also true in terms of its attractiveness for new talent looking at hospitality as a career. Workers are fully aware that if a crisis were to occur again, they would be put on furlough which is not necessarily the case for other industries.
For hoteliers, the challenge will be to keep current employees on the roster while simultaneously attracting new talent. In order to do this, they can improve on three dimensions:
Professional development opportunities for employees
Yet, these dimensions present a challenge given that other industries can offer more competitive salaries, more regular and flexible working hours, remote-working possibilities, and tailor-made career plans. Generally, these industries are less exposed to economic risk in the event of a health crisis. In light of this, hotels are no longer just competing against each other to retain and attract talent: they will have to compete against other industries that are more appealing to the younger generation.
It is clear, however, that many hotels will not be able to increase salaries as their cost structure cannot be reduced. These hotels are faced with an inconvenient truth: higher salaries attract more capable staff and, over time, generate higher revenues. To be specific, hotels that are able to offer attractive salaries to employees who are then both more capable and thus more engaged, will be able to provide a higher quality of service.
This in turn justifies the higher prices that customers must pay. Putting up prices will lead to better revenues/profits and better reinvestment into quality of service and development/training of employees, etc. This will be more attractive to current employees and to attract new talent.
But on the other hand, if hotels are unable to pay higher salaries, it will be harder to attract employees and new talent. This means that good service may be harder to deliver. Hotels will be ‘stuck in the middle’: they are not differentiated in terms of service, and they will still have to bear a high-cost structure. This will lead to a change in hotel-industry structure.
As a result, there are two strategies that hotels could implement:
The first is through automation/robotization/digitization, i.e.,replace human staff with technology where possible. This is for hotels implementing a cost leadership strategy. However, not all hotels can go digital with AI, given that this is a significant investment. It is believed that those who can’t are more likely to be acquired by larger groups that have the financial means to bear such costs.
The second is for hotels to take a differentiation strategy and become highly differentiated in order to ensure the best experiences for its guests, as well as the best human experience. These hotels will have the financial means to provide exceptional experiences by acquiring highly capable human staff.
2. Phygitalization will lead the way
The future is currently heading towards a polarization of the hotel industry due to these two strategies. Hotels which are currently stuck between these two will not survive and are likely to be acquired by larger hotel groups. The industry is headed towards a robotization/digitization process; it is becoming ‘Phygital’ – meaning that the physical is merging into the digital. Hotel experiences are being increasingly digitized.
To understand this polarization of the industry, hospitality management schools will have to train future managers to be capable of:
Rethinking strategies to create strong added value around human interaction (differentiation strategy: focusing on hotel guests experience).
Understanding and facing challenges linked to robotization, AI, digitization, phygitalization (e.g., human-robot interaction) of tomorrow in the hotel industry and a cost-leadership strategy.
Bold, fresh ideas
Here at EHL, we prepare our students to participate in the evolution of hospitality industry in all its forms - including crisis management and innovative thinking. The industry is currently being challenged on many levels: staff shortages, talent retention, outdated business models and rethinking the guest experience in an increasingly digitalized landscape. This is a good time to come up with bold, fresh ideas based on a sound and practical hospitality business education. Agile and adaptive programs that address the real-life issues happening in the industry today are what help young talents shape the landscape of the future where hospitality is a resilient, attractive and prosperous career option.