How You Can Reclaim Your Fair Share and More
These days, hotel and resort operators are feeling more and more heat from their owners to move the needle on ancillary revenue. RevPAR growth has dramatically slowed down to a pace that appears to be a new normal, finally joining the lukewarm growth trend that has famously hit so many other sectors of the economy for so long. But hotels have taxes to pay and debt to service, and will have to find that profit somewhere else. The good news/bad news aspect of the story is that, thanks to improved automation and the sheer necessity brought about by the Great Recession, hotel operators have gotten extremely good at cost control. That’s good news! But the bad news is that there are no longer many places to go to find more savings, especially not anything guest facing in the age of Trip Advisor.
But back in the good news column is the revelation that the cost controls have made certain parts of the business more profitable than was previously thought possible. Casino hotels are discovering traditional revenue streams that now rival the profitability of gaming revenue, and are taking a fresh look at how they assign a value to their patrons. One example of such a revenue stream that emerges–without massaging any numbers–is spa. Given the particular complexities of running a spa operation, if the outcome was possible there, then other activity types are likely to yield similar results as they mature. So, thanks to these changing industry fundamentals, rather than their traditional perception as loss leaders, activity bookings are becoming the new darlings of the balance sheet.
Gaining Experience with the Experience Economy
It has now been a few years since a Harris Research study commissioned by Eventbrite first put numbers behind the undeniable emergence of an “Experience Economy” fueled by Millennials. Their research uncovered what now seems very common knowledge: that they would much rather spend on experiences over things, that they disproportionately suffer from “FOMO” (the fear of missing out), and that they feel that if an event hasn’t been posted to social media, then it might as well not have happened. So many articles and conference presentations continue to refer to Millennials with an air of condescension. After all, who do these kids think they are? Well, according to Pew Research, for two years now, these “kids” have been the largest generation in the workforce. These “kids” are on track to become fully half of that workforce by 2020. The oldest of these “kids” are now pushing forty, and have paid off their student loans long ago.
These “kids” are starting to have money.
But they continue to value experiences over ownership. They continue to define their identity by the experiences they memorialize in social media, not the cars they drive, or the houses they can now afford. Their swelling numbers among the ranks of both business and leisure travelers should be creating a noticeable demand surge for hotel rooms. But it’s not happening. RevPAR is still growing, but that growth is slowing dramatically-hotels don’t seem to be getting any of the money that’s no longer being spent on owning luxury homes and cars. What happened?
Making Memories? At Hotels? Seriously?
In most of the world’s popular destinations, there was once a time when having an authentic, local experience always included paying a visit to the city’s local landmark hotel. And it wasn’t usually due to any specific attraction there, not like seeing the Duck March at the Peabody, or riding a gondola at the Venetian. It was simply because it was a central community gathering spot where you would see locals hosting or attending many of the most memorable events of their lives-–the proms, the Bar Mitzvahs, the weddings, the dressy fundraisers, the holiday parties–all sure to be steeped in local customs and traditions. Even witnessing the everyday power breakfasts, business lunches, and after-work gatherings for drinks in the lobby conveyed a lot about a city’s local culture, even if you didn’t talk to anybody or even speak the language. Food and Beverage was a still a destination. It was before people said “just” when mentioning their plans to eat there, i.e, “Where are you going to have dinner, Joe?” “We’re just going to eat here at the hotel. We’re tired.” No, you would go for “Tea at the Plaza” expressly to overpay for a dose of fancy, and a salad being named after the Waldorf wasn’t an insult (though many would claim it was an insult to the hotel, and was never actually served there.). Famous artists and writers would gather in the Algonquin lobby bar—right there out in the open where everyone could see them while they were registering. And that crowd paled (they were actually all pretty pale, from what I read), in comparison to the star gazing that was possible at hotels like the Chateau Marmont or the Beverly Hills Hotel.
But this is not what Millennials grew up with. When they actually were “kids,” their family vacations took place during the darkest days of hotel brand commoditization, making their earliest memories, well, not so memorable. As they grew up, brands proliferated to break the monotony, and as they approached adulthood, some were even created specifically to target them, like citizenM and Radisson Red. When they were in their twenties (fifteen years ago!), these brands were surely a welcome change, and provided a more communal experience. But at this point, though these aging Millennials continue to value their experiences, the leading edge of the cohort is probably ready to experience something else.
This should have represented a new opportunity for hotels to provide Millennials with the authentic, local experiences they continue to crave, and to reclaim their authority as trusted advisor on how to have local experience. It should have, but it did not. Based on their lifetime experience, Millennials have been given no reason to even to think of their hotel as a venue for authentic, local experiences, or even as a source of guidance for where to find them. They can search the web just easily as someone behind a desk, and there’s no line in which to wait. So, it’s really no wonder that Airbnb has been so successful as an alternative. Who needs a hotel concierge anymore, when there are so many sources of tours, activities, and experiences on line, like Viator, Peek, Rezdy, FareHarbor BeMyGuest, and others (apologies to the dozens I’ve surely left out)?
Who Needs A Concierge?
Who needs a concierge? Well according to Airbnb, their customers do, so much so that they created their “Trips” initiative to be sure to stay in control of as much of their experience as they can. As Millennials approach their peak earning years, Airbnb doesn’t want to just be a substitute—they want to be the go-to. And rather than leave the local availability of experiences for their customers to chance, they are taking an active role in not only aggregating them, but actually recruiting hosts to grow their supply. Many hoteliers are surely thinking, “boy, the things you can achieve when you’re not saddled with operating a food and beverage operation! Or worrying about the AAA inspector, or…”
Fair enough, but hotel manager’s don’t get a pass. As stated earlier, they used be the destination for experiences, not a just a launchpad. Yes, all those years of pathological commodification, then the long recovery from the downturn, followed by years of arrival lists dominated by Gen X’ers who simply wanted to be left alone, all surely took their toll on the hotel as experience venue. Not to mention that anyone who viewed experiences with a sense of get-up-and-go, got up and went! But they went—to Las Vegas! But increasing distaste for the artificiality of that experience, in addition to the wider availability of casino gambling all over the country, have given “normal” hotels the opportunity to retake their position as the go-to authority on the local experiences for which Millennials are so ready to pay.
Many would say they are trying. The famous chef is running the three-meal restaurant. The spa is up and running and actually performing at higher margins. They invested in the fitness center like everyone said to, and hired an instructor to lead chargeable classes and provide personal training. And all they’re getting is wear and tear on the equipment, and just enough uptake to meet fixed expenses. In fact, that’s often been the most tantalizing part of the experience economy: by and large, once you’ve met fixed expenses, operating leverage kicks in, and additional bookings are almost pure profit. GM’s are left to wonder, in a medium sized property in a secondary market, will there ever be enough interest in any one activity to vault over that hurdle? They will complain that no one books these activities in advance, so there’s no ability to optimize staffing, or to get a sense of a booking curve to determine demand-based pricing. But yet, more and more frequently, Millennial guests are arriving with their calendars already filled with plans—authentic, local plans—that are not on property. You have to remember that, ever since they were in kindergarten, the Mantra has been “to be unscheduled is to be uncool!”
What Have They Got That I Don’t Got?
So “who do these kids think they are” leaving the property for food, music, wellness services, all things that are available on property? In considering why that’s happening, ask yourself these questions:
- Do you tell people in advance what activities you have? Where? In what channels?
- If so, are you perhaps meeting your fixed expenses by whacking your guests with activity pricing that only the most captive will pay?
- Do you make it possible for people to book their activities on line, either when making the room reservation on your website, or subsequently?
- No? They have to call? Oh. Can they at least book their room and their activities on the same call, with the same person? All on a single itinerary, like the one their Moms made them when they were kids?
- When you receive OTA reservations with the usual, and deliberate, paucity of information, do you have anyone trying to see if they’ve stayed with you before, and if you captured their e-mail, so you can make them aware of options? So you can assume your role as expert on your destination, and not leave it to a chat-bot at a national aggregator?
- Are you aware of what activities the national aggregators are offering in your market?
- Did you know that you employees might already be signed up as agents in their systems, collecting commissions? This isn’t necessarily bad—it’s actually good that they are taking back your rightful role as destination host. But it’s not good if they are sending business out the door, simply because, ever worried about high fixed costs, you didn’t provide them with the same incentive to sell that a cyber-stranger was willing to, and probably also provided richer content on the activities, positioning them to appear more knowledgeable with the guests. What would you do in their position?
Not Just a Technology Issue
It is likely that many answers to the questions above will be “no’s” due to technology. And hoteliers are likely to wonder how Airbnb, Viator, and even the local mom and pop tour operator managed to get their hands on modern booking technology that allows Millennials to book where they want when they want, while hotels are left fielding voice calls with their fragmented array of activity-specific systems, often having to transfer guests from activity center to activity center. What happened?. How did hotels fall so far behind?
Believe it or not, the hospitality industry was actually one of the first to begin migrating its applications to the cloud, but traditionalists will be comforted to know that, by all indications, it will be among the last to finish. There are a variety of reasons for this, but after so many years of solutions being developed to solve every conceivable pain point for hotels, rarely was it a case of having nowhere to go. However, when it comes to an enterprise solution to manage activity bookings, that appears to be exactly the case. While plenty of fine cloud solutions and apps have come to market to handle specific activity types like golf or spa or ski for hotels, none had emerged to expertly support all of them, so that the same call center agent can book a diverse itinerary for an entire family, or even more importantly, that a guest can book it for himself online, and have a single itinerary for his entire stay to confirm that he did it right.
There are also many apps that can accomplish this outside of the hotel world, and who are connecting the tiniest of activity businesses to the Millennials who want to book them on line, and providing onward distribution to global partners. Like any aggregator, they are looking for as much inventory and choice as they can find, either to obtain a critical mass of open listings, or for those whose model calls for taking a more active role in curating their experience offerings, to have as many choices as possible with which to do so. So, on-property hotel activities were on their radar, but any of the startups that attempted to tap into the activity inventories of hotels and resorts, surely came to feel that they were building a bridge to nowhere. First, they encountered the ridiculously complex and fragmented nature of the hospitality technology ecosystem, which some might have even thought they could invade and be viewed as liberators. But instead what they found was an entire class of suppliers whose response to their request for inventory ranged from firm reluctance to overt hostility. To hotels, this sounded just like the first conversations they had with the OTAs so many years ago, and after years of ceding more and more ownership of the guest relationship to them, the exclusive ability to sell their own on-property activities is one of the few competitive advantages they have left.
So, a moral victory was won; hotels have retained control of the sale of their activities. And as the stereotypical Millennial would ask, “So, how’s that working out for you?” Well, for the tour operator booking system vendors and the “OTA’s” to which they distribute, it’s actually working out pretty well. They might even feel they dodged a major bullet. One of them even specifically states that its solution is “not for the lodging industry.” With no headachy PMS, CRS, legacy spa or golf systems to worry about interfacing to, they have been able to apply more resources to their core technology, and to helping their suppliers with their content and implementations. And, as with Airbnb, they have the time to actually go out and grow their supply of activities, by recruiting additional suppliers to join the electronic marketplace. As a result, the aggregators have more than enough compelling inventory to entice Millennials out your front door into the community, and in one particularly noteworthy case, to actually get them to stay there overnight! And when Millennials browse the options, they might not even notice the absence of hotel activities, since they wouldn’t have expected to find them there in the first place. Yes, hotels and resorts are being left out of the “Experience Economy.”
So what can they do about it?
Prescriptions for Hotels and Resorts to Stop Missing Out on the Experience Economy
To get their fair share of the Experience Economy, hotels and resorts will have to fill both gaps that were described: a) the technology gap, and b) the process gap. Hotels and resorts should certainly use the experience they’ve gained on the rooms side to guide their path, but they will have to try hard to lose the jaded mindset resulting from years of perceived usury at the hands of those who provide electronic distribution, with their sub-par reservation delivery methods, pesky transaction fees, commissions, complicated merchant models, and anti-competitive rate parity rules. And even in cases where the industry attempted to control its own distribution destiny with its own technology, for example RoomKey or TravelWeb, when it came time to put up the marketing budget needed to take down their OTA partners, well, it turns out they just didn’t have the stomach for it. Even the largest hotel companies who have merged and acquired their hearts out to get to adequate scale to compete, are still being way outspent. Fighting a global battle does not appear to be the answer. Instead here are some suggestions for filling both gaps: