1. The Problem with 2013 An Introduction
5
2. Analysis The UK Hotel Sector in 2013
7
3. SWOT Hotelier Views
15
4. Analysis The Hotel Supply Chain in 2013
21
5. SWOT Hotel Supplier Views
31
6. UK Hotelier Opinion Data
37
7. Hotel Supplier Opinion Data
43
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Hotel Industry Magazine On Hotel Industry Insights 2013 First published internationally in 2013 by Jamieson Media Written by Victoria Jamieson This publication is based on articles originally published in Hotel Industry Magazine and www.hotel-industry.co.uk Digital Web: www.hotel-industry.co.uk Twitter: @hotel_industry Facebook: www.facebook.com/hotel.industry Jamieson Media Hotel Industry Magazine and hotel-industry.co.uk are published by Jamieson Media, a UK Registered Partnership Website: www.jamiesonmedia.co.uk Email: contact@jamiesonmedia.co.uk VAT Registration No: 127 7969 65
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Welcome to the 2013 edition of Hotel Industry Insights, brought to you in partnership with The Independent Hotel Show 2013, the business event for the independent, luxury and boutique hotel industry. Each year, as part of our commitment to providing UK hoteliers with actionable intelligence, Hotel Industry Magazine surveys the sector. Specifically, we aim to measure confidence levels amongst UK hoteliers and review the threats and opportunities likely to feature on their strategic plans. This eBook, Hotel Industry Insights, is designed to aid your own strategic planning process by providing an industry benchmark – for both hoteliers and suppliers to the UK hotel sector. Hoteliers and Suppliers One of the key features of Hotel Industry Insights is that we provide the same level of scrutiny to both hoteliers and suppliers. We appreciate the symbiotic relationship between these two: both prosper, or both suffer. And in 2013, the relationship between hoteliers and suppliers is more important than ever before. The glory of 2012 has really overshadowed 2013; a tourism calendar packed with Olympic events last year has given way to fairly sparse calendar this year. And to make things worse, in its enthusiasm for 2012, the UK market built a lot of hotels to cater for the extra Olympic demand. But with nothing on the events calendar in 2013, what on earth is going to
generate the extra demand needed to fill our now oversupplied market? Innovate or Else! So what should hoteliers do to foster growth? A brief glance at other oversupplied markets like the Middle East suggests that hoteliers should innovate their way out of trouble! In fact, continual innovation has become a way of life to hoteliers in the Middle East. To battle constant oversupply, they focus on and invest in the differentiators that mark them out in a crowded market place. Perhaps hoteliers in the UK have something to learn from this approach? It is for this reason that suppliers to the hotel industry are currently so important to growth. To prosper, hoteliers need to invest in the finest or the most innovative products – but this requires a more collaborative approach between hoteliers and suppliers. This is one of the reasons that Hotel Industry Magazine has supported The Independent Hotel Show since its inception: every October, this trade event connects hoteliers with suppliers exhibiting bespoke, highend and innovative products – precisely the things that hoteliers need to innovate themselves out of the current crisis! Strategic Planning As you prepare your strategic plan for 2014, be sure that innovation and a more partnered approach to your supply chain is a central theme. And if you are looking for inspiration, be sure to visit The Independent Hotel Show on 30-31 October 2013 at Olympia West Hall, London. It's free to attend, simply register via the website at www.independenthotelshow.co.uk Meet new suppliers, talk to them about your 2014 strategy and ask them how they can help you to develop a new, more innovative, competitive edge. ■■■
2013 is shaping up to be a tough year for UK hoteliers and the sales challenge has leapt to the top of the agenda. This year‟s hotelier survey reveals that 99% of hoteliers agree that they need to chiefly focus of sales to boost business in 2013. A key theme that runs throughout the survey is that the UK hotel industry has experienced a challenging couple of years, with a staggering 90% reporting that the economic climate has had a negative impact on their business. In this chapter, we discover more about UK hoteliers‟ predictions around sales growth, RevPAR and ADR and to find out what they will be investing in over the next year. Hoteliers also consider the opportunities open to them in 2013 and the threats and challenges they face. A Difficult Year The results from the annual Hotel Industry Magazine Hotelier Survey 2013 indicate that UK hoteliers are grappling with a challenging year. Before we dig into the data provided by our anonymous respondents, let us first understand what type of businesses they represent and how they operate. 86% of the 148 hoteliers who responded have an annual turnover of less than £1 million. 8% had an annual turnover of £1-5 Million and 1% reported a turnover of £50 million plus. 66% of the hotelier‟s questioned employ between 1 and 10 people
compared to only 5% employing more than 100 members of staff. This is reflected in the figures for the type and sector of the hotel ownership. 64% of the respondents represented independently owned establishments and 68% considered themselves to be in the midscale sector. 12% of the hotelierâ€&#x;s who responded were in group owned establishments, 20% in guest houses and 10% considered themselves to be in the Boutique sector. The budget sector was represented by 20% of respondents, 15% represent the luxury market (and 1% considered themselves to be none of the above). The Hotelier’s Survey Analysis 2013 As nearly 90% of respondents reported that the economic climate had a negative impact on their businesses, it is clear that hoteliers are facing real challenges in growing profit.
Unfortunately, the Olympic Games failed to bolster many businesses as 78% of hoteliers did not consider the Games to have had an effect on profit.
64% of hoteliers reported that they believed there had been increased competition in the past 12 months and 74% of respondents predict this to continue throughout 2013. The reasons for this are considered in the next chapter. Growth in 2013 When asked to rate their confidence in key areas like sales, ADR, RevPAR and occupancy in 2013, confidence levels amongst our hoteliers was low. As we can see, the majority of hoteliers are currently low in confidence that RevPAR rates will grow in 2013; 59% report that they are unconfident or very unconfident about it.
Hoteliers are more evenly split with regard to their beliefs about occupancy growth in 2013 with 44% being confident or very confident that they will see growth and 50% feeling unconfident or very unconfident. 12% donâ€&#x;t think they will see a change in occupancy rates.
The figures for ADR growth reflect the general feeling that 2013 has been – and will continue to be – a difficult year with 62% feeling unconfident about a growth in ADR. However, there are still a healthy 29% of hoteliers who are confident in a positive outcome with regard to ADR growth.
Of those who answered the survey, 54% did not believe that the business environment would improve in 2013. However, 31% did believe that the environment could improve so there was some positivity to be found. 99% of the hoteliers questioned, identified that a focus on sales in 2013 would help to boost their profits. This was reflected in the „Strategic Direction‟ section of the survey where 57% of hoteliers said they will be investing in Marketing and PR in 2013.
Probably unsurprisingly the highest level of investment would be put in to repairs and maintenance as each of the respondents have the upkeep of their property to consider. See the graph below. As the guest experience is key in attracting new and maintaining repeat business 46% say that they will be investing in guest services. Another trend identified in the survey is the importance of sustainability. 31% will be investing in either waste management or energy efficiency or similar in order to become more „green‟. These issues of sustainability have become important to consumers and benefit the hotelier in potentially saving energy and thus money. Establishing new business partnerships also features highly in our hotelier investment plans with 30% having this as a strategy. You can read more about this in the nest chapter. On the next page you can find a full breakdown of where UK hoteliers will be investing in the near future. ■■■
In which areas will your organisation be investing? Repair and maintenance
77%
Marketing and PR
57%
Guest services
46%
Sustainability
31%
Establishing new partnerships
30%
Housekeeping and Laundry
22%
New business models / restructures
20%
F&B
20%
Security and safety
18%
Employing new staff
16%
New FOH guest technology
16%
Revenue Management
15%
Market research
9%
New BOH technology
8%
Spa and Pools
4%
Other
3%
The hoteliers in our research have anonymously shared with Hotel Industry Magazine their predictions on the opportunities, threats and challenges they perceive in 2013.
Opportunities were identified in the following areas: Investing in services or facilities Savings on energy Capitalising on local development and or business partnerships Threats and challenges perceived by hoteliers included the following; Direct/indirect taxation Competition offering cheaper deals Economic climate affecting occupancy Online reviews and OTA Commissions
1. Key Opportunities The hoteliers questioned identified a range of opportunities to be had in 2013, both specific and general. They could offer ideas to capitalise on profit and maximise efficacy. Cost Cutting One hotelier said that they would be focussing on cost cutting on services such as gas and electricity and banking, as these things do not affect the customer experience. It was also mentioned that smaller businesses pay very few or lower business rates and can charge lower rates as a result.
Investment in the Guest Experience One of the respondents considered that investment in the guest experience would attract custom. They intend to invest in facilities and the presentation of their hotel. Another respondent intends to extend their hotel and build more rooms. This is echoed by a hotelier who said that they will, “continue to invest to drive quality”. Providing relevant and unique guest services featured highly in our survey. For example, one hotelier stated their priority to, “provide excellent quality and value evening meals for our guests when other hotels are no longer providing meals” Others added: “We have outstanding facilities for those in wheelchairs, so this has helped us to retain a certain level of custom.” “The opening of our new swimming pool and fitness centre – this gives us something extra for people to do when the weather fails.” Staff training to deliver excellent customer service was also rated as an important investment to attract repeat custom and good online reviews. Local Development and Business Partnerships Capitalising on local development and business was seen as an important factor in boosting company profits. Business partnerships were cited as providing opportunities for profit and marketing. Several of the hoteliers identified local projects and businesses as good profit making opportunities for them: “In our area, we have a nuclear power station which has visiting contractors all year round and this is what we depend on through winter months,” and, “a government funded bypass commences in July 2013 and this could be our only opportunity to increase guest numbers”
Marketing Marketing was also seen as a way to inflate profits. The marketing of local areas or cities as resorts was identified as a way to attract people to them – something that has been financially supported by the government through localised destination management funds. Establishing your premises as unique or remarkable in some way contributes to successful marketing. 2. Key Threats and Challenges The hoteliers who took part in our survey spoke candidly about the threats and challenges they are facing in 2013. As we have identified, this has been a difficult time for the hotel industry and the hotelier‟s share their predictions about the challenges they face and will be facing this year and beyond. Rates Continuing high rates of direct and indirect taxation were cited as being a real challenge for hoteliers in 2013. They were concerned that as rates increase, prices have to be dropped to attract custom. Fuel price increases and energy price increases were considered a real problem. Price slashing within the industry and costs increasing above inflation were difficult to reconcile. Competition The biggest concern and the problem most commonly cited, was competition. “The increased growth of cash investors into the industry on a local level (redundancy purchases for example) providing cheaper stays in our area.” Respondents mentioned the larger budget chains; these are able to
attract custom with very low room rates and services with whom it is very difficult to compete. One respondent said: “The opening up of so many Travelodges and Premier Inns who can undercut our prices in the winter are a real problem. The challenge is getting guests to realise that there are better and more personal options available if they are prepared to look for them.” This is confirmed by another hotelier who says that room rates have been slashed in order to compete, regardless of star ratings: “New hotels being built in an area where there is already a lot of competition, at present where a 3* hotel reduces its rates to match a 2* hotel, for example a 3* normally £120 per night DBSO, is now £79” Another was concerned that local entrepreneurs were taking advantage of a situation: “Due to work commencing in July, business entrepreneurs have been buying up derelict buildings suitable for renovation to be used as bed and breakfast premises. They will offer lower rates that our standard rates which we would not be able to match.” One respondent was concerned that the banks were concerned with building their reserves and as a result would be more aggressive when it came to repossessions. Economic Climate The economic climate was seen to affect guest occupancy: “With the current economic climate, families and people in general seem to have less disposable income, so trips taken are shorter or not taken at all, this in turn has an impact on us and the business turnover and occupancy rates.”
This is a major challenge for our hoteliers as they must think of ways to market to these guests to attract them despite the financial climate. So they must either be convinced that they are getting a good deal; hence the price slashing or that they are getting a unique experience; hence investment in the guest experience. Online Review sites and OTAs Online reviews are a challenge for hoteliers as they are increasingly being relied upon as recommendations for an establishment. One respondent highlights this in the following statement: “Online review sites are deterring people from coming into the independent sector of our industry. This is preventing the sale of businesses and creating downward pressure on property prices.” OTA commissions and sites offering massive discounts were also criticised as damaging profits in the industry by “taking what money there is and fostering a discount culture.” Outcome It is clear that 2013 has been and will continue to be a challenging year for hoteliers. In an environment where price slashing and high rates are consistent issues for the hotelier to deal with, competition is a major concern. The hotelier in 2013 must invest in their own services and in the guest experience in order to differentiate themselves from the competition and provide the best value that they can, whilst at the same time maintaining their own standards of staff care, quality and profit. ■■■
In this section of the report, Hotel Industry Magazine has surveyed some of the industryâ€&#x;s most reputable and experienced suppliers to build a picture of the supply chain that underpins the UK hotel sector. The information contained here is designed to provide a broader overview of the hotel sector in the UK – but it is also useful to hotel suppliers looking to benchmark their performance and aid future decision making. The report provides insights into how readily hotels are investing in new products, which sectors of the hotel industry are proving to be most profitable for suppliers and the supplier perception of the business environment this year. New Confidence in 2013 Of all the data contained in this report, one trend leaps out: 83% of suppliers to the UK hotel industry believed that the business environment would improve in 2013, compared to only 50% in 2012. Could this be the sign of a strong recovery? A new market confidence? From the supplier perspective, it does seem that hoteliers are finally ready to invest in and embrace new products and services. But, with optimism amongst suppliers riding high – an increase of 33% - this new found confidence is a curious trend. At the same time, suppliers consider that hoteliers are equally as cost-conscious as they were last year.
In 2012 83% considered hoteliers to be more cost conscious compared to 85% in 2013.
Hotel Supplier Survey Respondents Before we further investigate the results for our anonymous survey, let us consider some of the finer details regarding the type of companies who responded. 60% of the suppliers questioned had a turnover of less than one million. This survey therefore, in the main reflects the views of smaller businesses as they did in Hotel Supplier Survey 2012. 11% of respondents had an annual turnover of ten million or more and only 7% employ more than one hundred people, compared to 58% employing between 1 and 10 people. Smaller businesses will inevitably feel a greater impact when hoteliers “tighten their belts�. With cash flow a constant challenge, suppliers feel that hoteliers are being more cost conscious and taking longer to pay invoices. 85% believed that hoteliers were being more cost conscious and 55% disagreed that invoices were paid promptly. With this in mind, it is therefore understandable why suppliers continue to operate diverse business models: 46% of our respondents only generate 20% of their overall revenue from the hotel industry.
Hotel Sectors The most profitable hotel sectors for suppliers in our survey continue to be the mid scale and luxury sectors with only 26% citing the budget sector as being profitable for them.
This is reflected in the type of hotels the suppliers are selling to - 72% of which are independents. This may directly correlate with suppliers being smaller businesses, supplying niche products to a niche market, or alternatively, it may reflect the growing need to diversify the product. In a crowded marketplace, many hoteliers are investing in unique products or services in order to stand out from the crown and offer something different to customers.
Olympic Games Last year, we asked if the 2012 Olympic Games would prove profitable for supplierâ€&#x;s businesses. 31% believed the Games would translate into profit – but when asked to reflect on the question this year, only 21% said that the Games were profitable for them.
In fact, 63% of the 2013 respondents said that the Games were not profitable for them at all, compared to 32% predicting the impact in 2012. Suppliers were certainly hopeful in 2012 that the Games might help generate profit but despite the joyous occasion and monumental wins during the Games, the legacy for hotel suppliers was not a positive one. Competition and Quality 78% of suppliers said that competition has increased in 2013 with only 12% disagreeing. 79% see this competition continuing to grow throughout the year. This reflects the supplierâ€&#x;s belief that the business environment will improve in 2013. For hoteliers, increased competition can only be a good thing, providing them with choice and competitive pricing.
57% of suppliers believe that hotel clients are prepared to pay for quality. This may of course, reflect the sector these suppliers are targeting.
Mid-scale and luxury hotels would certainly be more prepared to pay for quality than perhaps the budget sector may be. 2013â€&#x;s survey demonstrates that hoteliers are more prepared to pay for quality, in the supplierâ€&#x;s opinion, than last year where 49% of suppliers considered that hoteliers were prepared to pay for quality.
25% of suppliers expect their revenues from hotels to grow in the next 12 months by 20% or more. Considering that supplier confidence is so high (83% believing that the business environment will improve in 2013), it is surprising to note that in 2012 only 31% of suppliers expected their revenue to grow by 20% or more this year. Economic Climate This year, 71% of suppliers said that the economic climate has had a negative impact on their business compared to 60% the previous year.
Certainly, we are deeper into the economic downturn and the Euro crisis has developed in earnest since last year‟s survey. Suppliers are therefore likely to be more conservative in their growth predictions this year, despite the fact that our survey shows that the industry remains optimistic in 2013. Suppliers know that they must endeavour to stand out and provide quality which can only benefit hoteliers. ■■■
We asked our anonymous respondents what they perceived to be the opportunities, threats and challenges faced 2013 and beyond. Below, we have stitched together the common themes that run throughout the survey to build a fully picture of the state of the supply chain to UK hotels in 2013. Economic Climate The Economic Climate and perceptions of its recovery featured heavily in this yearâ€&#x;s responses, as it did in 2012. However, this year there seems to be greater optimism for growth and confidence in the economy. Suppliers urged hoteliers to invest, in order to grow their businesses. One supplier identified the following: “Convincing clients or potential clients that expenditure on investment can prove beneficial in their increasing in business and ultimately profit.â€? Suppliers identified new construction worldwide as a huge opportunity. As confidence in the economy is growing, new developments potentially offer suppliers healthy gains in profit. For the hotel industry, this means increased competition and, as a result, hoteliers will be forced to invest in products and services that differentiate themselves from the competition. Suppliers feared that many of the threats and challenges they face
link directly to hoteliers and hotel management: namely budget cuts in the hotel industry. “A key problem is that clients are failing to see the pitfalls of purchasing low-quality imported supplies.” Another supplier elaborated on this point: “Hotel procurements need to know what 5-star discerning clients require to enjoy a satisfying stay. Budget pillows, mattress protectors and duvets only waste money and annoy guests.” Scaremongering in the press about the economy was also cited by one supplier as being a threat to their business. As hoteliers become more wary, this impacts on the supply chain. Another supplier identified prompt payment of invoices as a critical element to the success or failure of a business: “Cash flow is key to all of us, and prompt payment of bills is crucial.” The number of hotel closures is also concerning many suppliers, but in the main, suppliers were confident that if hoteliers continued to make good investments in their business they would be able to grow and maintain a competitive edge in a growing economy. Training and Development An emphasis on training and development, including apprenticeships was made by suppliers, who considered that training and investing in staff played a major role in helping the hotelier grow their business and maintain standards in a competitive market. One supplier said: “Hotels continue to employ poor-quality staff on low wages and so cannot successfully do my work in house.” Training is therefore essential in keeping up to date with standards
and new innovations. New Technology Unsurprisingly, technology was a hot topic for discussion. As new technologies emerge, investment in training was identified as an important factor in keeping up with new opportunities. Investment in technology training needs to occur at both ends of the supply chain, to ensure that the industry as a whole understands the benefits that new technology can bring. One supplier commented: “There is a lack of understanding about the revenue available to hotels when they employ green and sustainable technology.” Others warned: “Internet middlemen are watering down margins and increasing complexity.” “Cheap web promoted solutions are promising help and support to the buyer, but rarely deliver on this.” “There is no logical business model for the providers of free software products to generate a working income – and the value of these services is regarded as valueless by the end-using hotelier – no one wins.” Education across the hotel sector and the industry that supplies it is essential to avoid these pitfalls. Additional Opportunities The businesses represented in this report are eclectic. This is reflected in the opportunities they identify. Below are some of the other opportunities not previously mentioned in
the report.
Partnering/strategic alliances to offer a broader range of services and products
Getting the independent hotel market together to get improved purchasing deals
The focus on fog and waste management
Growth in designer products
Better use of mobile and internet applications
Growth in green tourism
A possible reduction in VAT – campaigns are growing nationally
Additional Threats and Challenges
Other threats and challenges noted by suppliers but not previously mentioned in this report include:
Localisation of the supply chain
OTA‟s, GM‟s and GD‟s focussing on price rather than experience
Increased competition from suppliers from other sectors (including. healthcare, pubs etc)
Cheaper foreign imports
Hoteliers continue to price compare bespoke products with conventional ones
Continuance of the 20% VAT rate
Cost pressures and margin reductions
The Hotel Supplier Survey identified many areas for opportunity for both suppliers and hoteliers alike, including new technology, the advantages of training and development and confidence in the growing economy. Threats and challenges were also pertinent to both the hotel sector and suppliers including the pitfalls of cost cutting, the perils of having untrained staff and the need to harness new technologies. â– â– â–
Do you know what fellow hoteliers are thinking? To help you benchmark your views against those of your peers, we have collated hotelier opinion data from across the industry. These pages relate specifically to UK hoteliers – check the next chapter for option data on the UK hotel supply chain.
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Do you know what fellow suppliers are thinking? To help you benchmark your views against those of your peers, we have collated hotel supplier opinion data from across the industry. These pages relate specifically to suppliers of UK hotels – check the previous chapter for option data from UK hoteliers.
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