Four Macro Factors That May Erode Midscale Hotels

The travel recovery this summer is at full throttle, but to keep the gravy train going hotels have to look not only at what the post-pandemic guest wants, but also the customer two years, five years and a decade from now. How will our industry evolve? Having a good picture of this can inform CapEx investments, branding vision and any tech implementations to support those other two.

Per the title, our thought is that travel will evolve at the extremes of the spectrum as global changes increase the needs for economy and limited-service accommodations, as well as upper upscale and luxury properties, but at the expense of the middle categories. It’s not an extinction, though, but a thinning out of midscale and upscale demand, resembling a barbell distribution. Here’s our short list for what may cause this.

  1. Erosion of the middle class. The pandemic money printing has caused the rich to get richer and the poor—those without non-cash equities or other assets—to slowly drown from the costs of inflation. With wealth comes increased demand for high-end discretionary expenses like luxury hotels that are quite price inelastic, while relative impoverishment leads to travelers seeking no-frills accommodations and rate sensitivity down to within five dollars. In the arms race to serve these two divergent cohorts, the middle-of-the-road hotel brand becomes the master of none.
  2. Stagnation of business travel. Yes, it’s returning post-pandemic as every good salesperson knows that deals are best done in-person. Still, the conveniences and cost savings of videoconferencing are too great for companies to ignore. As such, expect curtailed corporate travel budgets to be the norm once we’ve gotten all the pent-up demand for meetings and events out of our systems. And because this segment was a major contributor to the health of upscale or four-star hotels around the middle of the distribution, it’s natural to assume that as this revenue silo diminishes these properties will pivot in search of new customers.
  3. Technology driving the extremes. Automation capabilities now allow hotels to do more with less to the point where basic services can be satisfied with minimal staffing requirements—critical during ongoing labor shortages and the demand for better margins from owners. This will nudge organizations towards the select service camp. At the other end, the continuous arms race for luxury and ultraluxury is forcing upscale hotels to look to advanced, tech-driven wellness program upgrades as a means of giving guests an ongoing reason to choose their brand over others. But all this medical tourism and longevity tech doesn’t come cheap, which means it’s only accessible to those brands that are able to charge an arm (with a nice watch attached to it!) and a leg for the experience.
  4. Positive feedback loops from investors. Where focus goes, money flows. With the abovementioned three forces shifting the ground into this barbell distribution, savvy investors will look to meet the market by further promoting this digression. This will happen through such processes as reflagging followed by a renovation to the new brand standards or investing in emerging, popular hotel brands that are more attuned to these new guest demands.

While this scenario may not hold true for your market and, of course, there are exceptions, the one fact throughout is that the world of hotels will continue to be exciting for the foreseeable future! Hope you’re making the most of this great summer of travel!

Lifestyle Lessons

A macro-trend to note for the decade ahead in hospitality is the shift towards experiential hotels. But what does that mean exactly? Not to confuse you right off the bat, but this can be anything and everything that ‘moves’ your guests. Now to confuse you even further, a good place to look for inspiration is to retail—yes, that sector of the economy that was destined for the scrapheap following all the lockdowns and COVID-19 scares.

What’s telling from this is that some retail brands are emerging from the pandemic just as strong. And even before 2020, there was a strong psychological reason for why Apple stores commanded some of the best revenues per square foot and even Amazon—the epitome of online retail—has been planning a rollout of retail outlets. Now think of the aspirational experiences perpetuated by world-class luxury brands like LVMH, Bulgari or Cartier.

To fully grasp how much the ground will shift over the next few decades, you first must understand the fundamental meaning of the word ‘lifestyle.’ It encompasses more than just a hotel that has a specific theme to attract certain clientele. In our hyper-capitalist era, it is how a person defines their identity through any and all brands they associate with and, crucially, want to spend their hard-earned cash on.

Successful lifestyle hotels are those that provide a meaningful stay for guests through the alignment of amenities, furnishings, food, activities, décor, staff demeanor and overall vibe with an individual’s beliefs. Particularly in a time of heightened competition and so much noise grabbing at consumers’ attention, having a bold theme that’s emotionally impactful on multiple levels will help to command loyalty, healthy off-peak occupancy numbers and RevPAR growth.

What’s the future to bring if this continues on its current course? Some pie-in-the-sky ideas across a variety of industries include:

  • Ferrari Hotels for car enthusiasts with driving experiences and heaps of onsite memorabilia;
  • Lindt Hotels for chocolate lovers offering a full program of pairing and cooking classes;
  • Apple unveiling a ‘hospitality lab’ in Cupertino or downtown San Francisco where guests can stay in rooms with all the latest gadgets as well as test out some that have yet to be released;
  • Mondavi starting a resort chain to immerse guests in its portfolio of wines through a variety of tastings and educational viniculture-themed activities;
  • Patagonia launching its own glamping label where customers select from a global list of curated expeditions with all clothing, equipment and luxury yurts included;
  • Lululemon deepening its sponsoring of yoga retreats by flagging a secluded wellness resort;
  • An international cosmetics company like L’Oréal, Clinique or Estée Lauder opening a series of chic and boutique properties in alpha-tier cities to cross-promote their full product lines.

For us hoteliers—principally in the independent or boutique luxury segments—what you can learn from this ongoing development is that you must further entrench yourself in the local community or what your property stands for.

This starts by taking a hard look at the vision for your property and what you want its ‘brand essence’ to be (borrowing the term from our advertising days). Then look to form exclusive partnerships or develop meaningful brand associations across a myriad of different industries so that guests come to be proud to stay at your hotel. Rest assured, this is not an easy process at all and one that will take years to properly plan then execute!

Automation Tech Needed Now

In the face of the Delta Variant and so much prolonged uncertainty over the future of global travel recovery, hotels need technology more than ever to survive.

We all know their myriad advantages in today’s world, including the ability to make more data-driven decisions, increasing social distancing for guest safety, heightening service delivery through deeper integrations and enabling remote work to keep managers engagements.

But above all, we should focus on automation because it is becoming quite clear that maintaining full staff levels is a hard nut to crack for the following reasons:

  • Numerous workers have permanently left the industry as a result of COVID-19 and the furloughs;
  • There are several macroeconomic forces at play that are requiring hotels to pay a significantly higher wage in order to recruit new labor;
  • Maintaining workers in high-touch positions to prevent sizeable turnover requires substantial monetary and non-monetary compensation that hotels cannot often afford;
  • All the additional training necessary to meet the new governmental safety guidelines disincentivizes new candidates and demotivates current employees.

We need solutions to address this labor shortage, lest our service levels suffer and, worse, we won’t have the operational bandwidth to implement new initiatives. Let’s unpack this a bit further and also deduce some ways that technology can help mitigate the issue—both involving automation and simply a smarter use of the current platforms.

When Do Hoteliers Think?

The problem with all the lean teams created during the pandemic is that, by clustering all the daily minutia into a few select personnel, those individuals aren’t left with any prolonged chunks of time to think and devote their focus to projects that will advance the business beyond steady-state management—to do the ‘deep work’ as it is known.

Compounding this new model of continuously interruptive workflows is the fact that, coming out of the pandemic, many hotels have opted to keep their teams lean, regardless of macroeconomic labor conditions. So, if skeleton crews can be assumed to be semi-permanent going forward and we know that this in turn creates a problem insofar as creating too many short, immediate and coordinative tasks, the solution is to then look at both the cultural shifts and technological tools that will help to protect managers’ time from all these somewhat toxic attention dividers.

Fewer and Better Meetings

As a quiz question, how much time is wasted on a five-person video call when four members are left waiting eight minutes for the fifth manager to join? The answer is 32 minutes of lost productivity!

Now think of other wastes of time and how they can accumulate. How much short-burst time is spent in endless email chains coordinating a one-off meeting time? Coming out of a meeting, how do you ensure that everyone knows their exact responsibilities and due dates?

To start, we advocate fewer meetings overall. Additionally, lots of calendar systems can help with coordination by setting up recurring timeslots and attaching collaborative agendas so that everyone stays on track. Importantly, there should be an easy way for any attendee who isn’t a major participant to opt-out and get access to a recording or minutes on a cloud-based work management system so that all this never devolves to crowding an email inbox.

Email Reduction Platforms

Back and forth email correspondence with guests is a great way to boost service. It’s also highly interruptive when your lean team has 10 other matters on its plate that need dedicated stretches of concentration. The solution, in a word, is chatbots.

The deployment of chatbots allows your guest services team to automatically offload all basic inquiries and reservation requests so that managers are only looped in when it’s a more complex situation or error escalation event. Second to this would be a solid and well-connected operations management system that can seamlessly deliver all the necessary service tasks to the appropriate staffer without ever notifying a manager unless it’s required.

The Biggest Cost is Your Time

To restate, perhaps the biggest benefit of automation is that it saves your team from a barrage of interruptive emails or texts that prevent managers from focusing for a solid hour on a singular project. The obstacle to implementing all of these technologies is that it is difficult to quantify the ROI.

This requires a cultural shift at the highest level. While time savings may not immediately translate into a discernable ROI figure, our hope is that an understanding of how important time savings are will suffice to elucidate the dangers of constantly distracting your managers with the everyday tasks of running a hotel.

Can Supercommuters Help Save The Day?

There have been so many permanent or semi-permanent changes as a result of the pandemic that hotels must pick their targets. Properties and brands must really define which markets, demographics and psychographics they are going after in order to optimize their marketing spend and hone operations while keeping a skeleton team.

Today, the focus is on the ‘supercommuter.’ Since March 2020, professionals from numerous sectors have been enabled to upgrade to a larger house farther away or simply hunker down at the cottage due to changes in a company’s work-from-home policies and deeper rural penetration of speedier Internet services. Even as managers are ordered back to headquarters, many companies are maintaining more flexible conditions, allowing employees to work remotely and only come in every so often.

Hence, the supercommuter is defined as a professional who journeys well over an hour (possibly over two hours) to reach a given destination, often in an urban center, for work, but only at an infrequent rate of once per week or twice a month. With such a long drive or train ride, the return trip may be too much to undertake following a long, grueling day at a physical office location. Instead, wouldn’t it be better if the parent company hosted said employee at a nearby hotel for the night, thus allowing the fatigued worker to hit the road with fresh eyes the following morning?

While this may seem to be just another use case within the purview of a general corporate rate agreement, it’s important to highlight what differentiates the supercommuter from other guests within the business segment. As a start, many of these long-haul travelers will be arriving at their respective offices via their own personal vehicles in lieu of a car service to and from airports or train stations. Hence, such amenities as free parking (or vouchers), valet and snacks for the road should be packaged into a rate to make it more attractive.

Secondly, in all but a few cases supercommuters will be visiting their own places of business for collaborative sessions rather than dropping in on clients’ offices for training seminars or prospective clients to give a sales pitch. This slight change in modality may necessitate higher demand for office spaces within hotels that can facilitate small group projects.

As an example, a late afternoon brainstorm in a downsized company headquarters may spill over into the evening hours. For a change of scenery, several members then decide to regroup back at the supercommuter’s hotel suite, assembling for a roundtable discussion in a connected room or a meeting venue downstairs that can be conveniently booked by the hour via an app.

As hotels search for ways to reinvigorate this stagnant segment, appealing to the needs of the supercommuter may be one possibility that works in tandem with or mutually exclusive to the currently in-vogue programs focusing on working from a hotel (WFH). From that previous scenario, you can thus see how a WFH rethink of your suites or connected rooms can have legs beyond the immediate behaviors associated with our current pandemic state of mind.

While this niche traveler disposition is obviously not a gamechanger by any means, the near future of successful hotels will be marked by finding those pockets of revenue during the industry’s gradual return to healthy occupancy numbers. A small win is still a win. If you happen to own or operate an urban hotel looking to negotiate some new corporate contracts, then factoring in the specific desires of the supercommuter may help you get the business.

Modernizing Temp Agencies Through Apps

The recovery is coming, that we know. The problem is that we don’t know what shape it will take and thus cannot accurately forecast labor requirements. Moreover, as hotels are still reeling from the shutdowns last year, we’re all loathe to rebuild our fixed labor costs without reasonable justification via steady revenue performance.

As crazy as it may seem, picture a scenario where domestic U.S. travel restarts in earnest in May, with some markets (primarily drive-to resorts) witnessing a 10-to-20-point, week-over-week increase in occupancy until hitting as close to 100% as possible by early summer. This creates a log-jam for service because all staff need to be retrained on all the new protocols, while at the same time there is a limited labor pool to draw from as a result of all the industry exits in 2020.

Your reputation and revenues will suffer if you don’t address this staffing issue right now before guests start booking again and you have your hands full. In the past, the need for variable labor was solved via temp agencies, but COVID-19 has brought to light their flaws. Namely, there’s seldom proper accountability with hotels constantly having to worry about, say, workers arriving in the wrong uniform or (nowadays) not strictly adhering to the new viral safety protocols.

Luckily, just like how ridesharing apps–Uber and Lyft primarily–helped to revolutionize the taxi industry by solving many of the old guard’s shortcomings (such as inconvenience of enlisting a driver, route scamming or safety concerns), new on-demand labor platforms are here to disrupt temp agencies.

To help shed some light on what’s in store for your hotel’s variable labor force in the new normal, we reached out to Steve Anevski, CEO and Co-Founder of Upshift, an on-demand staffing platform with the backing of Recruit Holdings (parent company of Indeed) that focuses on the delivery of qualified temps—Upshifters, as they’re called—by giving properties full transparency on each prospective worker.

Taking a closer look at such platforms can thus help guide your human resources operations to mitigate any underservicing or reputation problems that may arise during the erratic recovery period ahead.

Digitized Temp Accountability

“One of our main inspirations for Upshift came from the ‘dance of the lemons’ problem within temp agencies,” started Anevski. “A hotel recruits a temporary associate who then doesn’t perform as expected. The HR manager complains to the temp agency but, instead of reprimanding or firing the worker, the agency just shuffles them off to another property or waits a few weeks before sending them back to the same hotel. It’s an infuriating lack of control.”

On-demand labor apps generally use a three-strike approach. Like baseball, each Upshifter can only screw up three times before they are booted off the app permanently, for which the HR manager or any other hotelier has direct access to the app to file a transgression. And because the database is both global and verified against a person’s government identification, there’s no way for a misbehaving individual to ever get back onto the network, which eliminates this dance-of-the-lemons obstacle.

Other Ways Apps Trump Temps

Automation is the name of the game in 2021 and for the next decade at the very least. Even with a full recovery in the next few business cycles, hotels still have to run on threadbare margins to stay afloat. This means keeping a lean team—one that can’t get bogged down in training and having to deliver specific instructions to every single front-line staff member. In this sense, moving all temp worker processes to an app has a strong cost savings benefit.

The year 2021 for hotels will be defined by skeleton teams doing their best to reattain great KPIs as seen in 2019. To this end, moving variable labor onto an on-demand worker app has several other cost savings benefits.

  1. Cutting out the middleman. This should be fairly obvious by now, but it’s worth restating. The platforms that work best are those that instill convenience and time-saving utility. A hotel posts jobs that are seen and evaluated directly by workers with no other companies getting in between to filter the entry.
  2. Networking power. Temp agencies are, for the most part, localized businesses that obtain their labor from specific sources. On the other hand, turn-key apps can rapidly expand in their awareness to engage with a far more diverse recruitment base, encompassing former industry folks looking to pick shifts back up, students who happen to be aspiring hoteliers or even mothers seeking some flexible part-time work to fit around their familial duties. This ultimately benefits the hotel by elevating the bar for the labor force.
  3. Specific work instructions. How do you get temps to use the BOH employee entrance instead of ambling through the FOH lobby without having to manually tell each one prior to a shift? A nuisance before COVID, now controlling traffic flow is mission critical to prevent viral spread, especially if workers require a temperature check during being admitted inside. Instead of relying on a temp agency to pass this information along, an app can easily send out bulletins in advance and provide a graphical map of where the BOH entrance is.
  4. Programmed rehires. One of the main gripes against the gig economy has been that you get a different person every time. But suppose you really liked a specific worker; how do you draft them for additional shifts? With all past performance logged in a cloud-based system, an HR manager can easily find then solicit a temp for extra work, and possibly even extend an offer for a full-time position within the hotel organization.
  5. Fractional shifts to save labor costs. Whereas before a hotel may have had to assign shiftwork in minimum blocks—for example, a five-hour prerequisite for all catering hires—to abide by the contractual terms outlined with a temp agency, now the direct employee-hotel interface deregulates this. If a job is only three-and-a-half hours, then you can post it as just that. And all those hours saved will add up to a huge amount on the annual bottom line.

A Pet Project

How did you cope with the lockdown? While most of us learned a few new skills, decided to take up baking bread or just binged some mediocre shows on Netflix, a sizeable portion elected to adopt a pet for some additive company around the household.

Despite the sad cases where people give up their pets soon after adoption, the vast majority of owners have fortunately found a new member of the family. This uptick in the number of animals—primarily dogs as it concerns travel implications—means that guests over the next decade will be more inclined to seek out pet-friendly hotels, and this presents a great marketing opportunity if you decide that it’s the right direction for your organization.

Pivoting to the demands of pet owners requires many operational changes (and even some guest surcharges) which may include:

  • Dedicated floors or guest room sections so those with allergies can avoid these areas, requiring a deft hand at allocating inventory in the PMS and with the possibility for a higher ADR room category;
  • Special cleaning to remove allergens which will require more housekeeping coordination but is something you can bill as an extra expense;
  • Updated policies for the types of permissible pets, noise, nuisances for other guests, damages, public area pet access and pet-oriented amenities like hydration stations or even agility courses;
  • Contactless pet service delivery of treats, toys, beds, bowls, bags or other miscellaneous items, all at an additional cost or bundled into a room package;
  • Established relationships with local groomers and veterinarians;
  • Doggy daycare services, having onsite groomers or even trainers for younger pups.

This can seem daunting but given the end reward of having a bunch of furry friends around the property, it will be worth it!

As a brief case study, in 2019 while working on an asset management assignment for a 40-room rural resort in British Columbia, we noticed a strong demand for pet-friendly hotels in our territory based on market intelligence and search data as well as a channel analysis for email, voice and social inquiries. From there, it took us roughly three months from an initial discussion on feasibility to having a devoted room category, a firm pet policy and all extra charges for cleaning or treats.

So, do your own channel examination to see if the demand for pet-friendly hotels is trending in your area and all drive-to markets. What does a cursory search of local news outlets reveal about increased pet ownership during the lockdowns last year?

From there, form a team of managers to investigate all requirements then build a plan. Thinking even broader, ask yourself what other pandemic-related trends you can capitalize upon. You’ll likely find that there are other opportunities—besides appealing to man’s best friend—stemming from pandemic-related behavioral changes.