all in it TOGETHER
Catherine Chetwynd finds out what increasing consolidation in the hotel industry could mean for travel programmes
At first glance, it would appear that increasing consolidation in the hotel industry is a bad thing for travel buyers, reducing competition and innovation, and removing any incentive for hoteliers to negotiate rates.
Although there is still talk of the potential for further mega mergers, following Marriott and Starwood's get together, that is not the salient point: “More critical is the acquisition of the small brands by large hotel companies,” says consultant to the industry Melvin Gold.
Examples of this include IHG’S taking over of Principal Hotels and Regent Hotels; Accor’s purchase of Mövenpick, Fairmont, Mamashelter and more; and most recently, Minor Hotels' plans to take full possession of Spain-based NH Hotels.
“It does have an impact on competition and creates challenges,” says founder of Black Box Partnerships, Raj Sachdave. “There is less room for healthy, robust conversation about rates and it allows chains to be smarter about how they manage inventory as clusters, depending on whether they are in one brand or competing brands, to give greater returns for the portfolio.”
Sachdave adds: “But with consolidation, companies are selling off properties so there is always the opportunity for smaller to mid-scale players to bring in some really nice hotels with good catchment and loyalty, and that brings the opportunity to invest in the business.”
In addition, “Generally, consolidation implies less competition and higher prices but sub-brands and properties under the same group umbrella still compete with one another,” says Senior Global Director of Hotel Sale & Strategy at American Express GBT, Pauline Houston. “It also means combined loyalty programmes and hotel companies are likely to work towards one cohesive and appealing programme.”
This allows travellers potentially to earn more points across a wider range of hotels. This can boost corporate programmes, with the opportunity to motivate travellers to book and stay within a preferred partner group, while providing them with benefits that improve their travel experience.
Consolidation also gives travellers greater choice. If several companies merge, they are providing a far greater diversity of brands under one banner and provided that banner is the preferred group in a travel programme, employees can pick from more styles of accommodation while on the road.
Spending power Consolidation of brands can mean consolidation of spend for buyers, bringing more clout – although it can also mean they have all their eggs in one basket.
“Consolidation does not hamper our ability to negotiate discounts at all,” says Corporate Purchasing and Global Category Manager Travel & Mobility for Continental Teves, Rüdiger Bruss.
“In Europe about half of the hotels are owned or managed by one of the brands and otherwise they are local properties. In the US it is different: at an intersection, on each of four corners are two hotels of different brands of the same group – but there is still competition, even more so because supply is so concentrated.”
Bruss continues: “You do get monopolies of hotels on occasions, especially in locations that are not in the top tier of cities such as Grimsby, where you are lucky to get a hotel at all. There we are faced with only one or two hotels but that’s because we are in a location which has disappointing supply – and that is of much more concern than Marriott buying Starwood and throwing together their portfolio.”
Size matters Larger hotel companies will generally have more properties in more places, making them stronger competitors with a greater ability to meet business travel demands in terms of service and presence.
“These companies are often renowned for their consistent, reliable standards and efficiencies, compared to boutique hotel and sharing economy options, which can be more of a gamble,” says Pauline Houston.
That said, the latter two categories are becoming more popular with corporates and presenting hot competition to legacy hotel groups. In addition, smaller groups are perceived to be able and willing to provide a much more personal service. It will be interesting to see whether larger companies prove able to retain that culture when they acquire smaller groups.
Their ability to distance themselves from the original brand may play to their advantage. “Mamashelter by Accorhotels and Curio by Hilton are both upscale hotel brands with a greater emphasis on individuality within the portfolio of a larger corporate hotel group, but they maintain their branding in order to differentiate the offering of their parent firm,” says Senior Director Global Lodging at Egencia, Kevin Mauffrey.
Market presence Charles Human, Managing Director for HVS Hodges Ward Elliott, highlights Rüdiger Bruss’s point about the European hotel scene: “The market remains very fragmented in terms of branding, management and ownership, particularly in Europe,” he says.
“I cannot think of any city, in Europe at least, where the Marriott/starwood merger has put them in a dominant position. The Minor/nh deal is as much opportunistic as strategic, with NH remaining a relatively small player,” he says. “It is becoming harder for big brands to expand in mature markets. They come at a significant cost, which is becoming harder for owners to justify.”
It is also worth noting that the expansion of the big hotel groups is facilitated through acquisition, management contract and franchise agreement, so although they all sail under one badge, they are still competing against each other for market share.
Steve Fitz-costa, Director of Sales – Business Travel, for Accorhotels, sees the status quo as an opportunity for travel buyers. “The development of brand portfolios and inventory bring with them more structure and choice to the marketplace. In turn the travel buyer has a much stronger, clearer voice when it comes to negotiating rates,” he says.
“However it is important that buyers and account managers work with hotels to help guide them through the sourcing process and for hotels to understand the buyer’s requirements. Hotel groups need to be aware of being too aggressive in the marketplace – when there is a high level of competition from rival owners and brands, this also works to keep a ceiling on price.
“Each brand within Accorhotels has a unique proposition developed to meet the specific needs of that market,” says FitzCosta. “The recent acquisitions by Accorhotels have been carefully considered to complement rather than compete with existing brands and geographic territories.”
Whether you see hotel group consolidation as a cup that is half empty or half full, it does not necessarily represent the death of competition, as those with tabloid tendencies might have you believe.