City Lab
By Joe Pinsker
09.22.2017
How the Hotel Industry Views Its Future (and Airbnb)
https://www.citylab.com/life/2017/09/how-the-hotel-industry-views-its-future-and-airbnb/540816/
When Jeff Weinstein stays at a hotel, he is no average guest. Every little detail gets his attention. He notices the finishes on the furniture and scrutinizes the room’s layout. “If I’m having a meal, I might turn over the plate to see what manufacturer they’re using for porcelain,” he says.
Weinstein is cued into such minutiae because it is his job to be. He is the editor of Hotels, a trade publication covering full-service and luxury hotels—think Hilton, not Motel 6.
That industry is a mix of large, big-name companies (like Hyatt and the Four Seasons) and smaller boutique brands. The former are dominant, but, Weinstein says, there is room for upstarts; for instance, the gym operator Equinox is preparing to launch a fitness-themed hotel brand.
In the past decade, the industry has thrived, as both leisure and business travel have ascended alongside GDP. Upscale hotels, being as they are at the high end of the market, are one of several industries that do quite well as the number of very rich people (and the size of their collective wealth) grows. At the same time, a little lower down the market, hotels’ revenues have also been buoyed by the expansion of a global middle class that draws especially from China, India, and Brazil.
Despite several years of steady post-recession growth in the industry, many within it are nevertheless wary of rental platforms like Airbnb (which might steal away customers) and online-booking sites like Expedia and Priceline (which take commissions that eat into hotels’ revenues). Because I was curious about these trends and others, I spoke to Weinstein for The Atlantic’s “Tricks of the Trade,” a series of interviews with the editors of trade publications. The conversation that follows has been edited for length and clarity.
Joe Pinsker: What trends have you noticed in what consumers are wanting out of a hotel stay?
Jeff Weinstein: One thing is comfort—better beds, nicer bathrooms. Really, at the end of the day, the hotel stay is about a night’s sleep and a good shower, and maybe some good food. So the rooms may be getting smaller—the living space—but the bathrooms are getting bigger.
Pinsker: Why are the sizes of those spaces changing like that?
Weinstein: People want to be pampered. It’s the wellness trend that’s behind that. People are putting more effort into looking good, and feeling good, and you can do that in the bath by having a great shower, a bigger shower, even the tub—in a nicer hotel, there’s an emphasis on great tubs. And you don’t have that big credenza that had the big TV on it anymore—those are gone, because all the TVs are mounted on the wall. So you don’t need all that extra space in the guest-room area because you can give some of that space up to a nicer bathroom experience.
Also, great lighting, spaces to work—not a desk filled with all this collateral material from room service and all the services from the hotel, and all the local magazines. The desks have changed quite a bit. In some cases, the desk is going away. Or they’re putting their desks on wheels and making them mobile, for if someone wants to bring their desk over by the bed and have a little space where they can throw things, or use it as an impromptu office. Really a lot less clutter. They’re trying to better understand the guest’s lifestyle and what they can do to make it feel more like home.
Pinsker: Are there changes like this happening throughout the hotels themselves?
Weinstein: Yeah, lobbies used to be just a place to go to check in, and maybe wait for your friend to come down. Now they’re social experiences—there’s more emphasis on the “together alone” experience that everybody gets from a Starbucks. Maybe the restaurant used to be around the corner, and walled off from the main lobby—now they’re integrating the restaurants right into the lobby space, and the bars are also more front-and-center. It’s really keeping on trend with that socialization that everybody’s looking for, getting out of their rooms. You can go to a lot of hotels, even during the day, where they’re known for their coffee, and they’ve got good wifi. And it’s great for the hotel, because they can monetize that space better.
Pinsker: What is the highest-margin part of running a hotel?
Weinstein: Oh, it’s the rooms. Well, food and beverage can be a good margin, depending on how cost-effective the space is being run, but certainly rooms are the most profitable part of the business.
Pinsker: Take an upscale hotel, like the type you’d cover—a Ritz-Carlton or a Four Seasons—in a major city. How many rooms would a hotel like this have, and how many do they need to fill to break even on a given night?
Weinstein: I’d say your average is somewhere between 150 to 200 rooms, but there is a range. And if they’re even half-full, they can be making a profit, because they might have two weddings over the weekend, and there’s a lot of revenue generated by food and beverage, by events, by catering. And if they have a really hot restaurant that’s attracting the locals, or a great rooftop bar, they’re generating a lot of extra income. So profitability is not driven completely by rooms revenue. Some hotels do more than half their revenue from food and beverage.
Pinsker: Speaking of which, do people actually use minibars?
Weinstein: [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][Laughs] Yes, people use minibars. But minibars are evolving. They’re putting local products in there—local drinks, food, snacks, what have you—to make it a little more interesting than just a Snickers bar. But in some cases, they’re making them more reasonably priced. They understand that people don’t want to spend $10 for a pack of M&M’s.
Pinsker: What’s a big change you’ve noticed in the industry since you started at Hotels in the mid-1990s?
Weinstein: It’s becoming more experiential. When I started, a hotel was a box: You could stay in a Holiday Inn, a Sheraton, a Hilton, a Marriott, and wake up and not know which one you’re in. There was a lot of sameness. Starting in the late ‘90s things really took a turn. Before then, Ian Schrager in New York and Bill Kimpton in San Francisco were starting hotels with a lot more style, on experience, and on food and beverage, and they were doing well—they were getting a higher rate. So more started following, and the industry has really gone in a lifestyle direction, because that’s what tends to build loyalty.
Pinsker: And what does a lifestyle direction look like?
Weinstein: People want to feel that they’ve been somewhere special, that they’ve learned something new, that they’ve had some exposure to music or art. It’s experiential in the design of the space and in the amenities being localized quite a bit—anything from locally sourced food for the restaurants to locally sourced soap for the baths. And hotels are offering information to their guests—ideas about where to go, the insider point of view on how to experience the city they’re in. Those suggestions might come from local influencers, insiders—not just a traditional concierge.
Pinsker: What was it about how people traveled, say, 20 years ago, that this experiential component just wasn’t on hotel owners’ radar?
Weinstein: Some will say it’s a response to new competition from the sharing economy; twenty years ago, people weren’t booking on Airbnb. But I like to think that it’s just more of an evolution of consumers’ sophistication: Because of the internet, people are just more informed and aware. And it’s somewhat of a competitive thing—it’s the industry recognizing what’s working, what people will gravitate toward, after the success of those boutique hotels.
Pinsker: But, going back further into the history of hotels, do you think that there was a time when people were truly just looking for, to use your phrase, “a box”?
Weinstein: I don’t think so. I think it’s about how the big companies scaled up decades ago. When you’re trying to build 100 Hiltons, it’s a lot easier to build something formulaic than to make each have its own feel and look. Now they know they can’t get away with that anymore. But they could in the ‘70s. Franchising meant building boxes, which were easily replicable and had a good return on investment.
Pinsker: You mentioned Airbnb. Is there a consensus on how hotel companies feel about it, and rental platforms like it?
Weinstein: I’m not sure, and some of the executives in the industry aren’t sure if Airbnb is really hurting the industry too much, because the industry has been performing so well. But at the same time, they recognize an alternative is emerging. Not only is there Airbnb, but in the luxury space, there’s a site called One Fine Stay and another called Oasis, and people who have second and third houses can rent them out without having to undertake the effort themselves.
So that has the industry trying to figure out, “Okay, how do we offer the same type of local experience that one would have in a home?” And that goes back to the local experiences I was describing earlier.
Pinsker: Are there any other big changes in the past decade that the industry is still adjusting to?
Weinstein: I think for years and years, consumers saw a price for the room, and figured that was just the price for the room. But price changes a lot, based on demand. And consumers now, because of the online travel agencies, the Expedias and the Pricelines of the world, have become much more educated about price. But before that, I think they had no clue that they had options.
Pinsker: The hotels probably liked it that way.
Weinstein: They probably did, but the hotel industry created the beast. They’re the ones who gave inventory to the likes of Priceline and Expedia—to simplify a bit, if they hadn’t done that, those sites wouldn’t exist. It was an interesting confluence of events back around 9/11, when the internet was really getting rolling, and the hotel industry was really struggling. And so they were looking for every way to sell rooms, and these sites gave them a different distribution mechanism.
Since then, they’ve just blossomed. They have incredible valuations and huge marketing budgets that even the Marriotts and Hiltons of the world don’t have, and they have really made a dent in hotels’ profitability because those rooms are much more expensive for hotel companies to fill, given the commission these sites take.
Pinsker: What sort of a cut are they taking on a booking?
Weinstein: It depends on the company. A company like Marriott has a much better deal because they’re a much bigger company. A small company with maybe 10 hotels, they don’t have the firepower to negotiate. The range is probably 10 to 20 percent. In some cases, it’s more—sites might take a 20, 25 percent cut if you’re a small guy. That’s a lot.
So the industry and these platforms, they’re frenemies. Hotels need them, but at the same time, they’re a really expensive friend.
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