It’s economy, stupid 

Much of the world is having a cost of living crisis at the minute, in various degrees depending on the competency of one’s government and, while some governments are choosing to ignore it, so too are some industries. In this case, hotels – at least their development departments.

The drive towards luxury and lifestyle hotels is a trend which most of the global operators have embraced and accelerated as they lusted after higher fees, loyalty programme lures and, well, having better company hotels to stay in while on the road. The eternal truth stands: your mum is going to be much more impressed if she can tell her mates you run a load of Four Seasons than Travelodges, no matter how hilarious the adverts are.

This week in the US, The Conference Board reported that consumer confidence had fallen (a little) in April. Lynn Franco, senior director of economic indicators at The Conference Board, told Reuters:  “Vacation intentions cooled”. In the UK, the Confederation of British Industry report that retail sales had fallen in April, with the first year-on-year fall in volumes in 13 months. There has been a suggestion that the drop in retail sales is in part because money is being rerouted into travel, but CBI economist Martin Sartorius said: ”Rapid inflation means that the cost-of-living crisis is going nowhere soon”.

So OK, maybe there are so few luxury hotels around that the supply of stinking rich people to use them may well be sufficient. One must have hope. But for all those rich leisure travellers, there are many corporate guests where there are multiple finance departments making sure that they don’t spend out on their sleep.

Enter Wyndham and Whitbread, for it’s their week to reveal how many rooms you can sell when you offer something pocket friendly. 

At Wyndham, so strong is the economy offering that owners are flocking. The group has grown its development pipeline by 9% on the year, adding 204,000 rooms.

Owners are attracted to the high occupancy, but also the limber operations. The group is upping its technology game, with CEO Geoff Ballotti telling analysts: “We aim to lead in the economy and mid-scale select service segments with the number one mobile app that checks guests into and checks them out of their room, that opens their guest room door and also provides industry leading texting solutions to continually communicate with our guests without detracting from the check-in or the front desk experience.”

In other words, to return to our active/inactive governments, Wyndham is actively addressing cost of living. And not by cutting MOTs. 

Just being friendly to owners isn’t enough for Ballotti, who added that “M&A is in our DNA” with the group expecting to have $600m to deploy this year – not counting the leverage potential. The company was looking around the world at high-growth markets or in regions where it had gaps in its portfolio, “bolt-ons of smaller brands or they could be large brands if it’s a strategic fit and hits our investment criteria”. Not to mention launching its own  economy extended-stay hotel brand, currently ‘Project Echo’.

So anyone who wants $600m and offers something with an efficient operating model and no requirement for a ballroom or cocktail bar, call Geoff.  

At Whitbread, the message was also about efficient operations and an enthusiasm for buying stuff. The company has called the Quarter of Reckoning, seeing “an acceleration in the exit of independent operators from the UK market”. It expected to add c.1,500 – 2,000 rooms in the UK and c.2,000 – 2,500 rooms in Germany in FY23.

It expanded: “Prior to the onset of the Covid pandemic, in 2019 the independent sector still represented 48% of the UK market and 72% of the German market, but both were in long-term decline as customers migrate from independent to budget branded hotels. 

“The group undertook a detailed network planning exercise in February and March 2022, confirming the levels of independent room supply in over 120 catchment areas in the UK, representing around 35% of the independent market. The findings indicate that the number of independents exiting the market has increased significantly from historic levels, undoubtedly as a result of the Covid pandemic. 

“The group expects that a heightened level of independent exits will continue for the next 12 to 36 months, and that this pattern will also be evidenced in Germany. Premier Inn is well-placed to capitalise on this contraction in competitor supply and to take market share in both these markets.”

This would have been the hunting ground for OYO, but whither OYO?

Whitbread also made much chat about its new hotels being “larger than the estate average, are more efficient to run, and have a better operating leverage”. Throw in the comment that less than 1% of bookings were delivered through third party online travel agents, and 50% of business is the leisure market (the remainder divided equally between trades folk and office workers) and it’s a brand for our times. 

Cash will be stretched in the foreseeable, across the economy, and owners are looking for efficiency across operations. Comment on Twitter and other reliable sources has been full of hospitality operators talking about how ‘well we’re just going to have to pass costs onto the consumer’. And good luck with that. 

Shareholders need to see growth in pipelines to help them sleep the better and next week’s IHIF will see all the CEOs setting ‘look at our NUG’ to music. The big operators look down on the economy and budget brands; they’re not cool and the fees are lower. Wyndham and Whitbread don’t seem so sad, finding joy in volume and, in Whitbread’s case, ownership. They are also delivering on the experience and efficiency benefits delivered by technology. As ever, we have much to learn from those who watch their wallets. 

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