Hotels check out, but they will never leave

HOWARD SACKSTEIN

In America today, shopping malls are empty, as people have moved their purchases online to companies like Amazon. So says Rom Hendler, the founder and Chief Executive of Israeli-based company InnoVel, which acts as an external innovation arm for international travel and hospitality corporations. He was speaking at the Gordon Institute of Business Science (GIBS) of Pretoria University recently.

The same products are available everywhere. What differentiates your business is the experience your customers have, he says. Apple and Abercrombie are two examples of companies that have mastered the art of the customer experience, and shopping malls are becoming more like entertainment centres than places to go shopping. No industry is immune from change or eradication, and the hospitality market is also undergoing radical disruption.

This Israeli knows something about the hotel industry, having served as both chief marketing officer and chief information officer of the Las Vegas Sands, the world’s largest integrated resorts company, and having participated in the opening of the iconic Marina Bay Sands Hotel in Singapore.

In the traditional hospitality model, the hotel industry was dependent upon three critical pillars, a distribution channel for sales to customers, a trusted brand that promised quality, and a premium location that was impossible to stay at otherwise.

All of these pillars have crumbled in the world of the new economy, says Hendler.

Today, Booking.com and Expedia.com are the two principal sales channels to market. Every hotel in the world is dependent on these two channels for distribution. It makes no difference if you are a five-hundred-strong hotel chain with tens of thousands of rooms or a single boutique hotel, your channel to market is now identical. This allows the small, niche, experiential hotels to compete very effectively against the large branded chains.

Booking and Expedia spend about $2 billion (R30 billion) each year to drive travellers to their websites. The competition has moved from a battle between hotel brands to a battle between the two monster online digital booking agencies.

The second pillar that has disintegrated, says Hendler, is the idea of the hotel brand. A brand is a promise, often a promise of excellence and quality. In the traditional model, you could be guaranteed this experience only by selecting a Hilton, a Sheraton, a JW Marriott, etc. But that too has changed. Tripadvisor.com changed all of that. The idea that each guest reviews the property they have stayed at has guaranteed quality against expectations.

Who today selects a hotel with a review of less than 8 out of 10? In truth, you look for a hotel within your price range, then you select those with only the highest guest-review rating. The brand no longer features in the choice of online consumers.

The final pillar to crumble is the idea that you can access the best locations only through a large hotel brand. The online sharing economy has changed that. Now, the guy with a one-bedroom apartment next to the Conrad Hotels is airbnb-ing his apartment out at a fraction of the cost of the hotel next door. The exclusivity of “position, position, position” remains. However, the branded hotel is no longer the only commercial entity renting out rooms at that location.

For big events like the Olympic Games, countries would build apartments or bring in cruise liners to allow for additional hotel capacity. Today, Airbnb offers capacity elasticity as and when big events occur.

Hendler questions whether the hotel industry has a future in this digital era. His conclusion is that it does, but only if the hotel model changes to one offering unique experiences rather than mere hotel rooms. Hotels which know how to design these unique experiences will be the ones which survive.

We want the butler at the door with the bowtie and tux. We need the bakery downstairs with the smell of fresh baked bread wafting through the lobby. We are amazed at the ARIA Resort and Casino hotel in Las Vegas, where the LED screens which cover every inch of the lobby change ambiance during the day. We are also interested in the Marina Bay Hotel in Singapore, where only paying hotel guests are allowed into the infinity swimming pool on the 57th floor overlooking the city.

The hotel lobby will disappear, says Hendler. It’s just a waste of space. No one wants to stand in line to check in. Almost no one ever checks out, they just walk out the front door.

Guests are driving the changes, and technology is helping. Pre-arrival guests are being sent check-in codes that work on their hotel doors. They arrive at a hotel and let themselves into their own rooms. Virtual reality and augmented reality will drive the guest experience going forward.

Even traditional hostels are morphing. Today, the youth hostel has changed into a cool “macpacker”, with private rooms and large communal spaces for people to socialise and work on their MacBooks.

With technology driving the changes in the industry, Hendler and InnoVel are at the forefront of driving industry innovation. As he spoke, much of the capacity audience at GIBS took out their phones, logged on to their favourite travel website, and started altering their bookings for December.