Hotel bosses open up about brand boom, supply concerns
 
Hotel bosses open up about brand boom, supply concerns
20 AUGUST 2018 8:20 AM

Top hotel industry executives on a panel at the 2018 Hotel Data Conference shared off-the-cuff observations on today’s demand environment and whether or not the world has too many hotel brands.

NASHVILLE, Tennessee—Industry veterans didn’t hold back when talking about supply concerns, labor issues and future industry consolidation during the “Beers with the bosses” panel at the Hotel Data Conference.

While strong demand trends have made for a happy hotel industry in recent years, executives on the panel shared their own perspectives on possible supply worries, reminding the audience that local market and product is everything when it comes to supply.

“Supply depends on the market,” said Mitch Patel, president and CEO of Vision Hospitality Group. “Let’s look at it holistically—supply annually has grown … around 2% annually. From 2010 to 2011 to up until a year or two ago, the average (supply growth) was 1% to 1.5%. We are going to hit 2% in 2018, and this is a good sign that we’re also seeing year-over-year construction starts starting to decline. You have to be very careful about which markets you want to go into … but that gives me some confidence as a developer to go build hotels.”

Jim Chu, global head of development and owner relations for Hyatt Hotels Corporation, shared his company’s global perspective on supply. He said that Hyatt’s smaller size gives it “a lot more runway” than its peers, but in general, Asian countries, particularly China and Japan, offer a lot of opportunity for new hotel product.

“There will be 280 markets of over a million people in China over the next 10 years,” he said, sharing enthusiasm not only for the growth potential in-country, but also for “the export of that customer coming into the U.S.”

“Our growth outside the U.S. is about the same as our U.S. growth today, and we’re excited about that,” he said.

Rob Palleschi, CEO of G6 Hospitality, said he’s a little concerned about supply—not in the economy segment where G6’s Motel 6 and Studio 6 brands sit, but rather in the midscale-without-food-and-beverage segment just above it.

“I’m concerned with the rate pressures” of the exploding midscale segments, he said. “We’re seeing a narrowing gap, around $20, between economy and midscale, and that seems to be narrowing.”

But he said his biggest concern as an owner (G6 owns approximately 500 hotels in the company portfolio) is wage pressure.

“If anything’s going to put a cap on future growth, I think it’s going to be that,” he said.

Labor concerns
Patel echoed that concern, adding that labor squeezes are affecting the construction side of the business as well.

“The average construction worker is 50 years old, and the construction workforce is 30% smaller now, building the same amount of (projects) as in the past peak in 2007,” he said.

Randy Smith, co-founder and chairman of STR (HNN’s parent company), said the labor issues are larger than the hotel industry.

“This is a problem nationwide and globally,” he said. “There’s a complete mismatch in terms of the jobs that need to be filled and the skillset of the unemployed. It’s a matter of education and training. I do think that unless we get this resolved, it’s going to put a strain on our ability to find top-notch service, to find people to get our hotels to function.”

Brand consolidation
When the conversation turned to brand consolidation and future merger-and-acquisitions activity, speakers agreed there’s a fine line between the creative spark new brands give the industry and oversaturation.

“Overall our industry’s ability to introduce new and creative concepts is something that makes our industry very fascinating,” Smith said. “But I do think some brands have run their course.”

Chu and Palleschi both said that for their respective companies, it’s critical to stay focused and not get too caught up in shiny new brands.

“People talk about Marriott and Hilton with all their brands, and I don’t really get wrapped up in that,” Palleschi said. He compared brand proliferation with Coca-Cola’s expansion from its core brand into all sorts of new products.

“Our sweet spot is economy lodging, and we’re going to stay in that sweet spot,” he said.

Chu said Hyatt’s focus will stay on the upscale traveler. He acknowledged the company’s failed attempt to purchase Starwood Hotels & Resorts Worldwide several years ago, and pointed to that move as reflective of the company’s overall strategy.

“You’ll see us continuing to want to grow,” he said. “There are a lot of spaces where our corporate customer wants us to be, but we focus on the upscale traveler. Would we get into another segment? We’d really have to look at that to see how it would work with the strategy we’ve laid out. (Starwood) was a good match, and that’s why there was a lot of interest, but there’s not a lot of those (companies) out there.”

Audience takeaways
To close the panel, moderator Jeff Higley, VP of digital media and communications for STR/editorial director of HNN, asked the panelists to share one key takeaway with the audience, and those takeaways ran the gamut from regulatory to cycle dynamics.

Smith:
“I do think the issue of tariffs and the possibility of a trade war is something that could be a very serious problem for our industry.”

Patel:
“We all know we’re on the tail end, probably, of this cycle, but this is a sustainable industry. It’s a growing industry—there’s only two years where we’ve had negative year-over-year demand growth in the last 20 years. We’re in the experience business now, and more and more people are traveling and looking for these experiences than ever before. That’s what keeps me going. I think there will be a correction, and that’s when there’s even more opportunity out there.”

Palleschi:
“We use the term ‘competition’ regularly, and we shouldn’t use it to refer to each other. We should all want each other to be successful. The competition are those third parties trying to eat away at our business. For us, the rising tide should help everyone. We should support each other and care about each other.”

Chu:
“One thing that worries me is everyone wants to figure out if we’re at the end (of the cycle), and I don’t think we are. If we will ourselves to be at the end of the cycle, we’ll be there. Be aggressive, continue to move forward. We’ve never had the kind of demand we’ve had. We don’t need to follow history. We can create a new future; we just have to have the belief to do it.”

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