Design-forward Generator carves hostel niche
Design-forward Generator carves hostel niche
10 FEBRUARY 2017 8:28 AM

With a new location opening in Florida and more European hostels on the way, Generator Hostels CEO Fredrik Korallus said the hostel model is making waves. 

LOS ANGELES—Authentic, value-driven, design-forward and local are words many hoteliers are using these days to describe trends in the traditional hotel space, and they’re also words Fredrik Korallus uses to describe Generator Hostels.

As CEO of the London-based company, Korallus is bent on making hostels cool and profitable, both around the world and in North America, where the first Generator will open this year in Miami, Florida, as a conversion of a former condominium in Miami Beach on Collins Avenue.

During a meeting at the Americas Lodging Investment Summit, Korallus explained what makes the hostel model profitable and how Generator is carving its own niche.

“Generator is about the experience,” he said. “Design is one component. It’s also about bars, great music, great art, culture, book launches, art shows, fashion shows. Most importantly, it’s a community of intense social interaction.”

Sound like a lifestyle hotel brand to you? While many elements are the same, Korallus stressed that the hostel model truly does breed authenticity, largely because of its guest base, locations and programming.

“Everything we do is driven by the local community, because local food, drink and arts are what our travelers are looking for,” he said. That mantra has driven Generator to create and operate locally appealing bar and lounge concepts that are attached to the properties and attract demand from the local community.

Generator has 12 hostels open in cities like Stockholm, London, Dublin, Paris, Rome and Amsterdam, and locations in Miami and Madrid will open this year. For the three properties that opened in 2016—Amsterdam, Stockholm and Rome—Korallus said he’s “never seen a ramp-up like that.”

Generators are predominantly conversions, like the Miami property will be.

“They all have a story,” Korallus said. “For example, our Dublin location was in a whiskey distillery. We can take buildings that other brands won’t look at.”

Generator owns 12 of the 14 properties open or opening this year, while the other two operate as leases. Next up is developing the company into a management role, Korallus said.

“There are some markets where we may not want to deploy capital, where we’d manage where it’s appropriate,” he said, adding that franchising is not in the cards for the brand.

Location within the market is key, too. Transportation and accessibility are critical to attracting guests, and more than 90% of Generator’s guest base is in what Korallus said is “the younger end of the millennial spectrum, and now Generation Z.”

“It doesn’t mean we need to be in a city center in terms of a central business district; it means we need to be highly accessible,” he said. “We go where gentrification is going, where hipsters are going. Our guests tend to have traveled before and seen the landmarks and now they want to know where locals go.”

Business model
While experience may keep guests coming back, it’s the “model of volume” that drives the margins, Korallus said.

The average hostel size is 100 beds, he said, though Generator’s properties vary. With a revenue-per-bed model in place, Korallus said Generator’s properties average out at four people per room. Most properties have a room mix of 70% shared rooms and 30% private, which also varies by market.

“Our shared rooms vary in size from four beds to 16, and now as we develop we tend to go for four-, six- or eight-room sizes though we can be flexible,” he said.

Bathrooms are always en suite, with the bathroom, shower and sink as separate elements so guests can share the space easier. Properties offer female-only shared rooms and mixed rooms.

“The core of what we are is affordable, egalitarian access in a city center,” he said. “When we open, we tend to create new demand. If we opened in New York City, we’d be selling beds in the $50 to $100 range. Our typical guests may have previously stayed in a suburb, so we open up new demand for cities, which is good for tourism.”

In the price, guests get a bed, sheets, a towel and a locker. Everything else, including food and beverage, you bring yourself or pay for on premises. “It’s highly cash-generative,” Korallus said.

“There’s no amenity creep,” he said. “Nobody’s asking for it. Whatever they want, we can sell. Guests don’t want televisions because they bring their own content on their devices. Wi-Fi really is the most important thing. We upgrade ours every quarter because for our guests, wireless is probably more important than water.”

What’s next
Korallus called this year’s Miami opening “a big deal.”

“It’s perfect for our brand,” he said. “Demand there is 30% domestic, 30% from Latin America and the rest from the rest of the world. We feel the market and customer expectations will be appropriate.”

As far as the rest of the world, Korallus and his team have identified cities where they’d like to be, like Prague, Budapest, Warsaw and Tel Aviv. And they’ve earmarked cities where they’d like to add additional properties, such as Copenhagen, Amsterdam, London, Paris and Rome. In the U.S. he likes “large urban centers with a thriving social and art scene,” like Boston, Philadelphia, New Orleans and Los Angeles.

He said U.S. travelers are the fastest-growing Generator customers right now, behind Londoners and Germans.

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