Hotel alternatives also face tech, distribution hurdles
Hotel alternatives also face tech, distribution hurdles
11 MARCH 2019 8:14 AM

Standing out from the pack in the hotel industry requires ingenuity and sticking closely to the guest as both they and the industry change. Expect more blur and more initiative from the alternative-accommodations segment.

BERLIN—The line between traditional hotels and alternative accommodations continues to be blurred in the world of hospitality, according to sources.

The bottom line is that alternative or not, bookings in that sector potentially mean a lost booking at a traditional hotel, and guest demand continues to suggest the relevancy of alternative models.

During an International Hotel Investment Forum session titled “A brave new world: What are the opportunities in alternative models?” panelists said that these alternative models might well be morphing into more traditional structures in terms of brand evolution and capital structures.

“My guests have grown with me, and now they have more money, so we have developed a 5-star product, but then I also saw we might be losing our first clients, so we have a hostel brand opening in Istanbul,” said Kike Sarasola, president and founder of Room Mate Group, which started as design-centric economy hotels.

Two of the other panelists remarked on the great changes in the sector in regards to technology and capital.

“We push technology to give clients what they what, when they want it and where they want it without asking clients for crazy sums of money,” said Marloes Knippenberg, CEO, Kerten Hospitality, which operates Cloud7 and The House Hotel but also develops and operates F&B and co-working concepts. “We wish to add two or three more companies to help connect and build the larger picture of hospitality for our guests.”

Knippenberg said it’s important to prioritize investment in technology that enhances the guest experience.

“We’re still talking about tech only in terms of check-in, and we invest in so much tech we do not understand, and that does not help with the experiences we want to provide,” Knippenberg added.

Oliver Winter, CEO and co-founder of A&O Hostels, said 50% of his portfolio now comprises hotel rooms and that more traditional forms of finance are involved.

“TPG’s involvement will allow us to grow more quickly. Customers now are more driven by look, feel and design, so we can fund refreshment campaigns,” Winter said, referring to Texas-based TPG Real Estate, A&O Hostels’ new owners as of January 2017.

Rainer Nonnengässer, CEO, International Campus GmbH, said more education about the alternative-accommodations segment would be beneficial. His company develops and operates student accommodation and micro-living homes and also is moving more into the traditional hospitality segment.

“The challenge going forward is to teach and educate investors that the world is changing,” Nonnengässer said. “Our type of accommodation is not able to always be pigeon-holed, and investors can be troubled by this.”

Panelists said investors of all types are pleased by the fundamentals of the industry across all traditional and non-traditional sectors, but stressed that operators of these new, different products must understand the return strategies of such capital.

“The biggest challenge from a money perspective is that investors expect a greater return from all these products,” Knippenberg said. “For instance, retail would not use their most valuable space, the shop window, to have a receptionist, a couple of chairs and no chance of making money. We must look for new ways of bringing return to investors, and not just via cost savings.”

Another challenge is finding locations.

“Prices in some places are topping high,” Sarasola said. “There will be a correction, but as has been said many times at this conference, we are the second-largest industry. We must look more carefully at sustainability and the treatment of clients, but we are in a very sweet spot. Both equity and debt are available, but the problem is the lack of opportunities. We are all fighting for the same sites, but that is good.”

Real sustainability
Panelists said both their guests and their employees also value sustainability, but not enough is being done. Caring about this issue, of course, is not a trait unique to the non-traditional accommodations sector.

“Do we show the world we are really caring?” Sarasola said. “We all do little things, but as a group we should be far more conscious. If all that we will do is to stop using plastic straws, well, that’s pathetic. We do not have a Planet B.”

Winter said the hostel/hostel-hotel hybrid model has a unique opportunity to do more for the environment than perhaps other lodgings sectors are able.

“The hostel product is more sustainable as nowhere else (in the industry) do you get this space efficiency,” he said. “Plus, few of our buildings are new, so we are recyclers of buildings, too.”

Other sustainability initiatives that are trending in the segment include sourcing locally, using solar and geothermal energy, saving in heating, hot water and electricity consumption and the sensible removal of waste.

Online travel agencies have a grip on the alternative-accommodations sector, but the segment might rely more on those channels due to their younger demographics of guests.

“Yes, a great dependency on OTAs, less on direct, but there is so much more choice than just the classic OTAs,” Knippenberg said. “It is great the fight taken on by the large corporates, as that comes down to us.”

Nonnengässer and Winter see more direct bookings, with one reason being that German law requires that student groups visit Berlin at least once, and in Nonnengässer’s case his company sees bookings throughout entire terms or academic years.

“Ninety percent of leads come through our own channels,” he said. “Of course we are differentiated from the short-stay model, but outside the student period, we depend on them as much as everyone.”

The alternative-accommodations segment does seem to show some resiliency, Knippenberg said.

“Each time around we use them less. (OTAs) are not as aggressive as they were, and of course they realize we want to steal their client after they have stayed with us for the first time,” Knippenberg said, who added she is seeing new alternatives battling the alternatives.

“Glamping is one of the futures,” she added. “There always will be something new, and anything new is where we want to be.”

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