The Squeeze is Coming…Are You Ready?

There is a major squeeze coming. The hospitality cycle is turning, after a 10+ year bull run. High tide may have risen all boats, but low tide will expose some real challenges. Continued top-line growth has masked some core structural pressures and challenges that have been creeping up. Now, with top-line revenue softening, flattening or even declining in some markets, hotels are now starting to see the squeeze they are in. And that squeeze is a tough riddle to solve. Let me explain.

Hotels are operating businesses that optimally monetize valuable real estate assets. Thus, their highest costs include the cost of capital (which is increasing), cost of labor (which is increasing), cost of operations (which is increasing), and cost of distribution (which is increasing, with some hotels paying up to 30 cents on the dollar  to acquire a new or repeat customer!). The hotel cost structure is undoubtedly rising, and unfortunately, most of these costs are outside of the hoteliers’ direct control.

As for top-line revenue generation, there’s also a new disruptor that makes this cycle very different and potentially disruptive enough to create a new normal. There is a massive new accommodation supply hitting the market in the form or alternative accommodations like Airbnb, HomeAway, VRBO—even Mariott is getting in on the action. These are very real alternatives putting real pressure on hotels, and, are being aggressively perpetuated by the OTAs who have maxed out their hotel footprint, and see no limit to making these other accommodations available.

With a huge push to legitimize millions of new accommodations, and making them feel more and more like hotels with amenities, curated brands, concierge services, and tiers of service and quality, the supply side of the equation will never look like it used to.

With a flood of supply, and maturing alternative accommodations products, and those products now being aggressively marketed next to hotel rooms on all OTAs, there is no doubt a building pressure on rates and occupancy. Do you want to stay in a beautiful full two bedroom apartment, or, a cookie cutter room with two beds for twice the price? As travelers get more and more comfortable with renting homes and apartments, it’s lost business for the hotel industry. Business that may not come back. Maybe the perceived value is greater, or maybe it’s that unique experience travelers are increasingly seeking.

So, with rates and occupancy under pressure, and a cost structure rising out of the hotels’ control, the squeeze is now on.

Hotels must now get serious about leveraging their customer data to drive their own revenue and profit. The cost of distribution is the only major cost they have a real shot at shifting and decreasing, and every dollar saved in acquiring customers goes straight to the bottom line. Hotels need to use the data they already have to personally connect, to build loyalty and increase the lifetime value of each guest. In short, they need to make the most of every guest.

How long has this industry being saying this, but unable to actually do it? A long time. And the reason why is, there is a highly complex data problem to solve, and then a significant amount of smart technology needed to do personalization of the guest journey and make money with great success. The good news is, Revinate now makes this possible. We have built the money machine that the industry so desperately needs now. It’s the best solution I can think of to address the imminent squeeze that will not be letting up any time soon. We welcome you aboard when you’re ready.