Hotel Management International: What are the latest trends when it comes to hotel concepts?

Max C Luscher: Two main trends can be observed on the hotel market: the redefinition of middle-class hotels; and a sustainable differentiation of individual hotel products.

What are the latest developments in mid-range hotels?

In the past, such properties were usually presented as ‘no-frills’ hotels, and most had their own restaurant and so-called full-service offerings. It was the classic hotel product, usually managed by the owner, without an international hotel brand. This segment was of little interest to international hotel chains, which either went for the lower categories with a focus on standardisation and economies of scale, or the upscale segment, with high-quality services such as room service, different restaurants and spas. If any international chains occupied the mid-sector, it was rarely very successful.

What has changed?

International chains have recognised that the middle-range hotel – if done right – can be very successful. Chains differ from the star classification with fixed standards when it comes to the general hotel product concept; they focus on the essentials, namely, the room. Many non-essential services are being dropped, others, such as the restaurant and bar, are simply merged. Thus, few of these concepts provide regular restaurants or room service; instead, ‘limited’, or ‘select’, service is a priority.

What is the reason for the increase in limited service?

The most important reasons are modified brand awareness and increased margin awareness. Limited-service hotels have their focus on the room product; consequently, hotel chains try to impose their own standards. In terms of the margin, the change is obvious. The most profitable department is rooms, but this is also where the costs are variable (such as room cleaning). Other departments often provide little or no profit. When it comes to wellness and telephony, the profit margins are often negative, and classic F&B business is labour-intensive and therefore risky. Limited service means less risk and higher margin.

What about the second trend, ‘sustainable differentiation’?

These are hotels catering for guests with a specific interest, for example, reading enthusiasts, wine aficionados, animal lovers and sports enthusiasts, or hotels with a regional or cultural flair. Currently, a high heterogeneity of products can be found. Take the budget range, from zero to three-stars, where almost every niche is occupied. The transitions are often fluid and hardly noticeable for the guest. Sometimes budget hotels, due to their high popularity and supposedly lower prices, can even get to rate parity with upscale hotels. Some budget chains have higher revPARs than chains with a first-class product. It’s worth finding the niche.

Do differentiated products work everywhere?

Not all concepts can simply be duplicated for international markets. Nevertheless, it should be noted that today’s trends can be tomorrow’s standard: ten years ago, ‘design’ was almost exclusively associated with upscale hotels. Now it is a must, even in budget hotels.

What needs should an investor consider in terms of trends?

Limited service has high acceptance by many investors as the hotel operation can be performed with less risk. Operators of limited-service properties are often willing to offer the owners interesting securities, such as a fixed-base lease with revenue sharing or performance guarantees. This is especially true for middle-range hotels.

Regarding the differentiation, the investor must understand exactly what the respective product is; for example, long-stay products are often identical to regular hotels in configuration space and facilities. Often, risks regarding alternative use are limited.