Taking a 2020 view of Phuket’s hotel development pipeline that has now surpassed 15,000 new keys it’s hard not to be apprehensive. From a macro standpoint, the destination’s airlift and location are key success factors.
But for the myriad cast of new and inexperienced hotel developers out there, perhaps a visit down Alice’s rabbit hole is necessary to see just how to measure success in a crowded playing field. Here is our Top 5:
Bed Factories
As beachfront land and ocean views disappear in an urbanising trend, hotel development is seeing an unprecedented push inland. Big, medium and small box properties are springing up in locations where owners only explanation for a hotel, is that they already owned the land. Typically, these hotels have limited views or curb appeal, are located away from key demand generators and are undisguisable in design and character. Hash tag them as vanilla.
These bed factories are totally geared on volume and tourism as a commodity. This set is the most influenced by market volatility and ultimately the only reaction to occupancy fluctuations is to drop rates, while relying on high-commission OTA’s (online travel agents) to dole out business. In a supply demand imbalance these hotels are most at risk. An industrial approach to tourism rarely works, as there are always other destinations who will undercut you on price. Avoid the factory syndrome if you can.
Having A Brand Is Not Enough
Common wisdom is that brands outperform independent hotels. In Phuket there are many striking examples of independents trading above their branded cohorts, but more telling is the bottom line. They call this the hotel business for a reason and only the bottom line goes to the bank. Certainly, bank lending requirements, and hotel residences are driving a strong amount of branding.
One key market impact is hotel consolidation of global chains, with ACCOR and Marriott properties being scattered across the island and again commoditization comes into play. When we analyse costs of chain management, reality bites when the total absolute cost including system fees, annual assessments, sales and marketing etc. often equate to 8-10% of revenue.
When hotels have scale, this works. When they do not, the bottom line suffers. Likewise, as we look at performance of the brands in Phuket, the reality is that well-managed hotels with key aspects and location win, while for others having the name game not an assurance of success given you are just one of many in playing field that is continually stretched. Brands in many cases are a good choice but it’s not always a given.
One Size Does Not Fit All
I’m a lifelong hotelier and one thing I can assure you is generally speaking hospitality lags many other industries in terms of innovation and change. Hotel developers are slow to understand the dynamic change the smartphone and technology have created in opening up a new world to hotel guests. We have ubiquitous coffee shops which are filled to the brim at breakfast, and the rest of the day mimics one of those movies where aliens have taken all of earths inhabitants to outer space. Dead, empty space.
In Phuket with the thousands of spas, hotels still develop large resort spaces that remain empty for most of the day as guests march out the door with a smartphone in hand.
While hotel chains shout out brand standards and must haves, hotel owners have not taken a similar approach to real estate developers and measure returns in space efficiency. My best example is look at a full-service restaurant in a mall where an operator is paying expensive rent and look at operating efficiency and footprint and compare that to a hotel outlet which typically would have a larger space by 50-100%.
Hotel design, spaces and facilities have to come full circle as a business decision that caters to current and forward demand, and not just reciting the way things used to be done. Less can be more.
Sheep Syndrome (aka copy/paste)
Developer motivation is always an interesting case for hotels. Often times, inexperienced developers want to own a hotel as their friends have one too. They find an architect, look at other hotels nearby, perhaps check an online OTA to see what rates are being charged and that pretty much sums up their entire business development process. They follow their friends or their perceived market competitors just like a flock of sheep being led off a cliff into the surging ocean of hoteldom. Some will sink and some will swim.
All too often the process is not unlike the endless procession of Phuket tourist restaurants with the infamous taglines proclaiming Thai food, western food, seafood and of course pizza. The rationale of the business is to follow the mass, copy and paste, unwilling to ask the hard questions, develop an understanding of the market and commit or be bold enough to walk alone with a product that cannot be classified as ‘same same’.
Don’t Be Afraid To Be Niche
As many destinations in the world have seen success with best in class innovative products, Phuket has seen its share of products that attract a wider international audience. Thanyapura with their wellness and sports offering and Twinpalms paired with Catch Beach Club are just two examples. Another emerging trend is complexed hotels with two brands and tiers with a single set of management and back of house.
In Bangkok the Erawan group has done two of these with more under development. Looking at the business model, operating profit is often 8-10% higher with economies of scale and development or investment cost 10-12% lower due to not replicating areas twice.
My final words on how to be a successful hospitality developer is doing exactly that. Take the lead, don’t expect your hotel operator, architect, muse or friend to magically direct you down Alice’s rabbit hole to success. Innovate, take risks and look to the future, not just the present and past. Teams need leadership as do successful businesses and after all that’s why we call it the hotel business.
