International companies invest billions of euros in hotel accommodation, but so far, the global chain hotel industry has benefited most. But why do companies hold individual hotels in such high regard? Michaela Papenhoff, Managing Director of the hotel consulting firm h2c, knows the answers.
interview: Anke Pedersen // photography: Dominik Asbach
Ms Papenhoff, you conducted a study into "The role of global company contracts in individual hotels" on behalf of HRS. What was the study intended for? The objective was to find out why it's so much harder for individual hotels to conclude contracts with global companies than for representatives of hotel chains. According to an HRS study, companies spend several billion euros on hotel purchases every year.
Volume agreements with companies are attractive for individual hotels. They generate bookings that are usually difficult or impossible for an individual hotel to gain access to. And as bookings increase with relatively stable weekday rates – more than two-thirds of the hotels surveyed expect stable business from business travellers – one major benefit of corporate contracts is the increase in revenue per available room (RevPAR).
The situation is that large companies don't tend to use the individual hotel industry as a source. There are exceptions, for example when the hotel is in the direct vicinity of the company's office. If individual hotels are listed in the GDS, naturally they may be booked through that. But this is often where the problem originates, because very small hotels aren't usually available on the GDS. Larger individual hotels, on the other hand, may be members of a hotel cooperation or representation company, for example, which makes them available on the GDS. The answers from the hoteliers we surveyed are, therefore, to be expected: 44 percent find it difficult to close company contracts.
Almost six in ten hotels (57%) feel at a disadvantage compared to chain hotels, because the latter can work much more effectively with digital media and distribution channels. Individual hotels don't have the technological infrastructure that the big chains do, such as a loyalty programme targeted specifically at corporate travellers. What's more, there's a certain degree of mistrust towards paid distribution channels. Often, individual hotels are happy with what they have too. Sixty seven percent of the hotels surveyed generate their own marketing campaigns, while approximately 21 percent of the hoteliers state that those campaigns are not effective enough.
They do, but they often lack the means to get to grips with it properly. Their main focus is operative work and guest communication. Another aspect is increasing digitalisation. Chains have an advantage simply by virtue of their size: they have the technological infrastructure, provided, for example, through their existing system landscape and CRS and CRM systems (such as customer loyalty programmes), which they then use to target an international audience. Private hotels can only very rarely achieve that level of reach and digitalisation at the required diversity and depth, as they simply lack the capacity. A major drawback is that small businesses don't tend to employ staff to manage digital media, or do so sporadically and without the marketing budgets of a hotel chain. Now, however, the way that bookings are made plays an important role, particularly for global corporations. Unlike local company contracts, where offline reservations are made directly with the hotel, many companies with more than 500 employees prefer in-house Online Booking Engines (OBEs), which dictate the travel policy. For reasons such as duty of care, staff at those companies aren't permitted to book directly through a hotel website. Nevertheless, I'd also like to point out that the booking processes on hotel websites are usually unclear and inefficient, and customers would prefer to book through one of the OTAs.
We asked the hotels that as well. The hotels we surveyed believe that they offer business travellers, in some cases, equivalent and, in others, even better services in terms of location and individuality than global chain hotels in their competitive environment. Nevertheless, they still need to face the new challenges moving the market.
The increasing concentration of chains and the associated crowding-out of the individual hotel industry, for one. According to an internal HRS study, international hotel chains cover some 16 percent of the room capacities available worldwide. Their share of global corporate business, however, is 75 percent.
Another advantage the big brand hotels have over lone warriors is this: by negotiating with chains, a corporation can cover several destinations at once, without having to negotiate each one individually. This means that an individual hotel is usually ruled out for reasons of volume, even if it can match or better the services of a chain hotel. And with that comes the next difficulty: large companies can be very cautious when it comes to entering into contracts with individual hotels.
As I mentioned before, individual hotels are often invisible to corporations because they can't be found on their company-wide hotel lists. Even potential benefits such as product differentiation, lower rates and a personal service are of little help without a listing. Taking part in programmes such as HRS or becoming a member of a recognised hotel cooperation can help establishments get listed on GDS such as Amadeus, Sabre, Galileo or Worldspan. In that regard, cooperation, but also an OTA like HRS, can help a hotel gain a more international presence.
Owing to the increasing concentration of chains and the associated crowding-out of the individual hotel industry, it's now essential for city hotels to be represented in a company's hotel programme. In general, they can't make the listing on their own. In fact, 63 percent of the hotels we surveyed are interested in participating in RFPs or at least considering finding out more later.
Ms Papenhoff, thank you for talking to us.