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Transcript of Trends and Opportunities in the Global Hospitality Industry Irish Hotels Federation Symposium Alex...
Trends and Opportunities in the Global Hospitality Industry
Irish Hotels Federation Symposium
Alex Christou, Partner, Andersen Consulting
Dublin, 29 November 2000
2
Presentation outline
Objectives
Andersen Consulting
Industry trends and opportunities
Implications for Ireland
Concluding remarks
3
Objectives
Set out Andersen Consulting’s point of view concerning key trends in the global hospitality industry including– Customer service– Procurement– Financial management– Brand and product management
Identify key implications for the Irish hospitality sector– Commonalities and differences– Implications for industry strategy
4
Presentation outline
Objectives
Andersen Consulting
Industry trends and opportunities
Implications for Ireland
Concluding remarks
5
130 + Offices in 48 Countries
Americas
Asia/Pacific
Europe/Middle East/Africa/India
IndustriesGeography
Resources•Chemical•Utilities•Energy•Natural Resources
Products•Automotive & Industrial Equipment•Food & Consumer Packaged Goods•Pharmaceutical & Medical Products•Transportation•Travel Services and Hospitality•Retail
Communications•Communications•Electronics & High Tech•Media & Entertainment
Financial Services•Banking•Health Service•Insurance
Government
With revenues of $8.9 billion and 67,000 professionals, Andersen Consulting provides unparalleled global strength
in the business consulting marketplace.
Our organisation
6
Presentation outline
Objectives
Andersen Consulting
Industry trends and opportunities
Implications for Ireland
Concluding remarks
7
Global hospitality and airlines industries are large and fragmented segments which have shown moderate revenue and profit growth
281288
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300
310
320
1996 1997 1998 1999
Airlines
Hospitality
Global Airline and Hospitality Revenues 1996-1999US$ Billions
US $ Billion
Operating Margin
Airline Industry
Hospitality Industry
5.0% 6.9%
13.5% 17.5%
6.7%
20.8%
5.3%
21.6%
$
$
$
$
$
$
$$
Airline CAGR of 3.07%
Hospitality CAGR of 5.18%
8
The major global players
Company
1999 Total Rev (US $M)
1999 Operating Margin %
Bass 9000 16.8Marriott International 8700 8.1Cendant 7500 28.7
Best Western (private) 6900 -Granada Compass 6757 24.4
Carlson Hospitality (private) 5900 -
Accor 3747 9.8Hyatt (private) 3600 -Starwood 3335 4.1Choice 3256 58.1Hilton Hotels Corp. 3160 24.7Hilton International 3031 -Wyndham International 2500 -5.1SRS 2000 -3.1
Four Seasons 1653 -Club Mediterrannee SA 1558 2.7Hyatt International (private) 1400 -
1350 -MeriStar 1300 1.3
Fairmont (Canadian Pacific) 1233 -
Forte Hotels 1657 34.2
Ritz-Carlton
Global lodging supply, though consolidating, remains fragmented– The 10 largest branded companies hold just 20%
of the worldwide branded market and generate 20% of total revenue
Globally, approximately 50% of Hotels are affiliated with Chain Brands – Nearly 70% US, 25% Europe and Africa, 15% Asia
US and EU based Hotels account for approximately 74%of the 15.5M Global Hotel Room Supply
9
After a period of mixed performance the global hospitality industry is focused on adding shareholder value
Since 1987, the US Lodging Industry has consistently performed below the Standard & Poors 500 Index and the Dow Jones Industrial Average.
Source: Bigcharts.com
From 1996-1998, Lodging stocks performed well against the S&P index
In 1998 a hiccup in the financial markets coupled with perceptions of oversupply in the industry caused Lodging stocks to badly under-perform the broader market
•Under-performed the S&P in 1998 and 1999 by 65 and 23 percentage points respectively
In 1998 to early 2000, the Lodging has struggled to regain it former momentum
In the last few months, the mood of the industry is optimistic as, in the latter half of the year, Lodging stocks have outperformed the market
10Source:FactSet 2000
However, Lodging companies on average are expected to generate moderate increases in value
P/E Ratio 2000
-30%
20%
30%
40%
0 10 40 60
% Change in Market- Cap from 1998 to
1999
50%
90%
Marriott (10.1, 21.6)
Canadian Pacific (12.0, 10.0,)
Bass (-4.9, 15.7)
Starwood (11.7, 20.5)
Hilton Hotels (-29.5, 11.6)
Meristar (58.1, 10.6)
Accor (17.1, 24.7)
Four Seasons (85.2 , 38.6)
Premium performance
and stable growth
Mature to Distressed
Earnings now, unclear future
20 30 50
10%
0%
-10%
-20%
60%
70%
80%
Future growth expectations
11
HospitalityIndustry
ShareholderValue
Labour Shortages
Not Capita
lising
Shifting
Distributio
n
Channels
Limited
Supply Chain
Capabilities
Limited Customer Information Infrastructure
Dependency
on Macro
Economic
Forces
Lim
ited
Tech
nolo
gica
l
Infra
stru
ctur
e
CapitalRequirementsfor Growth Limited by Ownership Structure
Similar industry analysis and interviews found that the lodging Industry is facing serious long term growth challenges driven by chronic under-investment
12
Performance is heavily dependent on uncontrollable, macroeconomic factors
The industry supply chain is fragmented and inefficient
Under-investment has resulted in poor technical infrastructure that limits flexibility and profitability
Demand is highly correlated by GDP and consumer confidence
Supply is rigid, driven by real interest rates, past demand and GDP forecasts
Profitability forecasting models are very unreliable
3 levels of purchasing ( e.g. corporate, regional, property) with little visibility and control over 10,000 skus
Despite access to the customer, chains have limited marketing and CRM capability
Only 45%of chains have a guest database, 11% have it integrated with an executive information system. Only 23% have significantly automated the loyalty program
In general chains have inadequate eCommerce strategies and their capabilities fall far behind other industries
Little attempt to target groups and tours
85% of executives believe technology limits growth
Multiplicity of Property Management Systems (some older than 15 years)
Technology providers are fragmented and unreliable
Hotel ownership, management and brand may belong to different parties resulting in complex relationships
Management companies must offer capabilities for 100% of managed Hotels, but only control 27% of revenue resulting in under-investment
The structure of ownership / management results in under-investment
There is a shortage of qualified labour
US hotel employee turnover ranges from 60% to more than 300% annually
Turnover can cost an average $2,500 for direct and $1,600 in indirect turnover expenses per departing employee
Lodging CRM capabilities are minimal
Hotel Chains
Hotels are not capitalising on eCommerce changes
CRM capabilities are minimal
Key industry issues
13
Trends and opportunities
Value Lever
Reduce Costs
Area of Value Creation
Back Office
Opportunity
•ASP/BSP / Shared Services•Areas include
•Financial systems, Accounting, Corporate Services, Tax, Legal, etc.
Rationale
•Currently fragmented (done at property) and redundant (corporate•Management Companies are perceived as “Fat Cats;” current shared services are ineffective and many costs of operations are charged back to property owners
ImpactLikelihood
High High
14
Trends and opportunities
Value Lever
Reduce Costs
Area of Value Creation
Procurement
Opportunity
•Procurement Strategy and Marketplace Integration•Venture or “pure play” network marketplaces
Rationale
•Procurement strategies at three levels: Chain/corporate; Local/regional; Overall redesign•Marketplaces are being created with out an overarching eStrategy•Current Lodging industry led exchanges attempt to cover all buying activity; There may be an opportunity to create niche exchanges
ImpactLikelihood
Very High Very High
15
Trends and opportunities
Value Lever
Generate Revenue
Area of Value Creation
Customer Relationship Mgmt
Opportunity
•eCommerce development (e.g., Branding; Customer Loyalty)•Consulting Database Implementation•Business Service Provider/ Venture/ASP
Rationale
•Despite significant contact with the customer, Hotels have limited CRM capabilities•Many hotel databases are not integrated•Despite, branding Hotels risk becoming commoditised
ImpactLikelihood
Very High Very High
16
Focus on the customer
1998 2000 2002
Asset Based
Guest Ownership
Focused
(Measure: REVPAR)
(Measure: REVPAF)
(Measure: REVPAC)
Assets/Resources Path of Paradigm Shift Guests/Information
Second Curve
First Curve
Bu
sin
ess
Tra
nsf
orm
atio
n
Ma
rke
t V
alu
e P
/E Key:
REVPAR: Revenue per available room
REVPAF: Revenue per available franchise
REVPAC: Revenue per available customer
Guest/customer focus underpins the migration of lodging corporations to new levels of revenue and profitability growth
17
Trends and opportunities
Value Lever
Generate Revenue / Reduce Costs
Area of Value Creation
CRS / PMS / Yield
Opportunity
•Venture/ ASP- Add Lodging Activity Booking to complement current hotel CRS/PMS offerings•Venture/ ASP- Develop New, net-centric CRS/PMS
Rationale
•Products offer broad marketing•Large hotels are not doing it well•Turnkey solution for chain expansion•Most mid sized chains(15-30 hotels) do not own systems, they rent•Product could reduce current CRS/PMS spending which we estimate can reach $5-10 per transaction
ImpactLikelihood
Very High Very High
18
Integration of revenue management and customer relationship management
Traditional Revenue Management
Focus on maximising revenue on per reservation basis
Optimise demand forecast given static set of products
Not customer sensitive
Not context sensitive
“Memory of One” ; only the current purchase matters
Customer Relationship Management
Objective to maximise customer loyalty
Optimise customer value expectations
Highly customer centric
Often context sensitive
“Lifetime Memory” of past as well as expected future purchases
19
Trends and opportunities
Area of Value Creation
Opportunity Rationale
Customer Relationship Management
• eCommerce development (e.g., Branding; Customer Loyalty)
• Consulting Database Implementation
• Business Service Provider/ Venture/ASP
• Despite significant contact with the customer, Hotels have limited CRM capabilities
• Many hotel databases are not integrated
• Hotels are becoming commoditised
Create Capabilities in Markets other than individuals
• Tours - Channel Integration Consulting Project
• Groups -B2B Consulting Project• Venture or “pure play”
• Tours are currently more important to the European market created without and overarching eStrategy
• Potential to create offerings to facilitate large groups, meeting and convention planning
Customer Reservation Systems (CRS); Property Management Systems (PMS)
Probability of Impact
Size of Impact
Very High
Procurement
• Venture/ ASP- Add Lodging Activity Booking to complement current hotel CRS/PMS offerings
• Venture/ ASP- Develop New, net-centric CRS/PMS
• Procurement Strategy and Marketplace Integration
• Venture or “pure play” network marketplaces
• Products offer broad marketing• Large hotels are not doing it well• Turnkey solution for chain expansion• Most mid sized chains(15-30 hotels)
do not own systems, they rent• Product could reduce current
CRS/PMS spending which we estimate can reach $5-10 per transaction
• Procurement strategies at three levels: Chain/corporate; Local/regional; Overall re-engineering
• Marketplaces are being created with out an overarching eStrategy
• Current Lodging industry led exchanges attempt to cover all buying activity; There may be an opportunity to create niche exchanges
Value Lever
Generate Revenue
Generate Revenue
Generate Revenue/ Reduce Costs
Reduce Costs
Very High
Low Low
Very High Very High
Very High Very High
20
Trends and opportunities
Area of Value Creation
Opportunity Rationale
Back Office • ASP/BSP / Shared Services• Areas include
•Financial systems, Accounting, Corporate Services, Tax, Legal, etc.
• Currently fragmented (done at property) and redundant (corporate
• Management Companies are “Fat Cats;” current shared services are ineffective and many cost of operations are charged back to property owners
Personnel / eHR • HR process re-engineering• ePeopleServe• Human Xchange• eHP offerings to improve human
performance (e.g., ePeopleserve)
• There is a shortage of qualified labor in the Hotel industry
• Services could be offered to large hotels and products to mid sized chains
Others
Probability of Impact
Size of Impact
Travel Experience Integration
• Participation in Auction Markets
Maximise revenue by optimising the allocation of inventory to various market segments.
• There could be an opportunity to off load distressed inventory
• There has been an explosion in the number of sales channels
• An effective channel strategy is even key given the focus on customer relationships and the opportunities to significantly reduce distribution costs
Value Lever
Reduce Costs
Reduce Costs
Generate Revenue/ Reduce Costs
High High
Very HighAverage
Generate Revenue/ Reduce Costs
Low Low
Low Very High
21
Balanced scorecard1 - Turning strategy into operations
“Hilton's goal is to create value for all its constituents --- customers, owners and shareholders, employees (known as "team members"), strategic partners, and the
communities where each hotel is located --- by delivering a consistent value proposition. To achieve that goal, the company relies on the axiom that what gets
measured and managed gets delivered.”2
1. Robert S. Kaplan and David P. Norton, "The Balanced Scorecard-Measures That Drive Performance," Harvard Business Review, January-February 1992, pp. 71-79.
2. Source: http://www.hiltonfranchise.com/news/pg1.htm; Cornell Hotel and Restaurant Administration Quarterly; ©1999 Hilton Hotels
Identify the drivers of value
Plan
– Develop key performance metrics and objectives for each value driver
Execute
– Measure and report!
– But … use KPIs
Act / react
22
Technology model of the future
Finance Procurement
Multi-property PMS Central Reservation System
CRM and Loyalty Revenue Management
HR Recruitment
The technology model of the future enables individual hotels to focus on execution - ie providing excellent customer service - while it enables
senior management to manage the chain or brand from the centre
23
Operating model of the future
Global PMS/Res
RevenueMaximisation
Single Image Inventory
Sales & Marketing
Customer / Property
Alliance PartnersAirlines / Car Rental
WebDistribution
Accountingand Planning
Integrated Global Operations
Chain and Brand Management
Hotel Management
GlobalCommsNetwork
Integrated Global Services
FinancialServices
TechnologyServices
CROServices
HRServices
eCommerce
DynamicMarketing
ServiceDelivery
RevenueMaximisation
ControlException
Management
Minimum Technology
24
Presentation outline
Objectives
Andersen Consulting
Industry trends and opportunities
Implications for Ireland
Concluding remarks
25
Implications for Ireland
Increasing dominance of the major brands– The Irish market does have a choice– How do you achieve the benefits (economics/scale, flexibility, loyalty) without adopting brands?
Flexibility in HR management– Rostering between properties to balance demand– Use of part-time employees to tune resourcing levels to occupancy
Loyalty is becoming a key weapon in maximising customer revenue and contribution– Loyalty is at the brand rather than individual property level
Regulatory issues are transparent to the consumer– Reliance on brand values, identification and loyalty rather than formal classification
Increasing sophistication and ‘corporatisation’ of the global hospitality industry– Central capabilities (procurement, financial management, revenue management and pricing, HR and recruiting, customer
interaction and billing)– Sophisticated management techniques (technology, eCommerce, CRM, balanced scorecard)– The Irish market is less highly developed in this sense: What needs to be done? Who takes forward?
26
Presentation outline
Objectives
Andersen Consulting
Industry trends and opportunities
Implications for Ireland
Concluding remarks
27
Concluding remarks
Global product and brand– Leveraging increasing global travel and loyalty
Scale economies– Procurement, marketing and operations
People– Flexibility in rostering based on occupancy
Management vs Ownership– Focus on return on equity
Focus on the customer– Customer at the centre– Drive profitability through customer relationship
Balanced scorecard– What gets measured gets done
Outsourcing– Business processes, technology, customer service– Focus on core skills
Technology– Central visibility and higher speed of information flow– Customer centric (Not hotel centric)