• Disruptors set off the fireworks

New hotel and lodging formats are all looking to feed niche demand in the marketplace. But the problem is, reaching the target market can be a challenge too – particularly when those consumers seem ever more fickle in their behaviour.
That hasn’t stopped new formats being tried, and some gaining considerable traction. And a conference session at the Hotel Alternatives event, hosted by Hotel Analyst at the start of February in London, heard how some of the disruptors go about their business.
Generator Hostels has reinvented the hostel concept, showing that cheap, shared accommodation doesn’t need to be all plain and dull. The group’s latest, substantial development is launching in a converted Paris office block. The target customer market is defined more by their attitude, than their age group, said the company’s Carl Michel, so perhaps it is more appropriate to consider Millennials as a mindset rather than an age group – more young at heart than necessarily young.
“Certainly when you go to our properties, you will see some people in their 60s and 70s. It’s very hard to categorise these people.” They could be staying in a Generator one moment, and in a W hotel the next.
“The traditional marketing channels don’t work,” said Michel, “we have to use much more subversive methods.” He noted the average Facebook user has 1,000 friends – and service providers need to give their consumers things they want to share with their friends.
DLA Piper’s Jo Owen noted that guests are often seeking different experiences. Out of the centre of London, for example, will provide a quite different feel to hotels in the centre. Hans Meyer of Zoku, a disruptive extended stay offering about to launch in Amsterdam, agreed: “The interesting thing about extended stay is that it is quite difficult to make it work in the city centre.” Zoku is looking to create a compact format, that also has an appeal for those looking for a place where they can both stay and work. His apartment concept, he promised, would bring together a micro apartment with a Regus-style business support for those staying and working in Amsterdam. “What we focus on is giving global nomads a social life.”
Disruptive concepts also challenge traditional income models. Generator, for example expects food and beverage income to be significant: “We have relatively high bed density, and clearly a lot of ancillary food and beverage.” Currently that represents a quarter of turnover “and we think it will grow”.
The disruptors sometimes find it difficult to gain funding. Zoku is backed by three private equity investors, along with bank debt, while Generator has benefited from the long term backing of Patron, more recently joined by Invesco. And such funders need to be flexible to get the best from disruptive formats over the longer term, noted Owen. “Don’t stifle growth to lock away return.”
For the banks, a new concept is always risky. Said Tim Helliwell of Barclays: “I would definitely think you need to provide the concept a couple of times” before a bank would be comfortable lending. “But in the early stages, equity is better than debt – you have the flexibility to make changes and test the concept.” But he said ultimately a bank is not averse to backing new, disruptive concepts: “It’s about the management team, the cashflows.”
In many business cycles, established players buy out – or buy into – the innovators. Will the large groups buy into the disruptors? Meyer noted: “I think the deal of Accor buying into Mama Shelter is a very interesting one.”
In tune with the subject under discussion, a Norwegian delegate threw in a disruptive comment, suggesting the panel was merely arranging deckchairs on the Titanic. “The big iceberg I see, is Airbnb.” Were panel members worried about the impact of this potentially huge challenge, or would it become another distribution channel?
“If we as an industry cannot create value, we have a problem,” said Zoku’s Meyer. “We shouldn’t be afraid of it, we should be learning from it.”
Michel said his customers were very much attracted to the social aspect of the Generator offer, something Airbnb hosts could not offer. “I don’t see it as a threat remotely.”
Helliwell did see an issue, and his own bank had researched the Airbnb offer. “The level of supply coming into especially gateway cities is an issue,” he warned.

HA Perspective [by Chris Bown]: Bringing together a traditional banker, a hostel operator and a Dutch innovative start-up was always going to engender an interesting debate.
But the issues remain the same, for innovators as for established hotel groups. The business needs private equity funders to support its early stages, and has to demonstrate it has found a market, to deliver early cash flows. Then the banks will be comfortable supporting further growth.
And the challenges of finding, and marketing to the right target audience is getting ever harder. The number of marketing channels proliferates, just as the target groups seem to behave in ever more complex ways. Knowledge may be power, but more knowledge also leads to the conclusion that effective marketing is harder than anyone thought it was in the old days.

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