Letter from Hong Kong: From real estate to community, from brick to clicks, can hospitality make the leap? 20/10/2017, by Yeoh Siew Hoon
The sky is piercingly blue, as blue as it could only get after a huge storm has just whipped through. I am in Hong Kong two days after the last Typhoon 8 visited this city built on a rock.
At the Hotel Investment Conference Asia Pacific (HICAP), I heard a panel of investors saying perhaps it would take a perfect storm to jolt the hotel industry out of complacency and finally face the challenges coming at them from several fronts – from real estate inflation to tech disruption and a new generation of consumers.
Suchard Chiaranussati, founder and managing director of SC Capital Partners Group, said hoteliers, who sat on trillions of dollars of assets, were happy to let others disrupt them.
“When was the last time we spoke to customers and asked them what they want, unlike the OTAs who know how to run focus groups and speak to customers?”
He noted that there had been no innovation in the hotel sector for decades. “It still takes me five minutes to check in and I still sleep on the same pillow.”
And he said it was not unusual today for the three global OTAs to contribute up to 45% of a hotel’s distribution “and we have no clue what to do with them and we have to ask why do we need sales managers anymore? Just to key in data?”
Richard Weissmann, Partner at KSL Capital Partners, who said, “hotels think of better innovation as better showers”, observed there had been no disruption to the hospitality industry for 50 years.
And now the combination of Airbnb and OTAs, he said, was forcing hotel groups to consolidate to get scale and compete against these massive forces and think of how to deliver services to a new generation.
He recalled the early days when he visited China when a leading OTA was fulfilling ticket sales by scooters and now they had moved on to “swipe by phone”.
“If you don’t understand where fintech is going in China, then you’re not going to be able to compete.”
Peter Meyer, CEO of Lodgis Hospitality, said, “Maybe we need a huge shock to the system to allow folks like us to come back in.”
Disruption is not just happening in distribution and marketing but in real estate development and management and for the first time, the topic of co-working reared its disruptive head extensively at this 28-year-old investment conference.
This is something to be reckoned with – because it gets to the very heart of the hospitality industry which remains very real estate-driven, particularly in Asia.
Kenneth Gaw, president and managing principal, Gaw Capital Partners, clearly believes in the potential as his company has invested in Naked Hub, the Shanghai-based co-working startup.
Beyond the money though, it is evident that what’s needed is a mindset change. The roots of hospitality in Asia are real estate-driven, the mentality being – how I can buy, build and sell properties at the highest profit?
Tech companies like Airbnb and WeWork put community and technology at the core of what they do – how can we wrap technology around our spaces and services to engage and empower our communities?
T Fuad, managing director, Southeast Asia for Wework, who sold his 16-month-old startup Spacemob to the co-working giant recently, said WeWork’s model was essentially similar to the hotel management model in that it manages spaces on behalf of property owners, just that it sees space as a service, not as square footage, on behalf of its 100,000-plus members.
The company, founded in 2010, has a valuation of roughly $20b and manages 10m square feet of office space around the world. It has earmarked $500m for expansion in South-east Asia and South Korea, the region under Fuad’s watch.
Ironically, hotels formed the heart of local communities in the early days when they were the places to gather to celebrate birthdays and anniversaries.
But that’s changed too as alternative spaces opened and consumer tastes evolved.
Think of where else hotels have been slow to respond – free wifi and cafes stepped in; innovative f&b concepts and free-standing restaurants stepped in; local experiences and alternative/private accommodation stepped in …
Could this happen now in the creation and utilisation of spaces for a new generation of consumers?
At the Kerry Hotel, where I am staying the night and which will host the new HICAP, the Next Story Group (formerly Silver Needle Hospitality) has opened its first new space, Kafnu.
They are calling it a “physical social network” to allow a generation more used to virtual social networks to come together to create, work, live and play. Kafnu has a partnership with Kerry Hotel in that its members have access to the hotel’s services at a discounted rate.
And so we are beginning to see the blending of both worlds – clicks and bricks. Fuad said this was inevitable as tech companies like WeWork get into asset plays.
Airbnb for example is working in partnership with a property developer on a branded 300-unit rental complex in Kissimmee, Florida that will bear a new name: “Niido powered by Airbnb.”
Alibaba has opened three Hema stores in Beijing and Shanghai, that offer a blended experience. Customers can shop, dine and order groceries for delivery from their mobile phones and use Alipay to make payments.
The advantage for hospitality is that they are already a heavy brick industry, now it just has to figure out how to make the clicks work for it.
That’s going to take a culture change. In a fast-changing world, speed of execution is vital as is the mindset to allow experimentation and to fail fast.
Adam Brownstein, regional director of Booking.com, who sold his startup Buteeq to the Priceline-held hotel booking giant, spoke of its culture of experimentation and suggested that hotels could experiment with a teamwork approach to projects “which makes it more forgiving”.
Jennifer Cronin, CEO of Wharf Hotels, spoke of the need for “transformational leadership” to attract the next generation of talent into the industry.
At a panel of startups, I asked GetYourGuide’s manager of partnerships Alex Shen (pictured right) why she chose to work for a startup versus having a cushy corporate job with all the perks.
Shen, who used to work for HSBC in Hong Kong, said, “It’s more fun, it’s the sense of play within the team.”
The hotel industry has always prided itself on being a people’s business – people serving people – but perhaps that mantra should now be extended even more vigorously internally so that it creates the right kind of culture to weather the perfect storm clouds that are gathering.