CHALLENGES AHEAD IN HOSPITALITY INDUSTRY

Written on the 28 October 2010

CHALLENGES AHEAD IN HOSPITALITY INDUSTRY

FAST changing consumer habits and attitudes have put the hospitality sector on notice and changes must be made now if future prosperity is to be attained.

According to a global report released today by Deloitte, the global industry will need to address seven major imperatives over the next five years to achieve future growth.

The Hospitality 2015 report explores trends which Deloitte believes will shape the hotel industry in the future and is supported by research, analysis and structured interviews with industry leaders.

The seven key areas are: emerging markets; demographics; brand; talent; technology; sustainability and crisis management.

Emerging markets

China and India will continue to be the key markets and according to the report, by 2015 these countries will have absolute year-on-year tourism growth greater than the UK, France or Japan.

Deloitte’s Global Tourism, Hospitality & Leisure spokesperson Alex Kyriakidis, says in the emerging markets, the rise of the middle classes will drive significant new demand for both leisure and business hospitality.

“The greatest future potential in these markets will lie in developing mid-market and economy-branded products aimed at the domestic traveller,” he says.

Demographics

In 2015 and beyond, two key demographic drivers of change have been identified, which will create new patterns of travel and demand in the west and important new source markets in the east: the ageing baby boomer population and the emerging middle classes of China and India.

“Hospitality operators who understand the drives and needs of these growing demographics will reap the rewards and become the future leaders in the industry,” says Kyriakidis.

“By 2015, US boomers are forecasted to account for 60 percent of the nation’s wealth and 40 percent of spending. In the United States, baby boomers will drive growth in hospitality in the leisure sector. The key to attracting boomers is appealing to their ‘forever young’ attitude and desire for experiential travel.

“The middle classes of China and India will also create ripples of change far into the future as their travel patterns evolve from domestic to regional to international. India alone is forecasted to have 50 million outbound tourists by 2020.”

Brand

The growth of social media in the last five years has been staggering and will continue to grow. This new form of communication and feedback is good news for consumers and offers both threats and opportunities for operators.

“The transparency of social media will highlight any inconsistencies in the delivery of the brand, and will provide a quick and enriching communication channel between brand and consumer. The most successful brands will be those that embrace and learn to harness social media rather than underestimate or fight against its influence,” says Kyriakidis.

Talent

An average hotelier spends 33 per cent of revenues on labour costs, but employee turnover in the industry is as high as 31 per cent. High employee turnover continues to plague the industry and operators need robust strategic plans to retain their critical employees and manage turnover.

Technology

According to the report, to be successful in 2015, hospitality companies must invest in technology. The battle to drive bookings through proprietary websites will continue, but all major operators will also develop applications and websites for mobile devices to meet consumer demands.

Sustainability

Sustainability will become a defining issue for the industry in 2015 and beyond. Rising populations and increasingly scarce resources will provide a challenging business environment in which sustainability will need to be embedded within all facets of the hospitality industry.

Crisis Management

The key to the hospitality industry’s survival of unpredictable shocks and minimising their impact is to establish appropriate responses, protocols and risk management programs. Operators also need to capitalise on new opportunities that may present themselves in challenging times.

The report also highlighted the fact that profit margins for Australian hotels should increase rapidly in the next five years driving both an active transaction market as well as spur new development initiatives.

Deloitte’s new national leader of Australia’s Tourism, Hospitality & Leisure practice, Rutger Smits, says most successful projects in Australia in the next few years are likely to be mixed-developments, combining a hotel with commercial, retail and/or residential components.

“The other alternative is incentivised projects related to infrastructure developments (convention centres) or PPPs. While five-star product will always be in demand, providing the highest return per square metre, the four-star full-service and limited service, as well as smaller lifestyle brands, all provide good development prospects,” says Smits.

“As room occupancies are traditionally low, held back by seasonal demand, a highly efficient low-cost limited service product is the most likely replacement for the dated owner-operated motel. Expect the emergence of a cookie-cutter branded concept.”

Smits says resort destinations are likely to struggle for some time to come, until international tourists return in numbers or the Australian consumer holidays at home again.

“Until such time, development of resort products will remain constrained, unless it can be supported by residential components,” he says.

Restaurant & Catering Queensland CEO John Hart could not be contacted for comment, but Gold Coast restaurant entrepreneur Steven Adams (pictured) of Moo Moo Hospitality Group, says high rents must be addressed to suit market conditions.

“It’s very sad when you hear about businesses going under. You want everyone to do well and have money to spend and to keep the local economy healthy. Landlords need to look at rents in this climate and reconsider rates,” he says.

It follows the recent closure of restaurants including Beluga at Main Beach, Aqua in Broadbeach, Perle, and the Pink Poodle in Surfers Paradise.


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