Is this a relationship that is one premised upon the positives or negatives, is it a friend or foe type set of circumstances. I think ultimately what will be successful are those who can at least embrace it as a partnership opportunity, be mindful of where the OTAs can truly add incremental value. Many talk about the OTAs adding, if they can add incremental room nights, that’s definitely extra revenue you might not otherwise have achieved and that's serves a purpose. I think the reality at the moment is, yes you’re getting some of that but you’re also facing a challenge from quite a large amount of business not necessarily being incremental. So, I think it’s working on the ways that you can ensure that what you get is incremental and at the same time as we touched on before, ensuring that when we do gain access to that customer who may have arrived via the OTA channel, you try and make the most of the opportunity to cement your relationship as a hotelier with that customer going forwards to maybe cut out the OTA going forwards.
In this digital age there is tension between online travel agents and brands, as Carl Michel of Generator Hostels discusses in this TV show.
Digital age conflicts
There's always a tension between an OTA and a direct machine, one of the challenges is simply, you've got to, you've gotta co-exist - we're frenemies, basically, to the OTAs, they are a necessary evil, what we hope to see, is by driving more content onto our web-site, and more unique offers onto our website, that we'll gradually gain more brand fans, brand loyalists, but we're still a relatively small brand, we only have ten locations, so we have to recognise the OTAs do play an important role in getting our brand distributed and out there to the market.
Hospitality TV will continue to feature shows about OTAs and what the digital age means for hospitality. Why not take a look at who else has been featured in the Hospitality250.
Deal-making is a hurdle for growing business. In this TV show Tom Walsh of Staycity discusses a strong development pipeline.
Deal-making in alternative markets
It is a very limited marketplace. I mean our our objectives, were 900 units today, by the end of next year we'll have 2000 keys. There are deals that we did over the last few years that are under construction at the moment, many of them, a couple of them opening this year, and four or five properties opening next year. It's hard to find the properties that's, you know, that's, that's you know, par for the course, you really are competing with other users, whether it's office use or residential use, or hotel use, you're generally competing for, you know, scarce real estate in city centre locations. We're, we're seeking city centre locations, so you're, you know, you are by definition really, uh, competing with other users. Our growth plans will see us having about 5000 keys by 18 or 19. We're quite comfortable we'll be able to find sufficient properties for that we've, as I said, 2000 open by the end of next year, and a pipeline of 1300 on top of that. And, a good strong unsigned pipeline, so you know, we're able to ferret them out, you know, bit by bit, deal by deal.
Browse more videos by the Hospitality 250 experts and find more insight into deal-making and other hospitality topics.
Generally speaking residential yields are much lower than hotel yields, the happen to offer lower risk profile, there's more customers, there's higher occupancy, and generally speaking residential also tends to correlate with house price inflation, which is different than the hotel business so resi values tend to go with house price values, and so as an investor you look at both the cash flow and the value side of things. Whereas in the hotel it tends to be that the cash flow is directly correlated all the time with the value. And so, yields tend to be lower, but capital appreciation can be higher, in resi than in hotel.
Africa is more than a great opportunity, it's the biggest market to come. Just to keep in mind, a few numbers; first, 1.5 billion inhabitants by 2050, it will be bigger than uh, China or bigger than India. In the continent of Africa fits more or less all the whole world; uh China fit in Africa, India, Europe, US, and Brazil, just to give you the size of Africa. And today, if you take the market, only 5%- 5.3% of the sub-Sahara Africa, just to give you uh, the, the- the mass market that we are developing, uh, branded hotels, 5%, versus 44 in, in Europe, and 70 in the US. Then, to show you the massive opportunity we have, all together, bigger than chain original player like Mangalis Hotel Group, or small independent hotels, to support the growth of Africa.
Advantages and disadvantages of serviced apartments
The staff level is a lot lower than, than in hotels, we all know that in F&B and in conferences, you have very high staff levels, so as we don't have this it's, it's reducing, our staff level. But also in terms of the normal hotel guest, it's when they check in and when they check out that the most work is created for the, for the hotel. And not just at the reception, but also for housekeeping, for the concierge, even for accounting, and so by having longer stays we can really reduce the amount of work that we have, per guest.
It is a typical challenge for us, of course, having bigger units. and in fairness the units size have come down, in recent years. However, please remember we have all the space that we're not using for restaurants and conferences that we can now allocate for rooms for example, as well as we might use part of that space to rent out to retail. So all this generates additional revenue.
I think another key advantage of serviced apartments is in terms of exit strategy, a hotel, you can always just sell as a hotel, in one block whereas serviced apartments, depending on the legislation in the country you are in, you might have the opportunity to sell the apartments individually as private residences And so therefore you have an option basically to if the residential market is booming, you might say "hey, you know, I'm actually selling these as residential" rather than, than, as a trading business.
Customer demand will drive which concepts take off and which get left behind. In this TV show Tim Helliwell discusses how consumers are looking for something different.
Customer demand for alternative accommodation
Well, I think these really are arguably the future in terms of where the sector is going. The established brands and the established offerings will always be there and there will always be a market for them, but as we've heard today, you know, people are equally looking for something different, whether that's the brand offering and everything that goes with it, or indeed, in terms of the concept that's been offering. So, whilst, as I said on my panel, that you know I, I'm focussed on hotel finance, I'm actually focussed on aparthotel finance, hostel finance, anything which has got a hospitality angle to it, because frankly that's what consumers are looking for, and that's exactly why I'm here.
Hospitality TV will continue to feature shows about customer demand and alternative accommodation. Why not take a look at who else has been featured in the Hospitality250.
I think what they are is, is offering consumers this choice. I might be willing to stay at a, a mainstream hotel whilst I'm at work, but equally at weekends I might fancy something differer. I might fancy going and staying in a hostel in a European city with my family, and I might not necessarily want to have that full service experience. I might be very comfortable to stay in a, in a hostel with my family and not necessarily need a dinner and bed and breakfast offering; I might be just happy to go and sort myself out. And I think also, the offerings in terms of some of them are a bit edgier for example; maybe that's something that I might be interested in exploring and I think this, this is the, this is what it's all about now, it's about choice, and I think then in terms of the safety from a banking perspective, if these are well managed propositions, if they've got sustainable cash flows, sustainable business models, this is exactly something which a funder would want to explore.
Owner-operators are common in the alternatives market
In terms of operating models, many of them start out as owner operators and indeed well, you know, we've been hearing about these concepts today. Many of these brands that have come through, you know, fundamentally they have got investment and they are owner operators, they're in charge of their brand name, they, they run the operations and they also own the real estate, you know. And frankly that from an investment perspective, it works because it allows you that ability to be in complete control of the operating model, and you have that flexibility. And I think as you start moving through and then looking to expand that model whether it's into a management contract or a franchise or something else, ultimately those types of models, you want to be, you want to be sharing a concept which is established.
So I think normally what you see is you'll see this type of concept, and we've heard about it today, you know, a lot of these are owner-operators; as they've grown they've grown within an owner-operator model, but then they are looking for that next level of growth, potentially via franchise or management contract.
That's what I do. Our business is all about operating risk, so, you know, we'll take owner operations, management contracts, franchises, you know, manchises, and that's what we do; we look at those operating cash flows and, and we understand the difference in them and how they can work. But fundamentally, at this stage in the market, which is still a relatively young part of the sector, a lot of the propositions that are coming out, they are still owner operators. And, and I can understand that, it makes sense for the investors, and it makes sense for the operators because they've got that flexibility.
I’m very sceptical about brand loyalty is the first thing that I’d say and we’ve talked about that in today’s panel session, that ultimately I think brand loyalty in the hotel sector is limited. Will customers always be seeking best value? Well I think naturally that's going to be a part of their decision making process but I think the interesting thing is that there is a widely held perception that the online channel, the OTA channel is cheaper than dealing direct with the hotelier when actually, basically offering the same prices. So the challenge for the operators is really, you know, it’s not really that the OTA’s have got a price advantage it’s just that they’ve got a marketing capability and advantage that's been driving traffic to the OTA sites relating to the hotels. So I think yes, we’re sceptical about branding but overall there’s still a strong opportunity for the hoteliers to respond because the price differential is not that great.