MEMPHIS, Tennessee—Jim Holthouser has seen plenty of change during his 35 years in the hotel business. He told 125 attendees of last week’s 16th Annual Lodging Industry Update in Memphis that even he hasn’t seen anything yet.
The speed and scope of change is more prevalent than ever, said Holthouser, Hilton Worldwide Holdings’ executive VP of global brands. Neither of those components is going to slow any time soon, he added before outlining five changes coming soon to hotels.
“You better have a pretty good idea of what’s around the corner,” he said. “The solution can take 10 years in this business. Sometimes that’s too long for the customer.”
1. The emergence of the Chinese traveler
“2013 was a big year in our industry,” Holthouser said. “For the first time we hit 1 billion people crossing international borders, and we’re seeing economic advancement and increases in personal freedom.”
Holthouser said the emergence of the 325-million strong Chinese middle class is the game changer for hotels around the globe.
“That’s nearly the size of the entire U.S. population, and they have the means and the appetite to travel,” Holthouser said.
He said 100 million people left China for international destinations in 2013, and that’s expected to increase by 25 million people each year for the next 10 years.
“It’s only a couple of years before Chinese outbound business equals U.S. domestic demand—and that’s the biggest demand on the planet,” Holthouser said. “They’re going to find their way to Europe and they’re going to find their way to the United States.”
2. The ‘”3D consumer”
Hotel guests have simply changed with the times, the Hilton executive said.
“Customers are in control; they are 3D: discerning, disciplined and digital,” Holthouser said.
It’s the tools that have given consumers the upper hand at just about every turn.
“The World Wide Web and the advent and perfection of wireless technology—it’s the intersection of these that is changing everything we do,” Holthouser said. “Today’s customer is more discerning. Part of that is because they have more information at their fingertips than ever. This is a customer that’s highly disciplined and most of all they’re increasingly digital.”
Holthouser said much of the consumer revolution can be attributed to there being more hand-held devices than people and that 90% of the world’s data has been created in the last two years.
That mentality will greatly affect hotels, whether owners like it or not, according to Holthouser. He pointed to the airline industry’s track record of having 80% of its transaction completed without having a customer talking to another person.
“Our world is about to change, and it’s forced on us by this 3D customer,” Holthouser said.
A major change coming is the immersion of the industry into e-check-in, he said.
“E-check-in largely exists today; we just haven’t done a good job marketing it or operationalizing it,” Holthouser said. “You’ll see very quickly the emergence of maps, schematics of hotels that will allow you to select your room. It’s existing technology; it just hasn’t been deployed across the board.”
Hilton’s Homewood Suites brand is among the handful of hotel chains utilizing a straight-to-room technology, Holthouser said.
“The straight-to-room idea is the big nut to crack, but this is the way the 3D customer wants to work with us now,” he said. “We can lament that we’re losing touch points with the customer, but the customer is speaking: ‘We’re into speed; we’re into convenience. We want to knock down barriers. … We don’t want to stand in line anymore.’”
That doesn’t mean it won’t bring some positivity to hotels, though.
“It’s an efficiency play for hotels because they’re not going to need as much labor,” Holthouser said. “I don’t think the front desk goes away. Labor will get redeployed. The mission of the front desk becomes less focused on transactions, more focused on service and problem resolution.”
Holthouser said Google’s continued expansion will continue to force hoteliers to alter many aspects of their business, including technology.
“They have turned their attention to photographing rooms, lobbies, hallways of hotels,” Holthouser said. “You might not even know they’re in your hotels doing this but they are, and they’re going to sell it, and the (online travel agencies) are going to want to buy it.”
3. The convergence of two high-speed Internet models
Holthouser said the industry still doesn’t have Internet pricing right, and Hilton’s recent decree that it will have a tiered pricing model at its focused-service properties is a big step in rectifying the problem.
“Customers are looking at this like utilities,” Holthouser said. “They expect it to work and they expect it to be free. But unlike most technologies that become cheaper over time, this is a technology whose cost is increasing every year over time.”
The increasing need for more bandwidth is the key to the equation because the growing use of hand-held mobile devices requires hotels to have more bandwidth available and more service points for signals.
“We’re asking hotels to give it away, invest more in infrastructure and there’s no shortage of appetite for bandwidth,” he said. “Full service is not quite working for the customer, and select service is not quite working for the owner. Giving it away is not a sustainable model.”
He said the answer is providing basic amounts of bandwidth for email use and simple Internet browsing.
“If you’re a bandwidth hog and want to watch a movie or download exercise videos, you’re going to pay a little bit for it,” Holthouser said.
Holthouser said he realizes full-service owners will have to walk away from some revenue if they give away basic Internet service but eventually the market is going to force full-service hotels to provide a certain level of bandwidth at no charge.
4. Retooling the full-service hotel model
Full-service hotels are going to have to become less labor intensive in the U.S.
“They’re still being built and they still have a role to play, but full-service hotels are a small part of the mix being developed,” he said.
He said there are 10 full-service Hilton-branded properties being developed in the U.S., while there are 140 being developed in Asia.
“To an Asian owner, labor is not an issue; it will be one day but that’s not where they are yet,” Holthouser said.
He said labor can be as much as 65% of the operating expenses for hoteliers in Europe and the U.S.
“We’ve got to figure out how you increase (gross operation profits) in this model,” he said.
Things such as bell service, turn-down service and the concierge desk are likely candidates for the chopping block.
“Bell staff, we’re starting to figure out that not as many people need it once they put wheels on luggage,” he said. “And concierge used to be so prevalent. Guess what, this is my concierge (holding up his mobile phone). I can probably make my reservation faster than you can.”
A large component for success at full-service properties—particularly large, urban hotels—is a move to e-check-in.
“Full-service hotels are going to gravitate immediately to straight-to-room check-in,” Holthouser said.
He added that an evolving roomservice philosophy is also key to a full-service hotel’s financial success.
5. Evolving focused service for greater profitability
With some of more successful focused-service brands, such as Hampton Inn and Holiday Inn Express, growing older, executives are beginning to experiment more with different room types to remain relevant to travelers, Holthouser said.
“You’ll see more suites, more premium rooms,” he said. “Customers are willing to pay $15, $20, $30 more for these kinds of rooms.”
He also said the lines between focused-service and full-service hotels will continue to be blurred in the foodservice area.
“In focused-service hotels, we’ve all created these great lobbies and guess what? Customers want to spend time in them,” Holthouser said. “But those customers tend to want to relax in the evening with a beer or a glass of wine. You’ll start seeing these hotels selling beer and wine at night, and to get this in local jurisdictions, it means you have to also sell some sort of food component.”