Hotel fragmentation or consolidation in 2015?
Hotel fragmentation or consolidation in 2015?
20 JANUARY 2015 9:21 AM
The general consensus in Europe is 2015 will be the year of consolidation, but one voice believes that as fast as that happens, fragmentation will appear even more quickly amid an ever less loyal consumer base.
Correction, 20 January 2015: An earlier version of this story BDRC Group was incorrectly referred to as Business Development Research Consultants Group.

In Hotel News Now’s 2020 Hotel Trend Report package of stories (of which I am positive you have perused all of its content, factoids and charts at least five times), one question asked was what might the landscape look like in regard to hotel industry consolidation in that year, now less than five years away.
In the report, we benefitted from the expert opinion on consolidation of Jonathan Langston, CBRE Hotels’ senior director and head of professional services, but I wanted also to ask someone who had a 360-degree view—that is, a marketer.
Enter Crispian Tarrant, the respected, knowledgeable CEO of BDRC Group, who regularly sits on hotel industry conference panels and consults on everything from distribution to development.
If I were asked, I’d say consolidation would increase every year things looked a little rosier, just to hedge my bets. However, Tarrant is far more scientific and, dare I say, unemotional about these things. He sees the big picture, which is handy in his line of work
I wondered if his hunches would differ from those of the herd, and he did not disappoint, wrapping up for me not a world of neat parcels but one of reduced consumer loyalty and enlarged chain fragmentation—albeit with increased brand pricing, too.
On fragmentation
“Regardless of the growth of international hospitality businesses, the sector remains highly fragmented with vast numbers of domestic and regional brands catering to local markets,” Tarrant said. “For in spite of the growth of international travel, in all but the smallest of countries the bulk of hotel demand is domestically generated, so creating a niche for local brands to prosper.
“While it is possible to anticipate further consolidation amongst international hospitality businesses, with activist shareholders a key driver, this is unlikely to reduce the number of actual hotel brands.”
My take: That’s not to say consolidation will not happen, but in the eyes of consumers it will not look to be the case, and there will be more distribution channels and choices than ever.
On brand power
“Over the last decade or so, growth of the portfolios of brands offered by the big players has been a major trend. … Invariably each brand is targeted at a particular consumer segment, and the emergence of new consumer age cohorts and segments with different market needs means the slate of brands originally developed for baby boomers need now to be reimagined and added to,” Tarrant said.
A BDRC chart clearly shows brands are losing traction:
Source: BDRC Continental
“Looking at BDRC hotel guest survey data for European leisure travelers (from the U.K., Germany, France, Netherlands, Belgium, Italy and Spain) there is, however, some evidence for a decline in the power of hotel brands amongst the younger traveler generations, for whom online review sites now assume greater importance,” Tarrant added.
My take: Expect more brands and more marketing justifying the need for them and more advertising targeting millennial spend. 
On pricing
“Yet, at the same time by deploying the BDRC ‘brand margin’ methodology, we know that hotel brands can command a price premium in the perceptions of consumers,” Tarrant said.
Source: BDRC Continental
“The data in this second chart demonstrate the percentage uplift that certain upscale hotel brands merit in the opinions of consumers in the same European leisure traveler study. The ability of hotel brands to command a price premium is the crucial reason for their existence and future success. For as long as they can do this there is no reason to believe they are about to go away,” Tarrant added.
My take: Consumers might be less loyal, but they are still prepared to pay more for a roomnight at a leading brand.
The ground remains shaky
It is always refreshing to see reasoned argument that veers from the consensus, but I wonder—hedging my bets again—if what we eventually see happen will be something occupying the middle ground.
My understanding of the situation was the consensus during the last recession, or perhaps as we emerged from it, was the global hotel industry increasingly would see consolidation activity. That has not been the case.
Why is that? And why did most us consider this likely to happen? Might still we see it happen (2015 is being pushed as the year of European consolidation)? Or has everyone already finished licking their wounds, started to enjoy the good times and behind closed doors are resisting all efforts to take them over?
Or are we just awaiting one mega-takeover?
Or is it because a reduction in loyalty, the opening of new markets and employing niche products as a means of pushing rate all will lead to increased fragmentation despite the likelihood of some of the larger international players making spectacular buys in 2015?
Or in 2016 or 2017 or …
Email Terence Baker or find him on Twitter.
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