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Luxury faces CHANGE IN EUROPE

By Katherine Doggrell, Co-Founder for NewDog PR
12 August 2022
11 min read
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The European branch of the ILHA was unable to hold an event in person but found that enthusiasm for online discussions hadn’t waned. Staffing, the digital experience and ESG concerns were front of mind for attendees, as the impact of the pandemic started to wane.

A common agreement across the different panels was that the events of the past two years had not generated any new trends, but rather accelerated those already in place and forced hotels to address them sooner than they otherwise might have done.

One issue which has been on the rise around the world was the staffing shortage, accelerated in many countries during the pandemic as team members moved to other sectors. 

In Own and away? Will investors seek to be closer to assets post-pandemic?, Justin Lanzkron, Business Development Director, Kew Green Hotels, said: “There was an issue in hospitality before any of this happened. People were fed up with the hours and the pay and various other issues. [In the UK] Brexit was a cause to a small degree, and Covid just was a catalyst. What would have taken two or three years happened in two or three months. 

“We have to, as an industry, ask ourselves questions about where do we go from here? We have to think about flexibility for our staff. We have to think about training, better pay, better future career prospects. How people can fit their families and their life into working in hospitality. We need to take a big picture look and make changes.”

For Will Laxton, CEO, McTaggart Family & Partners, pay and conditions were a point of differentiation for the group. He said: “We topped up the payroll above furlough [the UK pay support scheme], to show people that we felt they were very valued and that we understood that the situation that they were in was very volatile and frustrating. 

“And, being candid, there’s a commercial agenda and that decision has bred a sense of loyalty, and that we’re a real team of people embracing the challenges that we all face together.”

The staffing issue was more relevant to the luxury segment than any other, with guests expecting, as Laxton noted, the human touch, commenting: “There is no substitute for human contact”.

One method of addressing smaller team sizes was technology, something the luxury segment has previously resisted. 

Speaking on Wing men: How owners and asset managers work together, Julian Anthony, VP Asset MGT, Dorchester Collection, said: “Front of house innovation in the hospitality industry has largely been driven by the select-service sector. And that has seen acceptance by its clientele, so things like keyless check-in front office, front desk kiosks, automated F&B systems, have been trending. However, the typical luxury guest is not so accepting of these automated service options. 

“Where I see the big opportunity is in trying to rationalise our labour costs. Luxury hotels have tended to hold on to heavy management organisation structures. With the loss of staff to other industries, luxury hotels need to take a harder look at their structures. I think a flatter management structure with well trained and empowered staff should assist to keep overall payroll cost lower, while at the same time allowing for you know, line staff to be paid at higher raise rates and to incentivise them to provide excellent service. So, this is where I see the bigger opportunity for luxury.”

On the Digital Deviance panel, David Orr, CEO, Resident Hotels, said: “I have personally always believed in making sure there are people in and around the very first moment of crossing the threshold in the hotels, I think it would really take away from the experience if you were reducing that human interaction right at the outset. And of course, right at the point of departure. We have used technology to inform the staff to provide a more personal service, which creates a better connection. 

“As we reopened, the feedback was very much about the human interaction. We are also seeing good responses to our new TV system, which for example, puts the TV controller into the hands of the guest, in their mobile device. It’s closer to what they have at home, and it all goes to improve the experience.”

Alex Sogno, CEO, Global Asset Solutions and president of ILHA Europe, said: “The owners often focus on the hardware – the building – but now our focus as owners is more and more on the software. You can have bad hardware; we all know that. But if the software is good, if our people are good, then guests will come, and they will be happy.”

Driving the shift to technology was customer demand, ignored for many years but pushed to the fore as the pandemic forced the need for less human contact. Kevin Edwards, business development director, Alliants, said: “Guests were growing more tech savvy before the pandemic and they want to be able to use technology at different points of the journey. Where we seem to have fallen behind from the hotel’s point of view is, actually, are we enabling choice? What you find is that guests vote with their feet and decide to do what they want with somebody else. We saw it with the OTAs and we are seeing it again.

“It’s quite interesting when you ask clients to show you their guest journey, and no one has that documented. Nobody says: ‘Well, this is what they’re going to do going from one stage to the next. So, my question is: ‘how well do you understand what your own guest’s journey is that you’re trying to deliver? Before you can consider the technology around it, it’s understanding how well you understand your business process. Right?”

Another trend driven by guests was the importance of having a strong ESG protocol. In the case of the E element, in many areas of Europe this was being legislated in the coming years.

Speaking on Build back better? Will returning demand want ESG? Dexter Moren, Director, Dexter Moren Associates, said: “It’s interesting with Covid. There’s been a real return to the idea that you can open a window and you can get some fresh air. And that leads us to think that maybe in the luxury and five-star market adding balconies to hotel rooms is going to make a comeback. We’re certainly designing a building at the moment where I would never have thought of doing that before. And we’re now adding it because people want to be able to step out and get that fresh air.

“ONE OF THE ISSUES IS THAT IN LUXURY MARKET GUESTS MAKING ESG IMPORTANT AND I THINK THAT’S THE BIG DIFFERENCE, BECAUSE THEN PEOPLE LISTEN.”

“We gave changed our approach to development within our practice. Now we have an attitude to keeping everything that we can. So, we immediately say to clients, that we’re not going to demolish this building, we can make it work. Ironically enough, I found that I ran up against the planning authority who wanted me to knock him down. I struggled like hell to persuade them.”

Andrew Linwood, Head of Hospitality at Areen Design, added: “It’s the subject of pretty much every presentation. And interestingly, in contrast to how the attitudes of developers a few years ago, where they just looked at the money thinking it’s going to cost more, they are now beginning to see that because of changes in the market and the way things are delivered, it doesn’t cost any more. And indeed, it can be more profitable if you can tick the boxes of ESG.”

“BUSINESS AS USUAL IS NOT AN OPTION AS IT’S UNLIKELY THAT THE COST INCREASES CAN BE PASSED ON FULLY IN THE FORM OF RATE INCREASES.” 

Despite the hope of greater profitability, owners were still fearing that staffing, ESG and technology would lead to greater costs. Anthony warned: “Even prior to the onset of the pandemic luxury hotels were already facing margin compression, due to weak rate growth, while continuing to be weighed down by heavy labour and other associated costs necessary to maintain standards as a luxury product. 

Luc Boschmans, Managing Director, Hospitality, Tristan Capital Partners, commented: “We have to understand as an operator, that the owners are taking the biggest risk, and that they are really, suffering the most financially during this type of crisis. That’s why it’s very important, of course, to try to maintain a strong relationship.”

This need for a strong relationship within the stack had accelerated the role of asset manager, according to Dimitris Mittas, VP Finance Europe, Global Asset Solutions. He said: “The owners started looking for the expertise of the asset managers. Some owners were looking for somebody with diversified experience to help them renegotiate the contracts with the operators or to bring in new ideas from all the knowledge they had. Some owners had to get rid of assets. And consequently, thanks to so many opportunities in the market, it was the right time for others to increase their portfolio. 

“There were a lot of big changes within the market; the owners, really started pushing a lot on the operators. There were so many requests for accurate forecasts, which created a lot of pressure, a lot of problems sometimes. But everybody worked together and as the time went on the hotels started seeing some recovery, especially in 2021, in the luxury market, at the end of the second semester.

“We even saw an increase on the stay of the clients, the guests starting changing little by little. And especially in the resorts, there was a significant increase in ADR.”

With the market still recovering, Tom Magnuson, CEO, Magnuson Hotels pointed to the need for hotels to be flexible. He said: “We’ve seen furlough, rent freezes, business rate holidays. But the situation we’re seeing today is that these were just plasters or Band Aids that were put on the problem. Peel them off, we’re seeing a more difficult situation.

“The amount of people travelling is growing at about four times the GDP of the westernised countries. They’re just travelling in in different ways. And where we’re finding it with hotels here in the UK, and in the US, is with a fresh approach to business segmentation. 

“Hotels are going to have to look to new sectors. Predominantly leisure hotels are going to have to look to new sectors and we’re going back to the old school method of the phonebook and the sales manager. How many local businesses there within a 30-mile radius? How many new corporations are moving to town and actually calling on those people? And asking for the business?”

And for the market itself? Simon Allison, founder of Hoftel, called change. He concluded: “When I set up Hoftel 16 years ago, all the hotels were management agreements, it was really designed as a forum for owners who had management agreements. 

“Now over half of our owners have some sort of hybrid ownership structure. Some of them have franchises, some of them have franchises with white label, and some of them have their own brand and operation. And that seems to be spreading more and more. 

“So you’ll see owners all the time, and the pandemic has really pushed it ahead, reviewing whether they want the operator with all the very heavy burden of recharges with often very heavy operating structures, and sometimes the lack of flexibility to stay in the hotel or whether they want to look at something different. I think more and more across the world, the brands are not resisting the move to franchise, they know that there are white label operators who are capable of running hotels pretty well, sometimes better than they are. And they know quite a few owners are able to do that as well

“I think where it makes sense for both parties, even in the luxury space, is that you are going to see the beginnings of franchise arrangements. I think that’s coming down the track more and more.”

Change is not just coming, it is here and how luxury was delivered two years ago has changed. 

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