🍍 The Golden Age of Operations
Friends - there’s been something bouncing around my head that I’d love to get your take on…
It’s the sense that operating effectiveness is now the most important factor in hospitality today.
It’s a recurring theme in what I’m seeing and hearing now - that a new set of traits are emerging as the keys to attracting talent, delighting guests, and delivering financial success.
More on this in a bit - but first, let’s rewind the clock.
The Age of the Visionary
For millennia, lodging was a commodity. That changed in the 1980s with the rise of boutique hotels.
Bill Kimpton re-created the intimate feeling of family-run European hotels at scale, while Ian Schrager created a sense of exclusivity that people found at his clubs. Later, brands like Ace Hotel picked up the torch and created places that blur the lines between work, play, and sleep.
Now, every brand has a lifestyle strategy.
The Age of Private Equity
Hospitality is fundamentally tied to investment, requiring capital to fund the places and experiences we enjoy as guests.
While this has always been true, real estate and financing strategies generated wealth at scale for the first time for the Marriott and Hilton families during the 20th century and entered a new era in 1997 when Starwood Capital Partners outbid Hilton for Sheraton for $14.3B.
Other private equity firms followed suit investing in hospitality at scale, and what took a hit in some cases was the nuance of what creates long-term value in hospitality versus other asset classes.
“They were asking things like ‘do you really have to pay that person that much,’ and ‘do you have to staff that many people there,’ and this whittled away a lot of what made hospitality special in those properties,” Michael Hraba, partner at Waterford Hospitality, told me. “You can’t create great hospitality from a spreadsheet.”
Seismic changes altered the landscape
Several things fundamentally altered the hospitality industry over the past decade.
User-generated content. The rise of social media and sites like TripAdvisor changed the power dynamic for hotels, with guest reviews directly affecting people’s willingness to book a hotel – and how much they would pay for that hotel. The industry has long measured guest satisfaction but never before had it translated directly into demand and topline revenue performance.
Data. The past decade has seen the creation of more data on hotel performance than ever before. Some of that is user-generated content, but also demand indicators that allow a much higher degree of precision around things such as pricing and labor management.
Pandemic-induced challenges. This has been written about exhaustively elsewhere, so I won’t go into detail beyond stating the obvious: everything from shortages caused by supply chain issues to the labor crunch to quickly changing demand patterns has required more agility than ever before.
Welcome to the Age of the Operator
All this leads to a new era in hospitality: the age of the operator.
Investors, operators, and industry analysts alike believe good times are ahead for hospitality. But it’s going to be a different type of skill set that unlocks the most value moving forward: excellence in operations.
They will understand the value of creating experiences. They will look at groups like Accor that are seeing their lifestyle concepts deliver 15% higher RevPAR and know that cutting costs alone won’t create value. They will develop inspired ways of providing exceptional hospitality by obsessing on knowing their guest deeply, and through collaborations with others in the communities that matter to their guests.
They will understand and leverage technology – not as a cure-all fix but as a way to unlock the potential of their teams and assets.
By doing this, they will stand out. They will attract the best staff. They will earn the loyalty of their guests. And they will generate outsized returns for their investors.
That’s my take: operations will be what differentiates the winners in the years ahead versus the rest.
But what do you think? Would love to get your take here on LinkedIn.
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