Hello and welcome to another edition of the Dr. Nilda business Foresight Strategy Show. Today I have with me Larry Mogelonsky, and of course my cohost Rachel say hello, Rachel.
Larry is a civil engineer in packed goods marketer Larry has spent 30 years owning and operating a hospitality communications agency. He has sold that business and he’s moved full time into writing and public speaking in the hospitality industry. He has published a 150 articles per month in seven trade journals. He has four books on hotel marketing and management, and over 1000 articles in press, he is recognized as the most published author in the field. Larry travels across the globe personally inspecting an average of 35 hotels annually. And he does that on his own dime. So let’s welcome Larry Mogelonsky. How are you? Larry? How are you this morning?
Okay, awesome. We’re really excited to have you. You just bring such a wealth of knowledge and I want to tap into some of that. So what we’re gonna do is we’re going to jump right into the questions. So my first question is, what is the state of the hotel industry today?
I would say the state is good and bad, both at the same time. There is an outer crust where the hotel industry is seeing some fantastic growth over the past year, 2017 was a record year in almost every sector, but there’s some decay underneath and that decay is caused by some structural changes in the hotel industry in particular pertaining to the sharing economy or what we would call Airbnb.
I thought so because that must have had such an impact on the hotel industry, which for so many years was up and coming and really the go to. If you were going to go away, you always look for a hotel, but that has really shifted with the Airbnb and there are so many others, but with the Airbnb’s of the world that has really made a difference and that they offer the concierge, which was kind of what was missing at one time. Not Anymore.
I’m going to use the word Airbnb and I’m not kind of singling them out, but suggesting that Airbnb represents a class of product and I want to give you and your readers and listeners just a thought here. Airbnb did 100 million room nights in the United States in 2017. Airbnb $300 million over the past 10 years, so one third of their total business took place in the last year and it is growing at rates far above and beyond anything that the hotel industry is reporting. And I want to give you another statistic which is from a company called Swift Filings and they looked at 200 industries across the country and the good news is the lodge in business saw a 33 point nine percent growth over the years 2016 and 2017 versus the proceeding period to say, well that’s fantastic, but believe it or not, that is the lowest growth of all 200 industries that they looked at. So although we may say, oh, it’s growing, it is not, and the reason it’s not growing has to do with Airbnb. Another study that’s about to be released by the Harvard Business Review looked at the impact of Airbnb in the top 10 cities in the United States. This study and looked and compared the revenue impact of Airbnb, again, it’s about to be released the next month or so I’m looking at a draft, but it’s arose that Airbnb directly resulted in a three point seven percent decline in profits in those cities. And those are the cities that had the top amount of Airbnb availability. Another perspective for you is this, Airbnb reports that they have 4.5 million rooms available worldwide at any one time. And I was in a conference, a week or so ago, and they said, well, we’re pushing on $5 million and we only report every half million. The total sum of rooms available amongst the top chains. That would be Hilton, Marriott, which now includes Starwood as well as IHG is 2.15 million rooms. So Airbnb in fact is double the size of the largest hotel chains in the world.
I really love this. And what I really like about it is the fact that how they disrupted the industry. I love how Netflix came in and how Uber, the taxis, just kind of just totally took these industries in like tore them apart. And I know that you just mentioned how Airbnb has impacted the hotel business. But I know that we’re going into the future but do you see anyone else coming into the same industry that could possibly like knock them out of the waters? What is it that they did that really because I think the audience is understand what kinds of things that they did that really disrupted that industry where hotels were at one point you want it to go to a five star, that was everyone’s dream to go to a five star. Now everyone’s desires like, I want to go have fun and I love Airbnb, or there’s I think there’s someone else that’s out there as well. What is it that they did that got them to break through? If you could give us some analogies.
Well, I think that there’s many answers there and let’s try and parse the question down and let’s simplify it into a few things. First of all what do hotels not do. Ever walk into a hotel and see a bottle of water with a price tag of $7 on it. You have. You’re smiling. The hotel looks at it and says oh I can make more revenue. The guests looks and says, do you think I’m stupid because I’m not paying $7 for a 25 cent bottle of water. Now I start questioning every single charge within the hotel. Over the past few years, hotels have been gifted in becoming efficient operators. They know how many bread rolls they put into a pan with which they serve you. They know exactly how many milliliters of shampoo to put in a bottle. They have trimmed and trimmed down and as a result it’s like death by a thousand drops of water. Eventually you drown and that is what’s happened to the consumer. Now you mentioned at the same time there are the five star experience, they’ve bucked the trend they are looking at the guests and how the guest is having a terrific experience in their property and their focuses on guest satisfaction. The African hotels focuses on profitability and as you know, that is a short term recipe for long term disaster.
So let me say a little bit about my experience. I have to tell you for the last I want say maybe almost three years. I have been doing a lot of Airbnb for several different reasons. One of them is I actually feel safer. So safety for me, was the upmost importance, but my experiences in Airbnb’s or, the VRBO’S of the world have been really, really pleasant. And it all depends on, and of course they probably charge a little bit more and yet not even nearly what a, hotel room would cost you for the service that you get. One of the places that we stayed at, they actually had the refrigerator filled. The woman called me a couple of days before we left and said is there anything, I know you’re coming in late, is there anything you want me to pick up for you? So that I can have in the refrigerator so that in the morning you can have breakfast. So there are small little things that they do that make a big difference and they make you feel safe. You can park right up front of the home. They tell you what’s in the area. All of those things started making a difference and they started evaluating that against a hotel room. And that was, by far they did so much better. So a couple of weeks ago we stayed in a hotel and we asked for whatever. We had to pick up something really quick and they gave us a bagel. I bought bagel, so I said, can you put butter? And they were like, well, for the bottle we have to charge extra. This is a five star hotel. I mean for the bagel and the bagel was of course a lot more expensive that if you would’ve picked it up at a bagel shop and then they wanted to charge fifty cents for the butter, which by the way was like maybe a pat of butter. Are you kidding me?
The water bottle syndrome again. Let’s back up just a little bit. It all starts with the initial booking and how a consumer selects their accommodation, so let’s go through this really quickly. If you are booking a hotel, you might elect to go directly to the hotel site or alternately you might elect to go to what’s known as an OTA or online travel agent such as media or price line they’re both very good products. You look at a number of hotels and you kind of open a second window perhaps with TripAdvisor on your computer because you want to see what the ratings are to see what people are saying already there’s the complication. Then you might open a third screen and look at Trivago to see what the various prices are because sometimes there is different prices on different, online travel agencies. Do you notice a complication here? I already do. I have to open three screens to attempt to make a decision. I go to Airbnb and I select my destination and all of a sudden I’m in a new world. It’s fun. They expose a map of the entire city. I’m able to choose the location that’s close to let’s say where my office is going to be or where I have to go. Or perhaps I want to be in a downtown area or a park. I can zoom it on the location and then I can click on the particular Airbnb availabilities and I see two way ratings. Not only do I see a rating of the individual accommodation from people who stayed there, but I also can see a rating of the person who owns the accommodation of the person staying there. So if the person said it was lousy. The individual respond and say yes, and they left cigarettes all over the place and it’s a nonsmoking facility. So we have this way accountability, which goes one, towards your security comment because I feel good because I’m already established a one on one relationship with the owner of that property and that gives me a sense of warmth and a feeling that it’s a somebody. It’s not just a computer that I’m talking to. It’s relationships and one on one relationships at hotels cannot compete with. It’s very difficult.
So let me ask you this. In the sharing economy between hotels and places like Airbnb, and given the experiences that Dr Nilda and I have experienced and then what you just said how are they handling this because I don’t think hotels are being proactive at this point. I mean are they trying to somewhat sabotage themselves?
You’re laughing and I laughed too because my first book sold 5,000 copies of it and I guess that makes it a pretty good seller in the industry. It’s called Are You an Ostrich or a Llama and it was directed at the hotel industry and I believe the hotels have moved into the ostrich mode that they bury their head in the sand that nothing will happen. And the opposite is a llama who, as you may not know, is a very highly utilitarian animal that basically can do everything. They’ll mind your kids, they’ll protect your house. You can use their wool. My goodness. You can probably drink llama milk I suspect. They’re fantastic, very smart. Hotels need to be lamas, not ostriches. We are going to see a massive change in the hotel industry. The good news is that if you have a smaller hotel which can create that personalized feeling of a one on one relationship amongst the hotel and the guests, you’re fine. If you have a resort with specialized facilities, you’re fine. If you are a boutique hotel that has some very special attributes such as an incredible design or you’re in a historic location, you’re fine. You’re also fine if you’re an airport hotel where people are staying over and they don’t really care. They just want a clean bed and a good night’s sleep. You’re fine. All the rest your not so fine and you’re in real trouble because quite frankly, Airbnb is also morphing into a much bigger company than before because they have opened three new facilities which were only two of them had been announced. One of them’s coming up first was Airbnb for work. You perhaps have not heard of this. It was only launched last month, but Airbnb for work is a curated plan that allows companies to set limits on what type of Airbnb, their employees can stay in Airbnb and manages the entire process for them. So the guest doesn’t have to pay. It’s paid by the corporation. Moreover, there is an intranet which allows the operation to men where they can stay and if a employee wants to stay an extra night because it’s a weekend, they can get it authorized immediately through the portal and you say, well, it’s just new, but they started with a 150,000 corporations who have signed up, including most of the fortune 500. That’s the first thing. The second thing they launched this Airbnb plus, which right now they have 2000 properties in 13 cities. They expect to have 50,000 properties rather in 200 cities by the end of 2018 and this is a guaranteed product which says that you will have a coffee maker, you will have coffee, you will have towels, you will have great amenities, you’ll have an easy way to get in. Everything you expect and right in their launching is Airbnb experiences, which will be totally curated vacations where you’ll have a concierge who will plan every single part of your day and your state, which means that there goes the need for a travel agent.
Exactly. Okay. And so on that note. That’s going to be my next question because the consumer has really changed the way that they want things and the consumer really it’s a demand, right? Supply and demand. And the demand now is that consumers want to have an experience whether they’re buying a cup of coffee or they’re staying in a hotel for several days, they want experience and that’s the one thing that Airbnb has. When we opened up, what did I say? Our experience was lovely. Our experience up to this day for many of our stays we still have a relationship with those people, so guess what? If I go back, I’m going to go there because of the experience. Is the hotel looking at this as a consumer need and are they ready to address that? Because right now that is really all the rage. Like people will not stay in the place that they’re not going to get that experience.
Correct. I think you should join the board of a major hotel chain and be a little bit of a disruptor.
You got it. I am all over that, absolutely, because this is what I teach. The reality is people want an experience. How is this going to make me feel, what is this gonna do for me and, do I feel safe? Do I feel comfortable? What do I feel? And so that’s really has been the big shift. And so a company that’s not ready to make that shift with the consumer is really taking some major steps back.
Well, they’re taking some risks with the long term viability of their franchise. There some other complications here and some of them are a little bit technical, but it goes this way. We think of a Hilton or a Hyatt or Marriott and we think that the hotel is them but it’s not there or what’s known in the business as a flag or a brand. Very typically, I would say in most of these situations, the hotel is owned by an independent, a reach perhaps might own the hotel or an individual who has an investment. They own the physical product. The brand is a franchise which they bought, which attracts a franchise fee. The brand doesn’t even run the hotel. The hotel is run by a management company, who compensated on a formula that includes mostly topline, perhaps some bottom line, depends on the management company. You have three different parties here and the guest was looking on the outside saying they think they’re talking to the general manager of a hotel, but that general manager might be, an employee of the management company has nothing to do with the brand and certainly has very little to do with the owner. And all three have different objectives and the owners getting the one. The kids are that are operating the hotel are different than the kids who are staying in. The whole thing just gets crazy and crazy.
So my next question is, the response to the Airbnb’s enough to keep the future of the hotel industry alive?
The hotel industry will survive, it will not be the same as it is today and it will fractionalized into smaller units. This is my hypothesis, smaller units where people care. There’s one other crazy idea I have for the hotel industry and that is with all these hotels that are not going to be used because people are going to Airbnb, we have a tremendous opportunity to create assisted living homes for the generator called baby boomers who don’t have enough money to stay in their houses and perhaps don’t want to. They can move into assisted living programs which are created by the great hotel chains. Looking at ways to utilize the asset. That physical asset, that’s the future.
Well, I think that would at least keep them in business. I think that would be great. I mean, even if they have to change their way of marketing, but still. At least they’re in business.
Remember one thing that the goal of these major hotel, brands we say is to sell more franchises that’s why they have so many brands. I believe that Marriott Starwood has a 30 brands right now, and I wouldn’t be able to name them because a lot of them are very specialized and perhaps are not supported in any way beyond a website.
Okay. So the future of the hotel, as you see it, will probably be more of assisted living and more boutique hotels, motels?
I think what they’ll be doing is they’ll add assisted living as an additional shall we say brand amongst their table of brands. They will survive because there’s some good smart people working in hotels and these smart people will come to the realization that they have to modify their products and their services to meet the very considerable change in needs of the guests. It’s not just good enough to have air conditioning and a clean bed. That’s not enough anymore. The guest wants to have a personalized, customized experience that makes them feel better.
So again, experience that’s what customers want today. So again the hotel industry still has the opportunity even though there are little late in the game but they’re not late enough that they’re lagging that far behind.
I have confidence that they will wake up, and take their head of the sand at some point in time and start to make changes. It won’t happen quickly. These are large organizations, as I mentioned, there’s a multiparty decision making here amongst owner operators and management companies. But ultimately I have great confidence in the boards of these organizations to deliver a great product because ultimately the world of hospitality has to do with being hospitable to your guest and you can’t forget the fact that if we failed to do that, we’re no longer hoteliers. We’re accountants and accountants don’t run a guest facing organization.
Absolutely. So I want to thank you so much, Larry, for being here with us. We definitely love this topic. This is very interesting to our listenership and, I really am very hopeful for the hotel industry. And I really want them to come back because there is a lot that they have, which is really good, but again, they have to come back quickly and this happens a lot with large organizations. They’re so top heavy and it’s really difficult to get things done. It’s almost like an elephant. It’s hard to move them. So I want to thank you so much for your time and for being here with us and we look forward to any updates that you have. Let us know and we’ll get you bring you right back on the show. I’d love to see you again. Okay, thank you. Alright then. Bye. Bye.
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