JANUARY/FEBRUARY 2012
Analysis
Mid-market hotels
Paul Slattery, co-founder of Otus & Co, that there are nearly 50,000 hotel rooms in Britain which should be removed from the market because of their “physical state, redundant facilities and poor performance”. Many are to be found in the mid- market sector.
DOWNTURN ECONOMICS What changed the mid-market game for good was the impact of the recession on expectations, particularly among business travellers and corporate buyers. The rise of the budget sector – dominated by Premier Inn and Travelodge – had been well-flagged, but it took the reality of the downturn to push the road warriors into their low-priced, no-frills rooms in a significant way. Yet, at the same time, the mid- market also came under pressure from above as well as below. The four-star business hotel chains found in the recession that, not surprisingly, buyers rejected their pricing strategies. The hotels’ response was to drive down costs, as well as charging for extras that had previously been included ( for example, breakfast and car parking). The upshot was that business travellers who still wanted a four-star hotel (even with reduced service levels) at three-star prices could still afford it. If not, then three- star quality could still be found at budget hotel rates. It was win-win for the traveller and buyer, lose-lose for mid-scale hoteliers. Portman Travel vice-president
Johan Persson points out that “mid-market hotels are competing against budget and four-star rivals by providing a host of value-added services, rather than reduce the room rate, making these a more attractive option for the business traveller and corporate travel buyer”.
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These services – such as free wifi, parking concessions, and food and beverage discounts – can easily be quantified, he says. “While price plays an important part in the decision-making process, it is no longer just about room rate and we would always advise clients to take the whole package into account – room rate plus value-added services – rather than just comparing rates across hotels of differing standards.” The mid-market hotels sector, however, has proved remarkably resilient to the pressures of recent times. Travel buyers have traditionally acknowledged the
REZIDOR PLANS RAPID GROWTH IN MID-MARKET
says it is the tough economy in Europe that is driving demand in the mid-market. “Even investment bankers are moving to mid-market hotels because of the downturn,” he says. Although first developed
Kurt Ritter
MID-MARKET is the key growth sector across Europe for Rezidor, according to CEO Kurt Ritter. “We are putting a lot of resources into developing our mid- scale Park Inn brand in the current economic climate, with about 5,900 more rooms coming on-stream over the next two to three years,” he says. Only Hilton, with its
Garden Inn mid-market brand, is opening more rooms over this period – 6,000, according to the STR Global database on Europe’s hotel pipeline, with Holiday Inn opening some 4,400 rooms. Ritter
almost a decade ago, Park Inn has only taken off in recent years and now totals more than 100 across the EMEA region, with a few also now open in North America. There are some 23 Park Inns in the UK at present with more on the way, including a 235-room Park Inn due to open later this year adjacent to Wembley Stadium, followed by a property at Excel in Docklands. Prior to the recession Rezidor considered launching into the budget hotels sector, says Ritter, but was deterred by the high costs associated with gaining sufficient scale in this market, especially in the highly competitive UK and France budget sectors. If and when Rezidor does
value on offer from the mid-market, with a full-service offering and abundance of supply in good locations. Not every business traveller wants to stay in a budget chain and, in any case, they do not have sufficient capacity in all regions. But the downside for buyers is that understanding the mid-market sector can be confusing and contradictory. While the term ‘mid-market’ can generally be equated with three-star, in reality it is a far more nuanced sector, with the decision on positioning taken by the chains themselves as part of their marketing mix. Official rating guides often miss this point. Even price cannot always be the guide. A standard room at the Courtyard by Marriott at Gatwick in mid-January, for example, was available last month at about £60 a night; the online rate for the Premier
move into the budget sector, it is unlikely initially to be in these countries. Ritter insists he does not
want to develop as many brands as some of his chain rivals, preferring to focus on the revitalised upscale Radisson Blu brand in Europe, as well the Hotel Missoni boutique properties in the Middle East. Radisson Blu has proved such a success since its recent relaunch that the Carlson group, which owns the Radisson brand and is a 51 per cent shareholder in Rezidor, is converting many of its North American Radisson hotels under the Blu banner. The remaining Radisson hotels in North America and elsewhere which don’t fit this branding are set to be repositioned slightly downscale to Blu, under the working title of Radisson Green. Ritter, however, does not see significant scope for “green- label” Radissons in Europe just yet.
Inn at Gatwick was £44 per night in advance, or £72 for full-flexibility. But is the renaissance in the mid- market here to stay? HRG director Margaret Bowler thinks it is. “The growth of the mid-market reflects the fact that every hotel brand operator is currently looking to ensure they have coverage across all ratings,” she says. “And it does provide the corporate buyer with another option, which for those looking for value savings will be welcomed.” David Bailey, deputy managing director of TRI Hospitality Consulting, points out that “in reality, the mid- market didn’t really ever go away – it just reinvented itself more in tune with what the market now wants and expects.” Whatever the faults of mid-scale hoteliers, he adds, “there is clearly a place in the market for what they offer to a sizeable segment of travellers and buyers.” n
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