The mid-market hotel sector has had it rough. The aggressive expansion of budget brands and the emergence of upscale boutiques has squeezed out the traditional three-star, and that's before recession ravaged the market. Emily Manson explores how independent hoteliers are fighting back
The imminent demise of the UK's mid-market hotel sector has been the subject of speculation for many years.
The increasing prevalence of the budget sector and the development of upscale boutiques and high spec four stars at the other end of the spectrum left the mid-market, three-star bracket squeezed and uncertain of its position, role and future.
In fact, research by hotel industry consultant Melvin Gold predicts that the budget sector will continue to squeeze independent and mid-market brands for the foreseeable future. He says this will happen partly through new developments but also the acquisition and conversion of independent and mid-market hotels.
Paul Slattery, founding partner of Otus, goes further. "We estimate that there are almost 50,000 hotels rooms in Britain alone whose physical state, redundant facilities and weak performance make their removal from the hotel market overdue," he predicts.
Gold adds: "Market development means there is no longer any hiding place for poor quality, underinvested, mid-market and independent hotels. Their full service and branded budget competitors are well understood by the consumer and so are many of their peers. But for those that are not, they will be squeezed by market forces, probably until they meet an inevitable demise."
But it's not all bad news.
Fighting for Survival
Despite the budget sector's undeniable success over the last few years, the mid-market seems to be undergoing something of a renaissance. International chains are piling in with new brands, while older names like Thistle are throwing money at their estates - in its case £100m.
Robert Barnard, partner for hotel consultancy services at PKF, explains: "Everyone thought the traditional mid-market sector was hugely under threat but actually it has survived and there's probably room for these types of properties because leisure has become so important. The old TrustHouse-type hotels do have a place."
David Bailey, TRI deputy managing director, agrees. "There's a big spread between a Travelodge and your classic four star and there's still a significant volume of demand for something in the middle," he says. "It's premature to say the mid-market is dead but it's a very tough environment to be in. The fact it's getting tougher and more competitive is undeniable, all the big players now have brands which occupy the middle ground, which is challenging for investors but good for consumers."
Barnard and Bailey both agree that having a brand is critical. Barnard says: "The independent mid-market is one of the most difficult areas to be operating in at present because they don't have the strength of brand and historically have suffered from a lack of investment."
Bailey adds: "The good independent always has an opportunity but for most it's an increasingly tough environment and you don't want to be out there without a brand."
Room for Growth
Hilton's regional head of focused service brands, Mark Nogal, admits the recession did reset people's expectations. "Customers want value and have been told to expect value and our focus serviced brands - Garden Inn and Hampton by Hilton - fit perfectly with that."
The added bonus, he adds, is that these brands are new constructions and have been designed as a new product for "customers' needs today and tomorrow", rather than a "carry-over idea" which is trying to keep up with customers' expectations.
"Budget is always going to be a competitor that we can't ignore," he says. "But we are finding that the new build, value proposition, combined with the Hilton branding means they are now leading in their competitive sets."
Jean Jacques Dessors, chief operating officer of Accor UK and Ireland, disagrees, arguing that the budget sector is not a threat, so long as there is clarity between different business models.
"When you go into a shop you expect to find several types of products on the shelves and sometimes you go to Primark, sometimes Burberry," he says. "The risk is when you start to offer more services than the business model can afford - so you need to be very clear about the business model and go to market with the right offer for the guest at the right price."
The big threat, he argues, is underinvest-ment. "The scrapping of the government's buildings allowance will not help this," he says, adding that hotels today need both visibility and quality.
Businesses need to invest in advertising, marketing and positioning on sites like Google as much as investing in maintaining the product at the right level and the right price, he explains. "At one stage budget hotels offered better products at affordable prices and it was a wake-up call for some mid-scale hotels. But today if you have a mid-scale hotel which is the right product at the right price, there is space."
As for the future, Barnard makes a distinction between site preferences. Budget hotels are increasingly targeting roadside sites and city centres, while not having the same appetite for expansion in provincial towns.
He adds: "Mid-market hotels still need help with their identity and profile. That's why so many are joining marketing consortia such as Pride of Britain and Best Western to help them compete."
For those that wish to capitalise on their independence, Bailey advises: "Canny and enlightened independents can use the web and social media to reach a huge audience without established devices and bat above their weight, but these are the exceptions not the norm. It all comes back to focusing on word of mouth and positive review content."
David Orr, chief executive of Mint Hotels, adds: "There's a huge opportunity for any number of different positionings in the market. It's over simplistic to say one market will suffer - it's about intelligent consumers making intelligent decisions. There's a lot of differentiation possible and there's space in the market for highly differentiated products, especially if they are well invested."
queensberry hotel and olive tree restaurant, bath
Laurence Beere and his wife Helen bought the Queensberry hotel in 2003. Over the past eight years they have refurbished the whole property, investing about £1m. It is now a mid-market boutique hotel, all the 29 bedrooms have been designed individually and there's a 60-seat restaurant.
Over the past three years, EBITDA has grown year on year, but "not significantly" according to Beere. In 2009, following on from the best year's trading since purchasing the hotel, revenue fell by 8% and occupancy fell to 78% - from 82% the previous year. However, the hotel still mangaged to see a small increase in EBITDA.
Beere says: "I learnt as much about my hotel in the last two years as I did in the first six. When the numbers are going up and things feel good, you don't spend as much time analysing every last bit of the business.
"We started to challenge everything: payroll, marketing, and so on, without ever cutting on quality or undermining our guest experience. But ultimately we needed to do things differently. It was crucial as a small independent with significant bank debt to show the banks that we were a competent group of managers and could manage our business through these times."
Laurence Beere's Top Tips
Marketing consortia Have their place and can be worthwhile but you must properly evaluate the cost/benefit they bring to your business
â- Sales and marketing Always challenge yourself. Keep asking the question, "Am I positioned as clearly to my customers as I think I am?"
â- Social media Only do what you genuinely think is necessary and don't jump on a bandwagon. If it's not relevant to your business don't do it
â- Banks Make sure you have excellent relations with your bank, you communicate with them regularly and they understand your business as much as you do
â- Only spend what is absolutely necessary to your business, do nothing driven by ego
â- Despite whatever challenges, you have to keep the property and product in the best possible condition and keep reinvesting in it
â- Look after the team of people you work with
â- Evaluate every line of expenditure in the business all the time - especially during the good times
â- Be the best you can be in your chosen market
mint hotel group adding services to create a dynamic brand
City Inn was founded in 1995 as an upper three-star proposition, but in December 2010 it was rebranded as Mint Hotel, to bring the name back in line with the brand experience. Customer feedback had found its name did not project the dynamic, upscale mid-market proposition the hotels had become.
Standard in-room facilities such as the iMac with Skype, free satellite TV and video library, as well as the Skylounge concept, had evolved the group into the upper four-star bracket. The timing of the rebranding was also important given two key openings this year - the Mint Hotel Tower Hill and its first international property in Amsterdam - which will almost double its room porfolio.
David Orr, Mint Hotel's co-founder and chief executive, says: "It has been an evolving journey. We've always done engineering to a high quality but as we've grown we've added on extra services and facilities. We've got more confident and want the brand to be dynamic, so we're constantly looking at what we can add to make sure we don't just say this is where we are and become formulaic and stuck."
accor room for brand expansion
This year Accor has added 13 mid-market hotels to its UK portfolio, bringing its total to 46. The franchise agreements with London Town Hotel Group and Focus Hotels form part of the group's aggressive expansion strategy to increase its UK presence to 300 hotels by 2015. Accor opened the Mercure London Paddington in March and is scheduled to open in Kensington, London, and Nottingham in June.
Jean-Jacques Dessors, chief operating officer of Accor UK and Ireland, says: "When you take the mid-market sector, less than 30% is branded, compared with 43% of the market as a whole, so I believe there is room for expansion of brands like Mercure and All Seasons into this sector."
THISTLE REPOSITIONING WITH REFURBISHMENT
Thistle hotel group is undergoing a £100m refurbishment programme to its 33-strong UK estate over the next two years. The investment will see properties extensively refurbished to reposition the group in line with customers' needs. For example, the group's Portland hotel in Manchester underwent an eight-month refurbishment programme which included 204 new-look rooms, air conditioning, new lifts and a refreshed front hall, restaurant and bar.
In Wales, the services of Michelin-starred-chef Martin Blunos have been engaged to revamp the food offering for the group's new partnership with Crown Hotels and Restaurants. It will see the launch of a new, high end restaurant concept within its Cardiff hotel, the Crown Social.
the mid-market sector
The Mid-market Sector covers a wide span (here's just a few):
â- Hilton: Hilton Garden Inn, Hampton by Hilton
â- Marriott: Courtyard
â- IGH: Holiday Inn
â- Accor: Mercure, Novotel (4*)
â- Starwood: Aloft (4* boutique)
â- Choice Hotels: Comfort (2*), Quality (3*) and Clarion (4*)
â- Guoman Hotels: Thistle
â- De Vere Group: Village hotels
â- Carlson: Park plaza, Park Inn
â- Wyndham International: Ramada Encore,
â- Mint Hotel Group (upper four *)
â- Macdonald Hotels
â- Jury's Inn
â- Britannia Hotels