Reimagining Hostels, with a&o’s Oliver Winter

Episode Transcript

Oliver Winter: If you have success that you don’t develop your product to make it not too fancy over the years to posh and automated too too expensive. Yeah, because then you’re losing your old customer base. I think it’s really important that if you are successful that you stick to your base. What made you successful growing up? 

Robin Trimingham: Welcome to the Innovative Hotelier podcast by Hotels magazine with weekly thought provoking discussions with the world’s leading hotel and hospitality innovators. Welcome to the innovative hotelier brought to you by Hotels magazine. I’m your host, Robin Trimingham. When I mentioned the word hostel, many people conjure up images of backpacks and bunk beds and not much more. But today’s hostel market is big business in 2021. The global hostel market was valued at 4.89 billion and it’s predicted to reach 8.89 billion by 2027. My guest today, Oliver Winter, is the founder and CEO of A&O Hostels, the world’s largest independently owned hostel chain. And he’s here today to share his insights regarding successfully growing a disruptive niche in the hospitality industry. Join me now for my conversation with Oliver. F.O.H. Is a global food service and hospitality company that manufactures smart commercial grade solutions. Headquartered in Miami, the company designs and manufactures all their restaurant and hotel products. They have showrooms and distribution centers located throughout the globe, and their products are always in stock and ready to ship from any of their distribution centers worldwide. Welcome, Oliver. It’s great to chat with you today. 

Oliver Winter: Thanks. Thanks, Robin. Thanks for having me here. 

Robin Trimingham: I’m very much looking forward to our conversation. I have a very diverse hotel background, but hostels is not something that I would say I’m personally an expert on, so I think I’m going to learn some things too, during our conversation. To start us off, though, if I’ve got this right, the idea for your hostel chain A&O and actually somehow started in the basement of a liquor store, this is a story I think I need to hear. 

Oliver Winter: That’s a funny point. Yes, that’s true. I met this idea of hostels during traveling around the world between finishing high school and before I started to study, I had some some time and traveled really on, I always say on no budget. Yeah. So at this time it’s seven months with $6,000 around the world, including the flights. So that was really not low budget. There was no budget. And back to Germany. Back in Berlin, I had in my mind, really this idea to create an hostel in Berlin. And that was more complicated than I thought in the beginning because you have to deal with real estate with find a landlord and all this stuff giving guarantees. You speak about a lot of money. And so that was not as easy as I thought in the beginning. And during during my studies, I worked at a beverage market and then I figured out it was really hard to find all the time to make my studies to work on this hostel idea and then be in a shift schedule of this beverage market. And then I said, okay, what is more easy than to found an hostel is to open my own liquor shop and had the time to serve. My first clients had some learnings as an entrepreneur and when whenever there was no client, no customer in my shop, I went down to the basement and had a small office and worked on these hostel ideas. So that’s that’s how it happened. 

Robin Trimingham: Okay. That makes a lot more sense. I thought you were going to tell me you had bunk beds in the basement under the liquor store. 

Oliver Winter: Oh, no. No, nothing. Nothing like this. 

Robin Trimingham: So you’ve been in this game for a long time compared to some people. How would you say the hostel concept has evolved during the last few years? 

Oliver Winter: It’s really impressive to see how many different players are in the market. So for every customer’s taste, you find an offer in the market there very small ones, boutique ones, beach hostels, big boxes like like ours, cozy places, green hostels, etcetera. And so for every taste, there’s a right offer. What we see at the A&O. is in the last 23 years, the standard lifted up. For example, when we started, we had really this common bathrooms end of the hallway and very, very simple, equipped guest rooms. Today, we operate 99% of our rooms, all with private bathrooms, maximum eight beds and a lot lot of private twins and single rooms as well. Much, much more focus on all the common areas this common spaces are today. Even for you have this big working tables. Yeah. For the digital nomads. So to say you have these. Yeah. A lot of zonings in the common area. Yeah. Bar, fancy bar and a nice outside yard and and all this stuff. So that change. But I would say the biggest requirement since the last 510 years is really to have high speed internet, high speed Wi-Fi everywhere and an arm length socket. 

Robin Trimingham: I think you’re right. That would be the same everywhere. Okay. So you’re making me want to ask you a secondary question here because you’re talking about private rooms with private baths. In your mind. Explain to us how this is still hostile and not a budget hotel. 

Oliver Winter: Good point. So we like to combine the best of both worlds under one roof. So we see us more as a as a hybrid. 50% of our rooms are really, I would say, more or less budget hotel rooms. And the other 50% are really this what we call dorms or dormitories, multi bedded rooms. But all the guests meet in the same common spaces. And what, for example, is standing for hostel is to have these laundries for the guests. You have a common kitchen to use stuff like this. Yeah. 

Robin Trimingham: All right. That makes sense. So you’ve come a long way from your very humble beginning and today. Understand that your main competitors would be Airbnb and value hotel chains. What advice can you offer for competing with international brands as a boutique operator yourself? 

Oliver Winter: First, clear positioning is key. That’s very important that you have a clear focus what you like to what you like to do. For example, for a focus is first on on price and location and even high volume. So we have we’re running quite big houses, but whatever you. To do, make make clear that you have a clear positioning. The good news for all operators is that the guest today would call it their fluid. You don’t have the type of guest for a lifetime bound to a brand that’s more depending on location, on the travel purpose or travel location. So that means even at a you know, sometimes we’re wondering which type of guests we see in our houses. And for sure, next time this guest are using a totally different product. 

Robin Trimingham: Okay, So let’s dive into this one a little bit deeper. I read I think it was Hostile World did a report and they said that 80% of the hostile travelers worldwide are under the age of 35. Do you see that demographic in your properties or are you getting a different mix? 

Oliver Winter: No, I’ve confirmed this number even for a and so that’s the same 80% are Gen Z, Z millennials. So from 0 to 35, that’s even our major focus of our customers, of our clients. That’s similar. 

Robin Trimingham: Okay. During the pandemic, which I think we’re all ready to stop talking about. But it’s still relevant in some ways because we’re living the new reality of the situation. I read that quite a few hospitals, they either had to close or they had to change how they were operating, how many guests they could accommodate to comply with safety regulations and all of that. Talk to me about how you handle a big impact like that to your revenue stream. What advice can you offer to other operators about all of this? 

Oliver Winter: As you mentioned, for us in hospitality, there was a terrible moment. It was a full stop moment from full speed to full stop. And we are massively affected economically and even psychologically. So from one second to the other, nobody needed us anymore. That was even that made something with with our employees. On the other hand, of course, the revenue stream melt down to zero. To give you an idea, in 2019, we had a revenue of €150 million. In 2020, we had a revenue of 60 million. So that was really nice. Yeah, yeah, really massive. So what we could do was really talking, talking, talking and explaining, explaining and asking people to support us. So my job in these days when I remember, was on the one hand, really motivate the employees not to leave, so to say, sinking ship and stay on board and stay engaged. And on the other hand, really to ask every day our suppliers for deferrals, for reductions. And I would say we handle this quite, quite successful. I remember in February 2020, Covid arrived Europe and in March, one month later, we still had monthly cost of €8 million. In April, we’ve been down to 4 million just because of really every supplier. Really. Everyone was willing to help us because it was obvious that it was not our fail. So to phone everyone every day to explain the situation, to ask for help, that was the biggest support for for, you know, as that was more more more impacting us in a positive way than the government help. What kicked in much later. What was even of course welcome and helped us to stabilize. But I would say in a crisis like this, my learning was really. Fall open, speak to everyone, try to be as transparent as possible and talking, talking, talking. 

Robin Trimingham: Some of the other hoteliers that I’ve been working with have talked about realizing as a result of all of this that there were other market segments, other revenue streams that they could be pursuing. Have you felt like you can be working on your business model as a result of all of this? Or do you recommend that anybody else in the hospital business take a look at that. 

Oliver Winter: We had to learn or we tried two things in this time. One is still something we learned during pandemic and even doing it today due to the pandemic that was more focused to long stay. We started to partner with universities and equipped or changed the equipment in our rooms. So added, for example, working desk in each each room, a better chair for working and stuff like this. And we could achieve some deals with some universities for students. And that is still, still something we still doing. And what we did just during pandemic, we opened our houses for social distanced people. So we partnered with municipalities that been here in Europe, a lot of refugees in this time and homeless. During the winter period, we had to fill 30,000 beds. So better to do something and even give us sense for our work and not to lose the employees and even lose all the skills we have. So we did this quite successful in many cities. 

Robin Trimingham: I think that’s a very admirable approach that you took to this very difficult situation. And it just goes to show it doesn’t really matter what business you’re in. If you employ creativity, there’s just about always a way through what I’m going to call a crisis moment. Established in 2002 is a woman owned global food service and hospitality company that manufactures smart, savvy commercial grade products, including plateware, drinkware, flatware. Hotel amenities and more. Driven by innovation. F.O.H is dedicated to delivering that wow experience that restaurants and hotels crave all while maintaining a competitive price. All products are fully customizable, and many are also created using sustainable eco friendly materials such as straws and plates made from biodegradable paper and wood and PVC free drinkware. F.O.H has two established brands. Front of the house focused on tabletop and Buffet Solutions and Room 360, which offers hotel products. Check out their collections today at FOHWorldwide.com. Let’s change the conversation a little bit. Things are looking up. I wouldn’t say that my home jurisdiction has fully recovered from a tourism perspective, but we’re getting there and people are starting to take a more forward looking view. I read that there’s well over 15,000 hostels registered worldwide. Lots of them are in faraway places like Asia. What’s your advice regarding doing due diligence when you’re considering opening a new property in a new city or embarking on opening properties in a whole new market like another country? 

Oliver Winter: So we are European based and European focused so far. So our aim is to open 2 to 3 new assets per year. What is quite organic. So we can handle this. This is quite good. So when we look for a new destination, first we speak with our existing partners like Hostelworld or other OTAs where they see demand, or we just confirm if we have an idea about a city and listen and learn from from these sources. If we are right with our expectations. And then really we go into the city and starting usually in the city centre where the main train station is central station or something else, and starting to investigate, which is the right building, which is the right property for us. And then we try to approach, direct the landlord and start with the negotiation. So for us, important is that the city has a certain amount of touristic demand. That’s for us, really, really important because we create a little bit of own demand. But usually we go in the city and we just like to take out a little bit of this existing market share and still to, you know. 

Robin Trimingham: Talk to me a little bit about loyalty. I know that with other national brands, loyalty is a real thing and they’ll try very hard to develop a client base that only wants to stay with that brand. To the point, though, when they’re planning a trip, they’ll look for a city where that brand exists inside the hostel world. Is that a thing for you? 

Oliver Winter: Yeah, that’s that’s a really, really good question. Don’t don’t have the answer if it really works in the end or not. But anyway, we started even with with a program like this last year, what you have to do to to be attractive, you have to give special offers to people joining your your program. Yeah. To give some some special discounts etcetera. And of course the idea behind this is to avoid the higher fees you would pay to the OTAs, for example. It’s yeah, as I said before, I believe more in this this kind of fluid customer that the customer is not sticking so much to one brand because I see it even with my own behavior. Yeah, I would not say I’m addicted or sticking to this or this brand and customers today as their couriers, they like to try out new things. Yeah. 

Robin Trimingham: That’s very interesting to hear your perspective on this one. If you have a client base that’s 80% aged 35 and under, are you at risk that your client base is going to outgrow your concept or do you continually just draw on new people coming up? 

Oliver Winter: We are attractive for for people from 0 to 35. So that means we have 35 years to support our customers in their life cycle. And that means they starting as as kids when the family is joining us and the family stays at eight or they come in the ideal way, they visit us as pupils during their school trips. They come later back as this small groups with their first friends as couples. And even then during the student time, the student trips and later then the family again as a young mother, young father and their own kids. So 35 years is it’s a long period. What what I see as a bigger risk here is that from this generation, we know that 20 to 25% today have really climate consciousness. And I know a study from Booking.com, Booking.com is saying that 20 to 25% of the Gen Z is not entering a plane today anymore. That’s massive. Yeah. And if we would not act and not give answers, imagine 20 or 25% just silent step out of the market, so to say, and not joining us anymore. That would be a brutal impact for the for the industry. 

Robin Trimingham: Yeah, I think for the hotel industry at large, it’s interesting to see where some of these trends are actually heading. The perfect segue into my next question, though, because you recently announced a very admirable and aggressive plan to take a zero net zero by 2025. I mean, that’s a year and a half from now. How’s that going? 

Oliver Winter: Thanks for asking this because I’m driving a lot and even our employees driving this road to zero a lot here at you know, we started quite early in 2015. We started was the first year we monitored our footprint and get a feeling and understand what is paying or contributing to the footprint, how it is calculated, etcetera. And and then it started that we could even try to optimize it. Yeah. First you have to understand it, you have to know it, and then you can start to control it. And in 15 we started with around nine kilograms, a little nine kilogram carbon footprint per overnight. That was already quite less compared to economy or Midscale Hotel overnight would be 20 to 25kg. And if you think about it, it’s quite obvious because the density in a hostel is higher, so you need less space per person. You have these four bedded, six bedded rooms and that brings your your socket to a lower base. And then we say, okay, this nine kilograms that’s already like a treasure we are sitting on. Let’s try to optimize it and get it lower. And there was a really the biggest tailwind we had been our employees. They had so many ideas what to avoid, what to make better. And we started with this with this journey. And then in 2020, during pandemic, there was really, I would say, a personal wow effect for me. We as a family, we decided that there were being remembered all these stay at home campaigns and we decided, yeah, but let’s go for ten days, make a break. 

Oliver Winter: And and we decided to make a long distance holiday to, to make a journey to Dubai. And when we started to talk to our neighbors and ask them, could you take care of our cats? And then they all been shocked and said, but you should stay home. You should not travel. And then I realized in few weeks as a society, we developed something I would call travel shame. Then I realized if this could happen so quick, two months before everyone traveled around the world. Yeah. And just because people said stay home, we all stayed home. And if we really imagine that, that this would happen for climate conscious, maybe not in four weeks, but in four years or in six years, we have a really, really big, big issue and the big problem as industry and that was this momentum. We accelerated our road to zero and said we need a date close by and we need realistic date. And then we we said, okay, we’ll take us another full three years to optimize our carbon footprint, really to turn around and restore and get it down by own efforts first and then whatever is remaining, hopefully less than three kilogram. We reached last year already 3.5kg coming from nine. Well that’s good. Yeah, that’s a massive reduction. And then this remaining 2.5, 2.6, whatever remains, we will mandatory offset. So that’s, that’s the plan. 

Robin Trimingham: Okay. So you are so far ahead of the game in this particular category? I’m really actually very impressed. I mean, to have started for real in 2015, that’s very early compared to a lot of other chains. Let’s talk about the carbon offset credits a little bit. In your opinion, is any old carbon offset credit good or are we being ethical in how? We are choosing what we’re purchasing, what we’re supporting. 

Oliver Winter: Two things are important. First, before you start with offset, it’s really that you tried everything to get your own footprint down. I think that’s really important because otherwise it’s just like the Catholic Church worked in the last 2000 years. You make something wrong, then you pay and everything is fine. Yeah. So that should not be the way how it works. So as long as you still doing have ongoing efforts in saving or avoiding your carbon footprint, then it’s fine to start with offsetting. And here it’s a really complicated world. There are so many different approaches at different suppliers. Et cetera. And what we learned, there’s one standard. It’s called gold standard. And this is controlled and has and we chose injustice, gold, standard products. And maybe there are different approaches. I’m really not an expert in this offsetting yet because our way right now is still to reduce it. But my understanding is that it has to fulfill specific standards. 

Robin Trimingham: I agree with you. I don’t think anybody’s an expert on all of this yet. Very interested in your approach to all of this. I’ve heard stories of other hoteliers doing things like putting grass or gardens on the roof of the building and beekeeping. Are you guys doing anything like that? 

Oliver Winter: Yeah, we do ceilings, some of our yards where there’s still a lot of concrete and openness. Yeah. Renaturing this what we started last year is to roll out photovoltaic units to our roofs. So installing photovoltaic plants on our roofs. We invested last year a lot, lot into insulation of the buildings. That was, remember in Europe we had last last winter, we had this energy crisis and this risk. There’s not enough energy to heat all the buildings, etcetera. So that was was one of our main major focus. So we’re doing a lot. 

Robin Trimingham: There’s been a lot of talk in the media with the analysts about whether the travel surge we’ve been experiencing is just pent up demand or whether it’s a trend that’s here to stay. And you’ve just made a couple of really excellent points about some categories of travelers actually choosing to pull back altogether and just plain old not fly places. What’s your take on this situation? Is this pent up demand? Is this real growth? Where are we? 

Oliver Winter: Good question. Last year for sure, it was a lot of pent up demand. And I would say this first months of this winter, January, February, we saw first time we and our peers, we saw there was the been weeks with less demand than 19. So I would say from my personal perspective that the pent up demand is over. And when you look to many revenue statements and from tourism companies to operators, for example, they all saying, yeah, we’re doing more revenue than 19. But if you look deeper into these numbers, you see they all have less clients and 19 and just more revenue because of much higher rates. 

Robin Trimingham: Yeah, interesting point. I think that’s very insightful. Yeah. So my last question for you and I ask everybody that I chat with a version of this one. What’s the biggest mistake that you feel other hostel operators are making and why do you say this? 

Oliver Winter: I wouldn’t say that that other operators doing doing big mistakes because I see many quite successful operators and peers in the market. I think the biggest challenge, especially if you work on a budget segment, have what we all do in this hostel segment is that if you have success that you don’t develop your product to make it not too fancy over the years to posh and automated, too too expensive because then you’re losing your old customer base. I think it’s really important that if you are successful that you stick to your base. What made you successful? 

Robin Trimingham: Yeah, clean and simple and welcoming. Oliver, Thank you very much. This has been a very enlightening conversation. You’ve been watching the innovative hotelier. Join us again soon for more up to the minute information specifically for the hotel and hospitality industry. You’ve been listening to the Innovative Hotelier podcast by Hotels magazine. Join us again soon for more conversations with hospitality industry thought leaders.