Josiah Mackenzie, Principal at Benchmark Research, chats with Robin Trimingham, The Innovative Hotelier Podcast host regarding the many reasons why he believes operating effectiveness is now the single most important factor in determining success for the hospitality industry.
Referencing the degree to which the industry has progressed, from the days in which lodging was viewed simply as a commodity, to the advent of social media in which a single public review acquired the power to affect the pricing of an entire hotel, Mackenzie discusses the importance of mining big data to discover what consumers want, enjoy and value in order to structure cost efficiencies and diversify revenue. He also touches on new research that indicates that the constant ability to re-price the product is making hospitality real estate the most attractive type of real estate investment.
Robin: Welcome to the “Innovative Hotelier Podcast,” brought to you by “HOTELS” magazine. I’m your host, Robin Trimingham. And my guest today is Josiah Mackenzie, a principal at Benchmark Research Partners. Today, we’re chatting about why this is the age of the operator for hoteliers looking to outmaneuver the competition. Welcome, Josiah.
Josiah: Thanks, Robin. It’s great to be here.
Robin: I really appreciate you taking time to chat with me today because you’ve got a very interesting subject here. And I would imagine quite a few of our listeners won’t really know what this term, “age of the operator,” is all about. So, why don’t we start there and ask you to explain to us a little bit what this concept actually is?
Josiah: Absolutely. So it’s based on an observation that operating effectiveness is now the single most important factor in succeeding in hospitality today. You know, the industry is gaining momentum after a couple of years that have been very difficult and a new set of traits are emerging as keys to attracting the right talent for your organization, delighting your guests and making them happy, and delivering financial success. I think it is based on a look back in kind of where we’ve come from as an industry. If you kind of, you know, think way, way back, for a long, long time lodging was just a commodity, right? And that started to change in the 1980s with the rise of boutique hotels, there were visionaries then that had substantially different approaches. To that, people like Bill Kimpton that wanted to recreate a little more intimate feeling of family-run European hotels.
And then you had Ian Schrager who wanted to create this sense of exclusivity that he had been familiar to creating in clubs, right? So very different approaches. And as time went on, you had brands like Ace Hotel that were kind of picking up the torch in the sense of differentiated hospitality experiences and creating places that really blurred the lines between work and play and staying. So you had that in terms of differentiated brands. I think after that you had this age of private equity where, you know, hospitality’s always been fundamentally a real estate business, right. And it takes capital to fund the places and experiences that we enjoy as guests.
But I think around kind of the late ’90s, you had groups like Starwood Capital Partners outbid Hilton for the Sheraton brand for 14 billion. And then there’s other private equity firms that were also investing in hospitality at scale. And sometimes what happened in that environment is what creates long-term value took a hit at the expense of creating short-term profits, right? And so, in talking to a number of operators in the space, the observation I’ve had is that sort of short-term bottom line thinking has eroded some of the long-term prospects for these hospitality brands. And so there’s a new opportunity that is emerging because of a couple of factors that I could get into if that sounds good.
Robin: Yeah. I think this is a great way to start here. I liked how you talked about it being all about operating effectiveness and that being so critically important. Because I would agree with you that the hospitality industry is, I’m gonna call it somewhere midway through a really massive transformation and that, you know, caught a lot of people by surprise. And, you know, we have differing opinions as to how this is all working out. I know, for example, that the digital media and publication industry has been grappling with a lot of the same kinds of things. And, you know, it’s all about how do you attract and interact with your target audience.
I’m very interested in your opinion on all of this because when you have individual consumers and every single one of them has a slightly different mix of apps and social media platforms that they prefer, then how as a hotel, do you begin to tackle the task of expanding into a new target audience or interacting with that audience more effectively?
Josiah: It really begins with a deep understanding of the audience that you’re looking to engage and to serve, right, the type of guest that your brand is uniquely qualified to provide those experiences for. The good news, both on a digital media perspective and from a hospitality provider’s perspective is there’s more insight than we’ve ever had to do this. I started working in the industry 2006, 2007, and there was the rise of social media and sites like Tripadvisor, that totally changed the power dynamic for hotels, right? Because guest reviews became something where the guest feedback wasn’t just put on a card and I can throw it in the trash can if I don’t like it, it’s public. And one person’s guest experience then could affect the pricing power for your hotel. But to your point, though, of understanding and serving these guests, it provided a treasure trove of knowledge around what your guests want, what they enjoy, what they appreciate, but also for the industry at large, right? These are public reviews that you could go out and see anywhere.
And I think that’s just one example of the tremendous data that operators have now to understand not only what are guests expressing as their preferences and what they’re enjoying, but you can also look at behavior and you can look at transactions and you can see where they spend money and where they don’t spend money. And so, collectively, I think this rise of the amount of data that we collect now and our ability to process that data for insight is exponentially higher than it’s ever been.
So, when you think about how do you engage the customer in this sort of environment, you know, the best path to succeeding and reaching new audiences is to delight the audiences or the guests that you have now, right? And so understanding what’s standing out to them, what do they appreciate? And almost if you have the chance to create a new hotel or a new experience within that hotel, think about designing for delight, right? What is going to be that surprise and delight moment that gets people talking that someone will tell their friends? And that’s always the best way to reach new audiences is to make your existing customers so happy they can’t help, but talking about you.
Robin: So, if we’re talking about operating effectiveness and leveraging data hand in hand as we do this, can you give me an example of like how you could employ cost efficiencies or diversify revenue by, you know, leveraging these two things together?
Josiah: Yeah. I mean, I think just building on the point of understanding guests and then thinking about how to diversify revenue streams. I was talking with Richard Fertig, who’s an owner and developer, and operator of boutique lodging both purpose-built, short-term rentals, and boutique hotels. And he was sharing the example of a story of a group of guests that he had that spent $40,000 on lodging, but $120,000 on events and amenities and experiences because this whole destination that he built was oriented around kite surfing, right? And so everything from the location that was selected to the amenities on the property, to the professionals that he brought on board.
And so, in my mind, that’s a really good example of knowing the guests so well and knowing what they’re willing to spend money for, where the launching becomes a significant revenue opportunity, but all the ancillary supporting offerings that you have create a diverse set of revenue streams which is really interesting to think about as we move into an environment that’s quickly changing is how do you diversify the ways that you can generate revenue for your business?
Robin: So that is a fascinating example of leveraging a micro niche and speaking to, you know, a global audience of enthusiasts inside that niche to differentiate your property, to maybe build your brand or your business model. You know, there’s a big debate out there whether it’s better to own or rent your audience when you’re leveraging big data, what’s your take on that?
Josiah: It really depends on the perspective that you’re looking from. I think, you know, businesses never own their customer, they have a relationship with them. I think if we think about it from a media perspective, there are opportunities to invest in exposure to tell your story. But I think whether from a media perspective or a hotel operator’s perspective, the chance to build depth of relationship with the people that you’re interacting with is something that’s always important to keep top of mind, right? So if you’re let’s say you’re a hotel marketer, or you’re a media producer, there are other media outlets maybe that you engage with, that you work with, that tell your story.
But then once you have the guests coming on property, that opens up a whole new set of opportunities for developing the relationship with that person, right? And then that’s where the design of your experience and the way that you operate and deliver on that experience becomes so, so important. And so I think that’s the big opportunity is maybe you first get exposure, but then you think about building relationship and doing this in a very organic, genuine way, I think, is how some of the most successful and fastest-growing hospitality brands today are building their growth strategies. It’s around linking smart marketing with delivering on this from an operational perspective.
Robin: We got one or two minutes left here, so I have a final question for you. I was reading in one of your recent articles that you referenced leveraging technology in new ways to unlock potential in teams and assets. So, how is all of this impacting investment trends in the hospitality sector?
Josiah: Yeah. So, I was recently at the NYU Hospitality Investment Conference, and technology was a topic that was top of mind for a lot of the panelists, a lot of the executives that were presenting. From an investment perspective, technologies like revenue management that provide smart data-driven ways to reprice your rooms based on demand and make sure that you’re not leaving any money on the table are incredibly attractive to investors. Because, especially in an inflationary environment where you can constantly reprice, it’s a very different proposition versus investing in other types of real estate, which are typically repriced on a less frequent basis. I think J.P. Morgan just came out with some research looking at publicly traded REIs and hospitality real estate was the only type of real estate that was outperforming. I dunno if it was the past quarter or year-to-date like every other type had sunken hospitalities outperforming.
So, it’s interesting because I think sometimes my impression of hospitality is, you know, everyone likes the cool, sexy parts of the business, but it’s unclear, is this actually the best investment? And some of the data we’re seeing now is putting hospitality actually at the most interesting, you know, the highest financial returns. And so it’s really an interesting time. The reality is that hospitality is also a people-intensive business, right? And so, this is where you unlock value by creating experiences that differentiate and give you additional pricing power.
I think Azores’ CEO talked about the revenue lift that their lifestyle brands are able to achieve because of that. It also takes place in terms of looking at technology in terms of cutting costs in areas and looking for areas of efficiency. I recently surveyed over 100 hotel executives around how they were using technology, and the respondents are saying that technology helps them reach their professional goals. It helps them become more efficient, effective, helps their businesses become more profitable. And interestingly, it also for almost half of them was helping them with recruiting. Because the technology was making them more efficient and because working at a hotel was less of a rote time-consuming manual process. People are free to focus on providing great experience for guests. And so that’s attractive for someone that wants to work in this business.
Robin: Well, thank you, Josiah. You have a very interesting take on some of these subjects that are being debated all the time at the moment. And I really wanna thank you for providing your perspective to our listeners. You’ve been listening to the “Innovative Hotelier Podcast,” brought to you by “HOTELS” magazine. Join us again soon for more up-to-the-minute insights and information specifically for the hotel and hospitality industry.