Canada’s hotel industry is as robust as ever, with growth in everything from property development to ADR and RevPAR. Behind the scenes, however, new technologies and emerging brands are beginning to subtly — and in some cases, not so subtly — reshape the industry. According to Q3 data from global hotel-research firm STR, occupancy for the Canadian hotel industry was up 1.8 per cent to 78.7 per cent compared to the corresponding previous year, while the ADR rose 5.7 per cent to $174.44 and RevPAR increased 7.6 per cent to $137.35. The occupancy rate, meanwhile, was the highest for a Q3 in Canada since 1999.
At the same time, a November report from New Hampshire-based Lodging Econometrics states Canada currently has 228 projects totalling 30,875 rooms in the construction pipeline — an 11 per cent increase over the previous year.
Yet a growing number of “disruptors,” ranging from aggressive technology platforms such as Airbnb, to new brands and even construction techniques, are also changing the face of the industry, leading to a wave of innovation as established chains react to the threat posed by these upstarts by introducing radically different concepts. Accor Hotels, for example, has launched a millennial-focused offering in its economy portfolio called Jo & Joe, which featues an open-house concept and is described as a blend of hotel, hostel and private-rental formats. The company hopes to have the concept operating in 50 markets by 2020.
Jan Freitag, senior vice-president, Lodging Insights with STR in Hendersonville, Tenn., says the industry is being reshaped by two increasingly prevalent trends: the rise of alternative accommodation providers such as Airbnb and a spate of new entrants from the consumer-goods space.
The latter includes a growing list of companies ranging from furniture retailer West Elm to fashion brand Karl Lagerfeld and watch company Shinola. While it might seem like a new phenomenon, Freitag says that these brands are simply following the path created by fashion brands in the early part of the millennium.
Marriott International’s division, the Luxury Group, for example, partnered with jeweller and luxury-goods maker Bulgari to launch the Bulgari Hotels & Resorts brand in 2001 (it currently includes hotels in Milan, London, Bali, Tokyo, Beijing and Dubai, with Shanghai set to open this year and Moscow in 2020), while the Palazzo Versace Gold Coast, a five-star fashion hotel, opened in Australia in 2000.
“This is not new, but what you’re seeing now is more consumer brands [entering the hotel space],” says Freitag. “I would call it a niche because it hinges not on the brand, but the owner. A lot of these brands are not actually building the hotels, they are lending their name.”
But, while consumers may at first be attracted to these hotels by the name on the marquee, Freitag says it important they partner with the appropriate behind-the-scenes people to ensure their future success. “If you drive by the hotel, you only know the brand,” says Freitag. “You don’t know who runs it, but you would hope they hire experienced hotel-management companies; you don’t know who owns it, but you would hope it’s an experienced owner who understands how to construct and operate a property. You can take a lot of the uncertainty out by using established ownership and management teams. The question then is, how strong is the brand pull?”
Some companies, such as West Elm, believe the pull is significant. West Elm announced late in 2016 that it plans to open hotels in Detroit, Minneapolis, Savannah, GA., Indianapolis, Oakland and Portland, Ore. this year, promising a “delightfully eclectic” design and “authentic independent spirit.”
West Elm is among a growing number of retail brands experimenting in the hotel space, joining the likes of bedding-and-bath brand Parachute and Restoration Hardware, which is developing a 14-room property in New York’s Meatpacking District.
Hoteliers are also being forced to address the threat of Airbnb, which is expanding its footprint around the world and siphoning away revenue from established chains. According to a report from the Ottawa-based Hotel Association of Canada (HAC), the 10-year-old company derives 80 per cent of its Canadian revenue from hosts who rent out entire-home units where the owner is not present.
Freitag says alternative accommodation is, in reality, an old concept modernized for a new era. What’s different, he says, is Airbnb has successfully aggregated individually owned accommodations onto a single, easy-to-use platform. “We can say two things with authority: it’s going to be here tomorrow and the number of units on its apps is going to increase.” According to the HAC report, one-third of all Airbnb units were rented out for more than 90 days during the one-year period between April 2016 and March 2017, generating $395 million in revenue.
There have been some recent victories for the hotel industry, however. In November, Vancouver passed regulation regulating short-term rentals by allowing rentals only in an owner’s principal residence and forbidding the rental of commercial or investment properties or second homes on a short-term basis.
Freitag believes this is just the beginning of the municipal crackdowns on Airbnb. “Within the next five years they’re just going to be another accommodation provider,” he says. “If I was Expedia or Priceline, I would be very worried, because the Airbnbs of the world are disrupting my business model with a very easy-to-use app; they seem to have the millennial customer wrapped up; and the commission structure is a lot cheaper for a hotel to go on Airbnb than traditional online travel agencies [OTAs],” says Freitag.
“Despite the growth in popularity of Airbnb, it won’t replace the traditional hotel — it’s targeted to a traveller looking for a specific local experience. We’ve never seen a stronger climate in the hotel sector overall,” says Fraser Macdonald , senior analyst, Hotels, Colliers International Hotels. “Most major cities in Canada are looking at regulating or have regulated Airbnb/home sharing in some way — whether for safety, taxation, or impact on residential-rental supply — most recently Vancouver and Toronto.
But disruptors are also helping hotels fight back against emerging threats to their business. A new Chrome plug-in called Gopher, for example, is aimed at helping major chains claw back some of the direct bookings — as well as the lofty commissions — they have been losing to OTAs over the years by digging (naturally) for better deals. According to research firm Net Marketshare, Chrome controls 58.8 per cent of the desktop browser market, where the majority of all hotel research takes place. Gopher founder James Gancos believes the plug-in could amass “millions” of users within the next year. Whenever a user who has the plug-in installed is looking at a hotel deal on a major travel site, such as Booking.com, Gopher will pop up with a better deal as well as a direct link to the hotel website for booking.
“What we’re offering is a better deal on your hotel every time, and nobody else can offer that value proposition,” says Gancos, whose career has included stints as director of North American operations for Starwood Hotels & Resorts Worldwide and managerial roles with W Hotels.
“[Hoteliers] couldn’t love our model more,” he adds. “It’s 100-per-cent aligned interest. We’re hoteliers by background and we always put hotels’ interest first, above all else. A lot of disruptors in the space have an eye towards being acquired by Expedia as their exit strategy; we would never do that because it would never put the hotels first.”
Written by Chris Powell