The Rise of the Hypermarkets

The Rise of the Hypermarkets assesses high market fragmentation versus consolidation, and poses the question as to who will be the winners and losers in a global and consolidated market.

“Digitalisation is already radically changing all economic and cultural aspects of the hospitality business. There are a lot of imbalances, tensions and challenges to overcome.”

Market Activity

As we have seen with the latest hotel merger & acquisition activity that we covered in The Rise of the Hotel Monoliths and subsequent blogs covering the acquisition of Starwood hotels, “platform capitalism” is influencing hotel group consolidation because of the need to seize back control from powerful intermediaries. Although Marriott informed analysts that this was not the key rationale driving the Starwood bid, the company has long been stating that intermediary costs are too high and need to be reduced, with some personnel suggesting intermediary costs were “out of control”.

It is fair for hoteliers to question value cost in respect to distribution, whilst recognising how hypermarkets provide customer value other than simply financial.

Market Tension

When there are market tensions and an imbalance in terms of power, where one side of the market feels to much restriction in respect to how they operate their business, then there can an obvious tendency to push back, or — better put — fight back. When this occurs, the value those with the power provide can often be forgotten during the battle to wrestle back power. Indeed, a mentality can build amongst some who question the very need for intermediaries, suggesting the market would be much better off without them.

It is sometimes forgotten that the role of an intermediary is to add value and provide expertise, and such forgetfulness is not confined to one side of the market. Often those with too much power can forget their very purpose too. Redressing the balance allows the market to press reset, allowing new solutions and innovations to provide greater value and reducing market tension.

One venue operator was speaking to us about how life would be easier for him without intermediaries and that more venue operators should unite to eradicate the markets’ need for them. Instead, customers would come directly to book his product. However, the assumption is that all customers are already familiar with his brand and would fully understand the benefits of booking his brand over that of his competition. Further, the presumption was that there would be a cost saving in such a scenario, with no need to increase marketing costs in other areas to compete with customers, because the brand was strong enough to attract business.

In a dynamic and every changing market, brands — and individual properties — have to work hard to stand out from the crowd and tell their own story to attract business. Although we live in a highly connected digital world, it’s not as straight forward as being online and driving business through your website because you have a strong brand identity. We speak to individual hotel operators on a daily basis who are part of a global brand and are positive about all the benefits that brings, but are also frustrated with how all the brand noise and focus gives them difficulties in being recognised individually.

“The power of brands will decline as property reputations evaluated by social media are the decisive selection criterion in a customer’s selection process. Individual hotels will federate to grow into niche markets.”

Market Power

Whenever and wherever there is an imbalance of power in an industry, tensions will be high, and a need for change and innovation will emerge. Power is shaped by the fragmented nature of the industry and drive towards consolidation. There is a view that platforms take the largest share of the cake. There are 4 main drivers characterising the rise of hypermarkets:

1. Tech (Digitisation)
2. Environment
3. Business Models
4. Knowledge (People)

The key for hoteliers is to recognise those that truly provide value and seek to support those who have adopted a business model that promotes a balanced partnership supporting the hoteliers’ goals and jointly deliver benefit to the customer. Recognising the shifting changes in macro factors that dictate customer behaviour and working towards a balanced partnership will ensure greater innovation, efficiency, cohesion, profit, and — ultimately — customer satisfaction.

Anticipating and understanding the drivers of change was outlined as one of the most pressing issues for hotel companies, including but not limited to:

Too often there is a perception, misunderstanding, and resistance based upon prior experience. Whilst an element of this is natural, our industry appears more cautious and resistant to change that can create new opportunities and deliver value. Although Eventopedia is not a hypermarket, we have experienced this mind-set often ourselves and fully understand it because one of the key reasons we created Eventopedia was a response to experiencing the frustrations of the tools in the market from opposing sides of the platform (venue operator and event buyer), and a shared passion for creating change and delivering value to all. Thankfully, we find the attitude quickly changes when we meet face-to-face with vendors and they recognise why and how we are different to what they’ve experienced previously and in so doing, “taking advantage of the opportunities that change could provide”.

Ultimately, the question is not about whether one side wins, or the other, but it is a question of who is most adaptable to change on both sides, change that will allow the two sides to embrace and forge greater value and share the benefits.

“The price of doing the same old thing is far higher than the price of change.” Bill Clinton

Alan Newton

Founding Partner at Eventopedia.