Last resort: hotels fight for room on unwelcoming market

The local hotel scene seems to be feeling the pressure of the current crisis slightly more than other industries. With a significant drop in room rates, independent hotels are trying to hold their own against well resourced competitors. Meanwhile, international chains want to make their entrance in Romania, but face a different problem: the lack of properties that meet their standards.

Anda Sebesi

The Romanian hotel market is going through a tough period because of the economic crisis. The boom over 2000-2007 was followed by a continued decline that still continues. According to a recent study conducted by TEN Association and Travel Advisor Media into three-, four- and five-star hotels in Bucharest, the city had about 6,500 rooms at the end of 2007, which outstripped demand at that time. That made Bucharest an uncompetitive destination compared with other

European capitals in terms of its price-quality ratio. The same study found that a single room in a three-star hotel in the center of Bucharest, with breakfast included, once cost an average of EUR 90-100 per night, while now it barely goes for EUR 45-50.

“Looking at the reports from four years ago I can’t figure out what happened that we charge half as much now,” said Ioan Tudor, member of the TEN Association and manager of a hotel in Bucharest. “If we hadn’t halved our prices could our customers not have travelled? Wrong. We were the ones who reduced our chances of selling better. I don’t know how many of the existing hotels will manage to charge prices close to those from 2007 once the downturn is over.”

But what caused such a significant decrease in the local hotel market? One factor is falling corporate demand for hotel services, which suffered a severe drop as a result of companies cutting travel, training and teambuilding costs. Another is the lack of highly skilled professionals in the industry. According to a study conducted last year by www.hotel.info, a reservation service that covers over 210,000 accommodation units worldwide, Bucharest comes 17th in an international ranking of customers’ satisfaction with hotels. Warsaw, Helsinki and Tokyo top the list.

Researchers from TEN Association and Travel Advisor Media also found that there are 219 accommodation facilities in Bucharest at present (hotels, heritage properties, hostels, apart-hotels and guesthouses), divided as follows: 11 five-star hotels with 2,149 rooms; 71 four-star hotels with 6,532 rooms; 100 three-star hotels with 3,520 rooms, 27 two-star hotels with 1,038 rooms, 7 one-star hotels with 352 rooms, and about 150 unclassified (rental apartments). The study also found that Bucharest suffers from a lack of low-budget accommodation, while the three-star hotel market is dominated by locations opened by 2007.

Tinu Sebesanu, CEO of Trend Hospitality Consulting & Management, says the Romanian and Italian hotel markets are atypical because of their low level of brand penetration. “While Romania has 2-3 percent penetration of brands in the total accommodation capacity and Italy has up to 10 percent, in Germany this indicator is around 70 percent,” says Sebesanu. But while in Italy the reason is the culture of small family businesses, in Romania it is the lack of properties that meet the standards required by international brands.

Independent versus international

One of the differences between an independent hotel and an international brand is perception, especially in Bucharest where people travel for business purposes rather than for leisure. “A brand is a promise that the hotel will meet your expectations and reach international standards, and reassurance that the price is the right one. International chains have access to international system distribution and that means a higher occupancy rate and profit,” says Sebesanu. But standards also influence the quality of services. “There are no standards in many independent hotels. There are also many exceptions of independent hotels that perform better and have better services. But there is no rule about it. On average, we can say that affiliated hotels provide better services,” says Sebesanu.

Sonia Nastase, general manager at Howard Johnson Grand Plaza Hotel, says that guests take into consideration many factors when choosing a hotel, but one of the most important is the guarantee based on previous pleasant experience or trust that the facility will meet specific standards of comfort and quality. “Although independent hotels don’t enjoy the same support as chains, they can be major competitors for some segments of customers,” argues Nastase.

Addressing the theme of hotels in large cities that host mainly business customers, Daniela Dumitrescu, marketing manager at Radisson Blu Hotel, says that international brands have several advantages. “Often these customers prefer a hotel that is part of an international chain in order to be guaranteed some quality standards that are already tested and approved at international level,” she says. In addition, large companies sign Europe-wide or international deals with international chains to accommodate all their employees in specific hotel networks. “This makes a major difference in distribution because independent hotels don’t have access to such international pitches where known brands have priority,” says Sebesanu.

A hotel seeking affiliation to an international network needs to meet, for example, some security standards, both from customers’ and employees’ perspective. Plus, international chains offer greater job prospects and therefore attract employees that are more career-oriented. “They become more attractive to better educated employees,” says Sebesanu. Elsewhere, Meda Vasiliu, director of sales and marketing at JW Marriott Bucharest Grand Hotel, sees independent hotels as a challenge rather than a threat for large international chains in Romania. “We do not see them as a direct threat as they are designed to attract a different type of customer. I would say it is an excellent sign in terms of development as it indicates

that the destination is evolving and setting itself up to eventually attract more lifestyle-driven guests. These smaller hotels are a necessary step in the development of Bucharest as an attractive leisure destination,” says Yann Marteau, director of business development at Athenee Palace Hilton Bucharest.

Sleeping versus eating

According to Nastase, Howard Johnson Grand Plaza hotel posted a 2 percent higher average occupancy rate last year than in 2010. “It was a moderate growth due to the direct impact of the international economic situation on the leisure segment,” she says. She adds that the greatest weight in the hotel’s 2011 income was accommodation, accounting for 56 percent. The hotel posted a turnover of about EUR 8 million last year, a similar level to 2010. Elsewhere, Radisson Blu Hotel’s income was split fairly evenly between accommodation and organizing and hosting events plus food and beverage. “This balance is supported by our marketing strategy, which involves monthly activities that target each of these segments,” says Dumitrescu. Meanwhile, JW Marriott Bucharest Grand Hotel posted an increase of about 6 percent of its occupancy rate last year on 2010, with its hotel business and restaurants and events split evenly.

International chains flex commercial muscle…

Their management systems and expertise on other markets have helped international chains hold up against the difficulties of the current crisis better than independent players. They posted a smaller decrease and recovered more quickly. Sebesanu says an international hotel can also be traded more easily than an independent one because the buyer can have greater confidence that it has bought a feasible business. In addition it can attract financing more easily.

Every detail counts, especially for the customers of a luxury hotel, because it’s the little things that make the difference. In addition, Dumitrescu says that the support of high quality management by the international chains, training processes for employees and regular audits can help hotels achieve high quality standards. Howard Johnson Grand Plaza Hotel in Bucharest, for example, is part of the international chain Wyndham Hotel Group, which has about 7,200 hotels in 66 countries around the world. So it benefits from the capitalization and standardization criteria and all the commercial and promotional advantages of the network. “Plus, many hotel chains have developed loyalty programs for their customers at group level through which they are encouraged to choose the same hotel brand on every trip, regardless of their destination,” says Dumitrescu.

Vasiliu of the Marriott says that affiliation to a centralized reservation system managed by a specific chain in general keeps reservations over 60 percent. “Our main commercial advantage as part of a recognized international chain remains the strength of our distribution network which allows us to reach our consumers. From a product point of view chains are generally more geared towards business travel and on the Bucharest market they can better meet the needs of the traveler,” says Marteau of Athenee Palace Hilton Bucharest.

… while independents hang on

Independent hotels across many markets can often perform better than an international chain hotel because of their superior location and services and a stable base of customers. For example, in the mountain areas of Austria and the South of France the majority of hotels are independent properties. “Everything depends on what added value they can bring. They can do it by location or services but in order to perform on the long term they need to offer added value through both location and services, because this market is based very much on word of mouth,” says Sebesanu.

According to Toni Tatar, marketing and sales manager at Rembrandt Hotel, one of the main advantages of independent hotels is that they can make decisions internally. Plus, in general they have few rooms and this contributes a lot to the hospitality extended to their customers. “The majority of the services provided by an international hotel are standardized, while the flexibility of the services provided by a small one brings closeness to the customer,” he says.

Finding a range of niche services and offering additional benefits compared with an international hotel could be a solution for an independent hotel to keep its market position and to face down the existing fierce competition. “Independent hotels are finding it hard to survive on the market now and each new brand that enters the local market takes from the market share of the independent players. They can create advantages like being more flexible or providing customized services,” suggests the CEO of Trend Hospitality. Elsewhere, Dumitrescu of Radisson Blu Hotel says that independent hotels can profit from leisure travel, because this segment needs authentic locations and different and original experiences. “Being less standardized, independent hotels can adapt more easily to the individual influences than the local branches of international brands,” she says.

According to Tatar, another difficulty that independent hotels are facing at present is that their room rates are greatly shaped by the competition, including international hotels with a significant influence on the market. “For example, a three-star hotel will be forced to price itself below a five-star hotel even though the quality of services is not always reflected in the number of stars,” says the Rembrandt Hotel representative. He adds that the average occupancy rate at Rembrandt was 75 percent last year, while the turnover was about EUR 450,000.

In Sebesanu’s opinion, one of the mistakes that some independent hotels made was to cut their prices. “This is not good for the long term. It would be better to improve their services. Customers are sensitive to price but up to a limit. Guests won’t come solely because of the low prices if they don’t find the services they expect. When you have alternatives you need to be very careful about price sensitivity,” says Sebesanu.

Asked whether independent hotels can become targets for other players, Sebesanu says it could be possible only if they meet the standards for being affiliated.

“Hotels are not evaluated like office buildings or residential with a price per square meter. A hotel is bought depending on its capacity for generating profits. It is about buying a business. That’s why transactions are more difficult and complex, especially for independent hotels that don’t have their accounts audited,” he adds.

anda.sebesi@business-review.ro

Photo: 2012 Hilton Worldwide

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