Tourism & hospitality

Don’t break the bank

Traditionally the forgotten end of the hotel market, the budget segment is undergoing something of a revolution, with design-led, select service, affordable brands making a number of the more established players look distinctly dated. Is this the future of the sector and are such concepts sustainable across the sorts of massive franchise rollouts that drive so much of the budget segment? Vicki Poulos, senior global brand director for Moxy, and prizeotel founder Marco Nussbaum, tell Abi Millar about fusing style with substance.

In years gone by, the idea of a design-led budget hotel would have seemed like a contradiction in terms. Dominated by large franchise rollouts, the segment has traditionally prized simplicity above all else. This meant, when you booked your Travelodge or Holiday Inn, you knew exactly what you were getting. You wouldn’t have pondered its design credentials.

However, the last few years have brought big changes for the budget sector. While the established players are still performing well, their occupancy figures do not tell the whole story. As a new wave of ‘lifestyle’ brands make inroads into this territory, traditional offerings are beginning to look stale.

“Moxy wanted to build a brand that not only can deliver on value, which is critical to this type of consumer, but style as well,” says Vicki Poulos, senior global brand director for Marriott’s budget sub-brand. “It really is the intersection of value and style.”

Moxy, which launched in 2014, is one of the key players on the scene. Describing itself as a ‘boutique hotel with the social heart of a hostel’, it has a strong pipeline across Europe and the United States and sits squarely in the three-star tier. Its branding materials, which include phrases like ‘budget is beautiful’ and ‘uncompromising style at an irresistible price’, take pains to set Moxy apart from the ‘tired and basic’ competition.

It is joined by the likes of Radisson Red, Rezidor’s ‘lifestyle select’ brand, which launched worldwide in 2016, and Tru by Hilton, which just opened its first property in Oklahoma. AccorHotels’ new lifestyle division comprises three brands of this nature – Mama Shelter, 25h Hotels, and the freshly launched Jo&Joe – and Best Western has also entered the market with GLo.

Concurrently, we are seeing a boom in high-end hostels, memorably dubbed ‘poshtels’ by Lonely Planet. The best known of these is probably Generator, which, with its high proportion of private rooms, is all but indistinguishable from a budget lifestyle hotel.

All these brands occupy a similar price bracket to Premier Inn, generally charging under $100 a night. And despite being in their infancy, with relatively few properties actually open for business, they have grand plans for the future. Rezidor wants 60 Reds in 60 cities by 2020, while Marriott is placing Moxy at the forefront of its European expansion plans and Hilton has said that Tru is on the “fast track to becoming our largest brand”.

“We want to be able to live at scale and to grow quickly, which is what we have been doing in Europe and in the US,” says Poulos. “We are also beginning growth in Asia with two hotels in Tokyo opening up later in the year.”

Of course, Moxy is not the first brand to offer design on a budget – CitizenM opened its first hotel in 2008 and prizeotel in 2009. But the current growth rate is unprecedented. So why have so many hotel groups jumped on this particular bandwagon, even though ‘lifestyle economy’ is still a relatively untested idea?

The look for less

The answer seems to hinge on one key factor: namely the purchasing power of millennials. This rather hazily defined demographic (often used synonymously with ‘younger adults’) has now overtaken the baby boomers as the largest generation of traveller.

According to 2016 research by Mintel, 82% of millennials took a vacation in the past 12 months, versus 75% of all US consumers. Meanwhile, a 2013 Expedia report found that under-30s took both more leisure and business trips than any other age bracket.

Since this greater frequency of travelling is not matched by a higher rate of spending – millennials spend slightly less than older adults overall – the economy and mid-range segments have a golden opportunity on their hands. Cue the Moxys and Generators of this world, which are more design-led than a Premier Inn, and more service-oriented and reliable than an Airbnb.

“These consumers want to discover something new,” says Poulos. “They want to take in the new city, the new neighborhood, the food, even if they’re only there for a day. Their mindset is, if they weren’t able to capture it on Instagram did it happen at all? So they are looking for something far more curated.”

Marco Nussbaum, founder and CEO of prizeotel, agrees to a point, pointing out that Airbnb has set the tone: millennials want exceptional experiences, rather than a standardised product. However, he bristles at the idea that budget design hotels are for Gen Y only.

“I think prizeotel is for everybody with an open mind – if you’re a little bit cultural, a little bit intellectual, you’ll be comfortable at prizeotel. We don’t have a special target group,” he says.

Prizeotel takes a particularly bold approach to design, even compared to other hotels in this segment. Co-created with New York-based industrial designer Karim Rashid, its interiors are based around open white spaces with bright splashes of colour, soft-edged furniture and undulating prints.

“Karim Rashid always talks about democratic design – design is for everybody not only for the rich – and he always wanted to make a budget hotel, so we came together to work on the first project,” says Nussbaum. “Some hotels will buy a chair from a designer, or 20 paintings, and call themselves a design hotel, so this was a differentiator we had.”

The obvious question, of course, is whether high-end design can be truly affordable (especially when your rooms, like prizeotel’s, are priced from just €59 a night). As Nussbaum sees it, it comes down to making savvy choices – using high-performance materials and furnishings to make the greatest splash for the least investment.

“Do you need a lot of space? No. But do you need a good bed? Yes. Do you need a big bathroom? No. But do you need a good shower? Yes. This enables us to give a very high quality product for a low price,” he explains.

With regard what millennials actually want in a hotel, design-led brands seem to have converged on a few ideas. First up is digital convenience (these hotels tend to offer free WiFi and mobile check-in as standard). Second is a touch of local flavour (Radisson Red commissions local artwork for each of its hotels), along with large, loosely defined public spaces to socialise and work. Brands are therefore working out ways to offer these amenities on the cheap, without wasting money on lavish furnishings or supersized private rooms.

To franchise or not to franchise

Poulos says that Moxy keeps its costs down through way of a modular design, but also through its larger business model. In essence, being part of Marriott enables it to benefit from economies of scale.

“There are advantages to being part of a larger organisation like Marriott International, to be able to do things that no independent company can. Scale offers many opportunities for us to not only be able to innovate, but also share our efficiencies across our brands,” she says.

This logic is not uncommon. Most of the new brands are linked to large hotel chains, and many are run under franchise agreements. Tru by Hilton, for instance, will be a franchise-only brand, billed as “easy to construct, operate and maintain”. It offers its franchise partners a scalable prototype with 82-150 rooms.

While the cost and operational benefits are obvious, it is worth raising the question – might these kinds of rollouts give the new brands a cookie-cutter feel, making them just another iteration of Holiday Inn and leading them into the trap they’re trying to avoid?

Nussbaum feels that franchising is broadly incompatible with the idea of a design-led hotel. Although he believes partnerships can be useful (and prizeotel recently signed a deal with Rezidor, which now owns a 49% stake in the brand), he thinks franchise agreements might create more problems than they solve.

“You have no control over the quality or the way it’s handled,” he says. “As soon as you want to innovate, you’ll always have to ask the franchisee whether they’re willing to make the investment. So if you want a good design, you can manage it or lease it, but don’t franchise it – that’s not going to work.”

Poulos, however, feels that franchising can work, so long as a brand is very clear about what it stands for.

“We need to make sure we’re consistently delivering that branded experience to our consumers physically through our design but also emotionally through our service, programming, and franchise partner,” she says. “It’s important to be overt about what that brand point of view is, and to adhere to our design standards.”

At this stage, it is too early to have a clear idea what kind of model will fare best. However, it does seem clear that, as the ‘budget design’ market grows more crowded, these brands will be competing not just with traditional budget hotels but with each other. At this point, there will be a greater need than ever for amenities, programming and design features that can set a hotel apart.

“We’re committed to understanding the ongoing cultural and consumer shifts to best serve our guests, and provide an experience they can resonate with,” says Poulos. “It really is important that our hotel experience allows them to travel on their own terms.”

This article appears in the Summer 2017 edition of Hotel Management International


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