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Budget hotels set new standards

Lifestyle is king, as AccorHotels will tell you. In 2016, its Parisian investment expert and CEO Sébastien Bazin seized an opportunity and acquired 30 per cent of The 25hours Hotel Company for €34.7 million. He found the creative crew from Hamburg such a tasty morsel that by 2023, he will be allowed to add 100 per cent of the company to the rapidly expanding hospitality and lifestyle corporation.

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Now headed up by a lateral thinker like Christoph Hoffmann, 25hours is a pioneer in colourful, edgy and snazzy concepts steeped in style and wit. His success formula was transferred to upscale hotels some time ago, even if it doesn’t actually mean that rooms are any bigger.

Lifestyle is also king in the budget segment thanks to Motel One, another German brand that’s all about pioneering. It has been shifting the sands in the domestic budget market since the turn of the millennium. With its low-budget designer hotel concept, the family business managed by Dieter Müller has earned enough clout to push AccorHotels aside and show the market leader what innovation and image is all about. By the late 2000s, Motel One’s success had forced the French firm to rethink its second-most important market after France and significantly upgrade its budget brand ibis – just in order to follow suit and adhere to the ‘new standards’ in the budget segment. AccorHotels opened its first ibis hotel in Bordeaux in 1974; its first in Berlin was opened in 1982.

The funny thing about these developments is that there aren’t any real standards when it comes to lifestyle or budget hotels. The fact is, the idea of transforming lobbies into living rooms, play rooms or work areas is a nice fit with the zeitgeist of young and young-at-heart travellers. People can chill in unconventional armchairs, play pool with other guests, flick through a book in an alcove or surf the internet at the bar. Entertainment with a soupçon of designer lifestyle makes people want to savour the moment. It’s about that all-so-important experience that makes hotel guests forget how small their room is. Initially, the room rate was between €40 and €50. Now that once spartan lobbies have been practically turned into temples of creative design, ‘budget’ rooms measuring only 17 sq m can be touted on the market for €100 a night. In parallel to this, food and drink sales in the lobby are on the up, much to the satisfaction of in-vestors and hotel operators. So revenue-per-square-metre calculations are looking good.

Between 2000 and 2015, the budget and lifestyle formula started taking off throughout the world. The time came for young entrepreneurs – who had spotted the underlying development concepts of the hotel chains and hotel guests’ thirst for an experience. They started merging everything into one. In 2006, Nussbaum launched a vibrant and flamboyant budget brand called prizeotel, complete with an exclusive contract with the wacky New York designer Karim Rashid. Back in conservative Germany, this was an entirely new way of thinking. Today Radisson Hotel Group owns 49 per cent of prizeotel and the group is rolling out the concept across Europe. In 2013, Michael Struck started redefining standards with Ruby Hotels, a module-based formula offering flexible rooms for investors and internet radio and organic breakfasts for guests. Meanwhile, the group has entered into a joint venture with some powerful partners from China. By the end of this year they will open their first hotel in Shanghai.

So of all people, it was creative thinkers from Germany who kick-started the wave of budget lifestyle hotels in continental Europe – Germany, often scorned for a lack of imagination. The mega hotel chains and scores of medium-sized operators had no choice but to adapt and become copy cats. Brown furnishings? Make them green. An old armchair? It’s a designer sofa or vintage settee. Restaurants are called Coffee Shop 24/7 and the screen at reception is for Instagram, not TV. Conference rooms feel like furniture playgrounds. Modern budget lifestyle hotels offer concierge services: local venue ideas via app and  glossy brochures. They capture the imagination with seasonal pop-up bars, DJ nights, e-bikes to hire, laundry arrangements, flowers or a local babysitter.

In a nutshell: the trends are going haywire. Each idea gets pushed up to the next level. The problem is, hotel operators can’t do the same thing with their prices due to the forces of competition. How many designer ideas and services are worth their while with a room rate of €50, €80 or €100? No-one knows at the moment, so this is a hotly debated issue. But also, a reversal is happening.

Coming in the other direction is a movement that involves re-rolling the dice of differentiation, a turnaround in trends stemming from a shameful product attribute: price. Sadly, the demarcation lines around the budget sector are fuzzy now and luxury hotels are also offering lifestyle options. The talk in the industry is that budget rooms get a little bit too painful at €100 a night. B&B Germany CEO Max Luscher is, however, bucking the trend: B&B room rates stand at €60, more or less, at least 50 per cent below Motel One rates. Luscher says he intends to hold this price, even in top locations like Alexanderplatz in Berlin, where incidentally the B&B stands merely metres from the Motel One.

B&B hotels, also from France, made their final move on
Germany in 2006 and they now operate out of 110 premises, making them a serious contender in the market. Luscher insists that “Anyone who regularly offers rooms for more than sixty euros isn’t budget anymore. The same applies to AccorHotels’ core brand ibis, Marriott’s Moxy, Ruby and prizeotel. They’re all hammering it with the yields and their rates are chipping away at the three-star – and sometimes even the four-star – segment, but they’re not affecting us as a budget operator. That said, we sometimes see some curious things happening on that front: the B&B hotel in Ludwigshafen is directly next to a Moxy, whose price is under ours on some days.”

The tale of budget and lifestyle hotels is producing some colourful fruit at the moment. Once euphoric, the experts are gradually starting to settle down again. So who or what will be the kingmaker one day in the budget segment, lifestyle segment – or both? Time for someone to use their fantasy again. The hotels will need to find new sources of revenue – away from guests in beds and F&B in the belly. Processes are needed to save money on property and operations. Which is where digital technology starts to enter the scene with new ways to squeeze margin out of buildings, operating outlays and process costs – yet still provide hotel guests with a customised offering, of course.

Everywhere you travel around the world, people are seeking similar experiences at similar kinds of hotels. If possible, they want to stay every-
where, at increasingly fair rates in increasingly ‘in’ locations. All they know is what they like, so they know nothing of feasibility studies. This is the crux of the situation for investors and operators alike. It’s no longer enough to simply erect a building, sign a lease for 20 years and cram fancy furniture into the rooms. The future will hinge on genuine partnerships – merging property and operations into one.


MARIA PÜTZ-WILLEMS is founder and editor-in-chief of www.hospitalityInside.com, an advertising-free German and English online magazine for international hotel management, hotel group management and the hotel and property industry in general. A classically trained editor, she has been covering hotels since 1989, including 16 years as a freelance journalist for leading hospitality, financial and lifestyle media in Germany, Switzerland and the UK. In 2002 she co-authored her first book Wellness + Wirtschaft – professionell und profitabel (Wellness + business – professional and profitable). From 2006 to 2017 she organised panels for the hotel conference at the ITB Berlin tourism trade fair. Since 2008, she has been responsible for the Hospitality Industry Dialogue conference at Expo Real, Europe’s leading real estate/investment trade fair in Munich.

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