CHICAGO, June 8, 1998 - Over the next year or two, a handful of global giants will emerge in the hospitality industry, with North American firms likely leading the pack. Current consolidation trends have placed American firms at the forefront of the industry in size, with the largest companies increasing their international presence at a rapid rate.
To support the race for global domination, hotel companies increasingly are focusing on effectively integrating their acquisitions, developing customer-focused strategies and technology. These observations are found in the summer 1998 Hospitality issue of The Real Estate Report, an industry newsletter published by the National Real Estate Practice of KPMG Peat Marwick LLP. The quarterly publication is distributed to more than 20,000 real estate and investment professionals nationwide.
"The lodging industry is reinventing itself into a more mature marketplace," said Frank Nardozza, partner and national hospitality industry director. "The best hotel companies are beginning to understand the need to deploy state-of-the art technology and strategies on the front lines, as opposed to solely using those resources for corporate functions."
Consolidation Will Create Super-Groups
Recent consolidation among large hotel companies is creating global giants, called super-groups. Driving this trend is the emergence of REITs and other publicly traded hotel companies with their easy access to cash capital.
The potential leaders in the newly emerging super-groups include Starwood, Marriott International, Hilton, Bass Hotels and Resorts, Cendant, Patriot American, Promus, Granada and MeriStar. "The super-groups will have a stronger hand in shaping the industry's future," Nardozza said. "At the same time, industry convergence will be a factor, with potential for non-lodging companies to further buy into the lodging business -- the challenge of consumer-based financial services companies and consumer products companies entering the marketplace may spur even more industry consolidation."
Integration Key to Consolidation Success
According to Saverio Scheri, senior manager in KPMG's Hospitality Practice, consolidation without efficient integration threatens to undermine financial economies of scale targeted in mergers and acquisitions. Specifically, systems integration must be the highest priority to maintain revenue generation and customer service.
"To effectively run a newly merged or acquired company, data collected at each location must be accessible in a uniform fashion," said Scheri. "All the focus on new target markets, increased revenues and costs savings will be meaningless if the systems can not be merged quickly and accurately to support the newly enlarged company. It is crucial that the two merged systems can share data and 'talk' to each other." "The successful companies are those that understand from the top down that it takes substantial financial and human resources -- depending on the size of the gap between the two merging companies -- to get the job done right on systems integration," added Scheri. "The companies we see falter do not have senior management's buy in."
Technology No Longer Optional
The lodging industry is being forced to deploy technology in new and more productive ways. Driving this trend are increased transaction volumes through consolidations, complex reporting requirements and international communications needs.
"Unlike times past, when the technology focus was on property-based systems and applications, today's hospitality organizations have shifted their attention to strategic solutions providing global connectivity, shared date capabilities and secure electronic commerce," said Diann Berchiolli, senior manager in KPMG's Hospitality Systems and Technology Practice. "These technologies are no longer a matter of choice for organizations wishing to remain competitive and viable into the next century." Current technology trends allowing hospitality companies to focus on maintaining a competitive advantage and increasing profitability and shareholder value include:
The New Imperative: Customer Centric Management (CCM(TM))
An emerging buzz phrase started by KPMG in the lodging industry is "Customer Centric Management (CCM)." This practice uses a highly integrated management approach to improve every interaction with the hotel guest in order to maximize profitability from each individual guest. While consolidation and international expansion are driving industry growth, CCM will become the means by which innovative hotel companies break away from the pack.
"It's a buyer's market out there," Nardozza said. "Guests today are demanding greater value than ever for their money. However, armed with the right information, the right analyses and the right products, hospitality companies can manage those same guests to create the maximum value to the company and to its shareholders."
Nardozza added that leading properties are becoming increasingly effective
at translating volumes of guest experience data into specific operational
changes that will continue to improve customer service and value. "We will
see the super-groups quickly master CCM. It will be yet another challenge
to the rest of the industry." Building a customer-centric organization
means establishing critical linkages between data acquisition, analysis
and delivery. This usually means combining technology with the softer side
of change management. Companies must rethink customer and product strategy,
reengineer the supporting financial management systems and
develop entirely new scorecards to measure and reward performance. Most important, customer-centric hotel companies will put guest information in the hands of the people on the front lines -- the payoff will be higher quality customer service and retention.
Industry leaders echo this sentiment. "I believe that operating excellence will be the deciding factor in determining who will be the survivors in our industry," said Paul Whetsell, chief executive officer and chairman of the board of CapStar Hotel Company. "If you don't deliver service, guests will walk across the street and pay more." Whetsell added that customer focus and services are the basis for CapStar's culture, which empowers employees and gives them latitude to meet customer needs. These practices helped improve the company's RevPAR by double digits in 1996 and 1997. Whetsell's comments are included in the KPMG Real Estate Report.
Significant Industry Trends to Watch
With the lodging industry quickly becoming a customer- and technology- focused industry, a number of significant trends are emerging in the industry. Industry watchers can expect to see the following:
About KPMG Peat Marwick LLP
As a leading business advisor to the real estate and hospitality industry,
nationally as well as internationally, KPMG Peat Marwick LLP's Real Estate,
Hospitality and Construction Practice provides a full range of integrated
consulting, tax and assurance services to clients in commercial and residential
real estate, hospitality, construction, REIT and REMIC industries, as well
as real estate portfolio investors. Some of the services the Practice's
professionals provide their clients throughout the globe include strategic
analysis, operations and performance improvement, capital market alternatives,
acquisitions and dispositions, financial modeling process
redesign and technology solutions.
KPMG Peat Marwick LLP is the U.S. member firm of KPMG International, a leading professional services firm. In the U.S., KPMG partners and professionals provide a wide range of accounting, tax and consulting services. As one of the foremost providers of information-based value added services, KPMG serves clients with complex needs by capturing, managing, assessing and delivering information to create knowledge that will help maximize shareholder value. KPMG International has more than 6,500 partners and 85,300 professionals in 155 countries and $9 billion in annual revenues. KPMG's Web site is: http://www.kpmg.com