Global Experience Industries. Jens Christensen
that the European hotel industry began slowly to consolidate. European hotel chains are being established, while the American hotel corporations start a new wave of international expansion that further stimulated European concentration. In order to meet the pressure of increasing competition and demands from modern tourists, small hotels have to cooperate or engage with external capital to carry out needed improvement of facilities. Everywhere access to capital, management and technology are crucial to creating a profitable hotel industry. Roughly, the hotels are of three kinds or segments, luxury, middle-class and economy class.
The InterContinental Hotels Group is the world’s largest hotel corporation.93 InterContinental has almost 4,000 hotels at its disposal with half a million rooms in more than 100 countries. 70 percent of its capacity is in the US, 20 percent in Western Europe and 10 percent in the rest of the world, mainly Eastern Asia, Oceania and Latin America. InterContinental is present in virtually all large cities of the world. The Holiday Inn and Express middle-class hotels make up 80 percent of all its rooms, leaving the remaining share to Continental and Crowne Plaza luxury hotels. Everywhere, franchising is the predominant way of management, while hotel ownership declines. An increasing number of hotel owners let InterContinental or any other large hotel chain manage or franchise their business. In 2007, InterContinental had revenues of $5 billion.
According to InterContinental, the global hotel market has an estimated capacity in 2007 of about 19 million rooms, the number growing three percent annually, of which one-third in the US, one-third in Western Europe, and almost one-third in Asia Pacific and Latin America.94 The hotel market is geographically concentrated within 12 countries accounting for two-thirds of worldwide hotel room supply, InterContinental having a leadership position in half of these countries. This includes the US, Canada, Mexico, Germany, the UK, France, Italy, Spain, Japan, China, South Korea and Australia. The hotel market is a fragmented market with the four largest companies controlling only 11 percent and the ten largest hotel chains controlling just 20 percent of total room capacity. InterContinental is the largest of these groups with a three percent market share. Hotel chains are by far most common in the US, controlling two-thirds of the hotel capacity, whereas their share is much smaller in the rest of the world, about one-fourth. The major competitors include other large global hotel companies, smaller hotel companies and independent hotels. Since the 1990s, Intercontinental, Wyndham (formerly Cendant, now InterContinental), Marriott, Choice, Best Western, Starwood, Carlson, Hyatt and Accor make up the global leader group of hotels, gradually increasing their market share. Except for French Accor, all large hotel chains domicile in the US.
The strategy of InterContinental and roughly all leading hotel chains is to build a strong operating system of purchase, sales, technology and other management dimensions focusing on the biggest markets and segments where scale really counts. According to InterContinental, four developments truly strengthen the hotel industry and its continuous consolidation. The general spread of the Internet made travelling more visible and accessible to much more people. With the breakthrough of discount airlines, one could cheaply reach almost any destination. Restrictions to travel are continuously being relaxed all over the world. Finally, the hotel chains are benefiting by the fact that people prefer well-known brands.
Like all other large hotel chains, InterContintental Hotels & Resorts, as is its full name, includes more and more links of the travel and vacation value chain. Inter-Continental gives access to self organized package tours including plane, hotel and car and arranged family or business venues. In addition, InterContinental hotels has been extended to include ‘resorts’, offering many kinds of relaxation, recreation, sports, shopping and entertainment. The ‘resort’ idea is simply to make people spend more time and money within the frames of the hotel. Still there is a gap between this kind of resort and the holiday-maker resorts of amusement parks and cruise lines.
Consolidation of the hotel industry is growing in all developed and merging countries of the world. At the top of the industry, an increasing number of hotels franchise with international hotel chains such as InterContintental, primarily in large cities. Below that level, a national consolidation process is bringing existing and new smaller hotels to cooperate on a franchise basis, often led by some investor group. Taking advantage of the Internet and innovative business models such as concept based hotels, new and old smaller hotel chains are always able to attract a share of the market.
Consolidation takes place by way of horizontal and vertical integration. Both dimensions are included in the consolidation processes of large hotel chains. In some cases like Carlson Companies, vertical integration is more prominent, including large parts of the total travel and tourism value chain, such as restaurants, holiday homes, tour operators, travel agencies, cruise lines, etc. Instead of integrating more parts of the consumer oriented travel and tourism industry, you might integrate backwards and add the role of supplier to your consumer activities. That is for example the route taken by French Accor.95 Accor expands at two vertical levels. It integrates eventually all the tourism services, including accommodation, catering, transportation, entertainment, information, etc., partnering with numerous third parties, including airlines, railway companies, telecommunication companies, car rental companies, banks, electronic card providers. At the same time, Accor serves its suppliers with catering, human resources management, etc., diversifying by taking advantage of its strong management competences.
By 2007, the global hotel industry had estimated revenues of $200 billion, approximately one-third in America, one-third in Europe, and one-third in Asia Pacific.96
Restaurants
The world counts millions of restaurants, cafés and bars. Restaurants are more locally based than hotels. Except for a few exclusive places and international chains, they are all part of the local environment. Globalization and individualism have not left restaurants untouched, however. Furthermore, restaurants increasingly seek to differentiate and market their business by way of the Internet and other channels in order to meet a growing competition and pressure on profits. People want more and higher quality than they previously did and many customers can afford it. An increasing number of people look for gastronomic or cultural experiences when they visit a restaurant or café.
Restaurants, cafés and bars are the last link in the food and beverage chain. Generally speaking, they reflect the national culture of food and drinking. Food and beer and sometimes wine, however, were often domestically produced. As a consequence of internationalization and even more globalization, some countries have been able to export their food and drinking culture. World wide people have adopted Italian pizzas and spaghetti and most countries house several McDonalds and Burger King restaurants, meeting an increasing demand for fast-food. You find Irish pubs in most cities of the world, and the French have paved the way for an international wine drinking and dining culture. From France and Italy, the café has spread to the rest of the developed world, sometimes in the form of an international café chain such as American Starbucks.97
Within restaurants, cafés and bars, consolidation is progressing by way of chains. The global expansion of McDonalds and Starbucks are two obvious examples. In the pub industry, large breweries have taken control, creating vertical backward links. Hotel chains have restaurants of their own, too. Except for international chains, economies of scale are primarily seen in the catering business. Still, small independent restaurants, cafés and bars dominate in developed countries, even in the US.
The United States house about one million restaurants, cafés and bars. Three out of four of these companies are independent units. In 2007, they had total revenues of circa $500 billion.98 Including sub-suppliers of the food and beverage industry and other industrial providers, the economic effects of restaurants were to be trebled. Total US restaurant revenues have grown tenfold since 1970 and doubled during the past decade. More and more the Americans eat out. Half a century ago, they used only a quarter of their food and drink spending in restaurants. By 2007, this share doubled and meanwhile people became more affluent.
Western Europe embraces about one million restaurants, cafés and bars.99 In 2007, they had total revenues of about $350 billion. American hotel chains and restaurant chains are spreading continuously throughout Europe, including some European chains. Outsourcing has fuelled the catering business