Hospitality Industry insights on current market forces and leadership challenges

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Dear Colleague: As you will see from this research, changing and unpredictable market forces, combined with competitive threats, present broad challenges for hospitality leaders. Harnessing the best human capital to manage consolidation, macroeconomic and consumer influences, and asset performance is key to survival and achieving returns. Warm regards, Mark Momongan

Radhika Papandreou

Senior Director

Senior Director,

Global Hospitality Practice Leader

Restaurants & Leisure Practice Leader

Ferguson Partners Ltd.

Ferguson Partners Ltd.

[email protected]

[email protected]

+1 (312) 893 2336

+1 (312) 893 2364

Emma Burnaby-Atkins

Peter Rackowe

Director, Global Hospitality Practice Ferguson Partners Europe Ltd. [email protected] +44 (0) 20 3178 5971 Michelle Rutledge Vice President, Global Hospitality Practice Ferguson Partners Canada [email protected] +1 (416) 865 3387

2 | FERGUSON PARTNERS

Senior Managing Director Ferguson Partners Japan [email protected] +81 (3) 3436 6171

HOSPITALITY Notwithstanding steady improvement in growth and performance metrics over the past five years, and today’s relatively stable conditions, the global hospitality industry looks forward with a degree of caution and uncertainty. Marriott CEO Arne Sorensen nicely summed up the prevailing mood at a recent lodging conference, characterizing his outlook as “steady-state guarded optimism.”

Revenue in billion US dollars

600

Global Revenue Growth 2008–2016 2008-20

500 400 300 200 100 0

2008

2009

2010

2011

2016

Source: Statista 2016

2006–2015 Worldwide Hotel M&A 2006-2015

700 600

60

500

40

400

20

300

0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Deal Value ($bn)

Number of Deals

Deal Value ($bn)

80

200

Number of Deals

Source: Dealogic

The outlook varies from region to region, but underlying concerns range from macro issues such as Brexit and travel disruption due to geopolitical events to trends closer to home, including corporate reorganizations, the rapid rate of technological change, increased competition and accelerating new supply. Business leaders and Board members are assessing this environment to identify opportunities as well as risks in order to think strategically about positioning for the future.

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TRENDS AND CHALLENGES In this SnapShot we highlight three broad arenas where hospitality industry leaders are focusing strategic attention: consolidation and M&A; the evolving competitive map, online travel agents (OTAs) and temporary accommodations; brand management and customer experience.

Consolidation and M&A

of online “disrupters” — OTAs and temporary rental room alternatives. Airbnb, the best known alternative accommodation provider, accounted for 5.4% of US room supply in 2015 according to a Goldman Sachs study. Only 5 hotel operators have over 5% market share. These competitors may not immediately downgrade overall occupancy in a major lodging market, but they can

Corporate reorganization is nothing new to the lodging

impact average daily rates. Additionally, their presence

industry, but the level of activity — single property and

may impede new hotel development. On the positive side,

portfolio purchases, consolidation of hotel operators and

OTAs may actually enhance the competitiveness of luxury

online competitors — has increased resulting in 2015 being

boutique hotels.

a record year for M&A.

Industry consolidation is blurring the lines between

Fitch Ratings notes that the industry is entering the “twilight

hospitality-related

of the upturn” motivating hoteliers to seek operating leverage

purchasing HomeAway and Accor acquiring Onefinestay,

and broader market share through entity and property

a

purchase. The headline deals are well known. Capital market

in Onefinestay.

liquidity supports transactions and pushes valuations. Stock pickers would refer to this as a “crowded trade.”

UK

start-up.

business

platforms,

Interestingly,

Hyatt

with is

an

Expedia investor

Understanding the landscape, and mapping a strategy to either compete or join forces, requires board and senior

Asian investors, particularly insurance companies, emerged

management cooperation as these multi-party initiatives are

as major players accounting for nearly one-third of recent

increasingly complex and costly.

transactions. The portfolio deals have attracted most attention but one-off asset purchases have been more prevalent in Asia itself. The pace and global reach of consolidation activity raises questions about integration, the realization of operating leverage, and the delivery of the brand promise. Evolving Competitive Landscape

Delivering the Brand Promise Consolidation, with all its attendant integration and communication issues, raises questions about brand management. Delivering the “promise” across multiple channels and regions is a complicated undertaking. The uncertainty of relationships between new asset owners,

A closely related global hospitality trend, and one

particularly inexperienced Asian investors, and operators is

that contributes to the velocity of M&A, is the growth

also challenging.

4 | FERGUSON PARTNERS

Reaching new traveler segments — especially millennials,

clearly define their strategy and communicate it across

who are driven less by brand awareness and more by a

business platforms and cultures. For senior positions, Boards

hightech, high-touch experience — is increasingly important.

will need professionals who can fill broader leadership roles

Newly prominent guest segments also require new positioning strategies. Outbound Chinese travelers, for

that focus on mid- to longterm strategic initiatives rather than deal flow.

example, are forecast to be the largest global market by

At the mid-level, firms are focusing on identifying

2025, outpacing US, German and UK guests.

professionals with more than one background strength,

Technology also plays a role in sustaining brands as business platforms evolve. The challenge for management is not just to collect data, but to effectively use the information to deliver personalized experiences, as well as maintain the traditional uses of IT to cut costs and enhance productivity. Business leaders will increasingly deal with these issues as social media and other communication channels impact the industry.

LEADERSHIP CHALLENGES GOING FORWARD

typically experience in both operations and brand management or development. There is no surplus of this talent, so in some cases the search will look outside the hospitality industry. As role definitions blur and blend we are seeing more attention on creating robust regional teams where various skill sets can be integrated and a cohesive approach to brand management, operations and technology can be realized. In the C-suite, consolidation and competition across borders and business platforms means that transactions and integration are more complex. As a result, at Ferguson Partners we see demand for leaders who can use the

As the global hospitality industry nears the top of the post-

balance sheet effectively and have strong finance and

global financial crisis upcycle these three trends will only

capital market experience. Again, professionals who couple

intensify. This means opportunities for business leaders

financial expertise with a brand development background

to profit.

are highly sought after, but remain scarce in most regions.

Consolidation and M&A are favored strategies when organic

Business leaders and Boards are also coping with slower

growth begins to decelerate. However, portfolio and entity

overall growth prospects by doubling down on property

acquisitions are tricky and often fail to achieve hoped for

fundamentals. Owners and operators are trending towards

synergies, operating leverage and market share. Additionally,

recruiting general managers with stronger sales, marketing

effectively managing brand development and delivery in a

and yield management skills over the more traditional food

competitive environment is no easy task.

and beverage and operational rooms division experience.

Critical success factors relate largely, although not exclusively, to adding or reallocating talent to the demanding roles that are emerging. Planning for the Future At Ferguson Partners we find that as organizations manage these challenges they benefit from leadership that can

So are asset managers who can execute repositioning and renovation programs.

Sources for this paper include: Hotel Industry Trends and Predictions, HVS, 2015; 2015 Hotel Lender Survey, STR, 2015; Hotel Horizons, PKF Hospitality Research, 2015; Global Hospitality Insights, E&Y, 2015; Hotel Horizons, CBRE, various

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CLIENTS WE’VE SERVED Ferguson Partners is experienced at helping Boards find and secure top talent for mid, senior and C-suite positions. For examples of executives we’ve placed, see the list below.

DiamondRock Hospitality:

InnVest Real Estate:

Board Member

Chief Executive Officer

Chief Investment Officer

General Counsel

Executive Vice President, Asset Management

Fairmont Raffles Hotels International: Executive Vice President, Global Development

FelCor Lodging Trust: Board Members

Four Seasons Hotels and Resorts: Chief Executive Officer President, Asia Executive Vice President, Worldwide Development

Hilton Worldwide: Senior Vice President, Corporate Strategy

Senior Vice President, Asset Management Vice President, Asset Management & Strategy Vice President, Asset Management Senior Director, Asset Management, Limited Service Director, Asset Management, Limited Service Analyst, Asset Management Analyst, Corporate Finance & Strategy Project Management Coordinator

Park Hotels & Resorts: Board Members Chief Executive Officer Senior Vice President, Design & Construction

Steigenberger Hotel Group: Area General Manager, Asia

Walton Street Capital: Vice President, Asset Management

Host Hotels & Resorts:

Xenia Hotels:

Board Members

Board Members

Head of Design, Development & Construction

Chief Financial Officer

6 | FERGUSON PARTNERS

ABOUT FPL ADVISORY GROUP FPL Advisory Group is a global professional services firm that specializes in providing executive search and leadership, compensation, and management consulting solutions to the real estate and a select group of related industries. Our committed senior professionals bring a wealth of expertise and category-specific knowledge to leaders across the real estate, infrastructure, hospitality and leisure, and healthcare sectors. Comprised of three businesses that work together, FPL Advisory Group offers solutions and services across the entire business life cycle: Ferguson Partners: With an emphasis on the right executive fit, Ferguson Partners offers services in executive search and recruitment, as well as leadership consulting. FPL Associates: Focusing on compensation, FPL Associates assists with the assessment, design and implementation of compensation programs. FPL Consulting: Covering a wide array of business needs, FPL Consulting partners with clients to develop strategies and structures to drive competitive performance.

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© 2016 FPL Advisory Group. The Ferguson Partners recruitment practice consists of five affiliated entities serving FPL’s clients around the world: Ferguson Partners Ltd. headquartered in Chicago with other locations in New York and San Francisco, Ferguson Partners Canada Co. in Toronto, Ferguson Partners Europe Ltd. headquartered in London with a Japan branch located in Tokyo, Ferguson Partners Hong Kong Ltd. in Hong Kong, and Ferguson Partners Singapore Pte. Ltd. in Singapore. Ferguson Partners Europe Ltd. is registered in England and Wales, No. 4232444, Registered Office: 100 New Bridge Street, London, EC4V 6JA. Ferguson Partners Singapore Pte. Ltd. is registered in Singapore, Business Registration No. (UEN) 201215619H, Employment Agency License No. 12S6233. FPL Associates L.P., the entity which provides consulting services to FPL’s clients, is headquartered in Chicago.

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