The Hospitality Industry in a Time of Social Distancing: Threat and Opportunity
By Andrew Grenville, Chief Research Officer | August 13, 2020
The hospitality industry faces an unprecedented test with the spread of COVID-19. Hospitality is inherently social. And the necessity for social distancing changes everything.
Maru/Matchbox recently facilitated a conversation with a group of hospitality professionals, to provide a forum for the exchange of ideas and to better understand the revolution currently underway. This group represents a fascinating cross section of the hospitality sector—hotels, food and beverage, resorts, and destination marketing. They are not just facing a challenge; they are grappling with the necessity to revolutionize their business models and their approach to insights.
Three key themes emerged from this discussion:
The only certainty is uncertainty. This has completely upended decision making.
Business models must change because the current ones can’t survive.
This crisis has spurred the industry to band together, to share ideas and best practices.
The Reality is harsh
While many industries are challenged by the COVID-19 pandemic, few are affected as severely as hospitality. Pre-pandemic, Americans spent half of their food budget dining out. That has all but dried up, as people stay home. Consumer spending on travel and tourism, hotel rooms, conferences and weddings has plummeted by two thirds. As a result, share prices in publicly traded hotels have plunged by 60%, according to McKinsey, a consultancy. And the hotel and conference business is not expected to bounce back anytime soon. McKinsey’s modeling suggests it will be 2022 or even 2023 before demand recovers. The situation in restaurants is even more dire.
One model suggests that, with the standard six-foot radius of social distancing, restaurants are only able to generate 11% of total restaurant revenue pre-COVID. Bars can generate only 5% of total bar revenue; and conference and banqueting only 6%. That is not a sustainable situation—especially in an already challenging environment.
As one participant noted, in food and beverage “margins are tight, so there isn’t a lot of safety net” and “It’s not a cash rich industry that can support a shut-down for multiple months.” In this environment, change is not optional—it is imperative.
The only certainty is uncertainty
Planning used to be long term, and data driven. Now the hospitality industry is going “day-to-day” and “hour-to-hour” because “things change on a dime.” As one hotelier explained, “our company was driven around strategy and data and making informed decisions. Now, because things are totally different, decisions are being made very quickly.” That means that “reports that were critical 6 months ago are now at the bottom of a drawer. You have to be nimble and take things one step at a time to keep people safe and well and do the best you can.” In this environment, the question about data is “how quickly it becomes outdated.”
To cope with the need for speed one organization is “trying to do a lot of short, quick surveys. Every Wednesday afternoon we send a survey to ten to twenty thousand customers.” To stay flexible, the questions are decided at the last minute and often “don’t get locked in until Tuesday night.”
Exploring new business models
The only way for hospitality to survive in this time of change is to alter the fundamental business model and rethink the factors that drive a brilliant customer experience. One person noted that, while “this is the time to experiment,” the question is “will consumers let us go there? Can we stretch our equity into that space?” The timely way to find out is to just do it.
A hotel in NYC converted to renting some of their rooms as offices and work/live spaces. They strive to keep their residents engaged by offering in-room workout equipment, providing virtual workout classes, and offering socially distanced curated walks through Central Park. A restaurant pivoted their customer service model from buffets to delivery and cafeteria-style serving. Another facility in NYC found that its building near a university hospital filled with healthcare workers who had come to provide assistance and, as the initial disaster abated, they unearthed a unlikely new source of clients: people who were coming for plastic surgery after too many hours staring at themselves on video calls.
The changes forced by the COVID-19 crisis cut to the core of hospitality. As the destination marketing leader noted, “We sell urban vibrance. People being in the same place at the same time for theater, sports, bars, and nightlife. That’s what is at risk right now, the essence of the experience.” For the buffet, changes cut to the heart of their brand. “’All you can eat’ is a feeling you can’t replicate. Simply by serving someone you’re not meeting that aspirational need. It’s tricky.”
The need for change and for continually adapting to shifting rules and regulations has one upside: organizations are taking a “we’re in this together” approach.
Banding together to share best practices
A crisis often brings out the best in people. In this case, COVID-19 is pushing the hospitality industry to rethink how to be hospitable in a pandemic. As one person explained, “it’s a small industry with regard to talent having worked together. We’re all trying to get through this.” Everyone feels “a responsibility to share ideas” because “there are a lot of employees dependent upon overall success. We need to all stick together to get past this.”
This roundtable was a great opportunity to identify common challenges and share ideas.
Opportunity in crisis
It is sobering to reflect on the impact of COVID-19 on the hospitality industry. But where there is a crisis, there is an opening for innovation and transformation. As former Chicago mayor Rahm Emanuel said, “Never let a serious crisis go to waste. …it’s an opportunity to do things you think you could not do before.”
To keep tabs on the pulse of the rapidly evolving hospitality landscape in the pandemic, visit our COVID-19 research hub for more insights.