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Contemporary Trends in Hospitality Industry Report


Abstract

This paper is a report on the external analysis of a hospitality organization which is currently in business. In the context of this paper, Hilton Worldwide will be chosen as the case study subject. In the paper, all contexts of external analysis will be looked at. They include external factors which influence the marketing environment like social changes, competition and the inflow of customers.

The paper will start by briefly discussing the organization’s background, performance and business strategy. A detailed competitor analysis will then be conducted. After this it will evaluate the position of the chosen organization in the marketplace and lastly check into some of the contemporary trends in the macro environment and also how the task environment might tend to affect the organization in general.

Organization background

Hilton Worldwide is an evolution from the former “Hilton Hotels Corporation”. The organization is a globally acclaimed hospitality company that is owned by a private entity known as the Blackstone Group. The company has over 3000 hotels with over 500,000 rooms spread across 77 countries.

Due to its wide nature the company is involved in the management and franchising of quite a variety of brands like the Hilton and Conrad hotels, embassy suites hotels , the Waldorf-Astoria collection among other brands. The diagram below shows a standard Hilton hotel bedroom.

A standard Hilton hotel bedroom

The company was founded in 1919 by Conrad Hilton, in Cisco, Texas. It’s headquarter since then to the year 2009 has been in Beverly Hills, California. It moved to Virginia in august 2009. Owing to its diverse nature, this paper will only be limited to the Hilton Hotels brand. This group has about 500 hotels which are franchised, managed or owned by independent operators through the “Hilton Hotel Corporation” (Gibbs 1997).

The hotel chain almost came to an end during the great depression but efforts from Conrad Hilton thereafter made him buy more hotels including one in New York thus becoming the first coast to coast chain of hotels in the county.

In the expansion of the business empire, the hotel ventured into the online business in 1987 by launching of the website www.hilton.com which was involved in advertising, reservations, offers, programs about the hotel and disbursement of general information about the hotel.

The hotel’s management bought other property other than hotels which included Bally Entertainment which eventually made Hilton the largest company in the United States which was involved with Casino gaming.

This was later put aside as a different group. The company has over the years been involved with buying and management of a variety of other properties like the Hilton Waikoloa Village in Hawaii among others (Goldgaber 1997).

This is one of the business strategy that the hotel chain has used to maintain its diverse business interest including taking advantage of the big name that the company boasts. The following are photos of the prestigious Hilton Waikoloa village in Hawaii.

Hilton Waikoloa village in Hawaii Hilton Waikoloa village in Hawaii

In some recent years, Hilton developed a different strategy which was to affect the standards of the brands. This was the strategy of the independent hotels establishing their own rates as long as the process remained consistent in all channels. Hilton has grown to be among the leading hospitality industries in the world today (Hilton 1957). Here is one of the beautiful photos of the Hilton

Hilton

Business strategy

In the earlier stages, Hilton had dedicated too much focus on real estate ownership. In the recent past, the trend has changed to more operational focus being targeted to franchisees.

This has really helped in improving the strategy of growth for the company which has now been targeting to increasing its operational base through this area. Through this method, the company has been able to generate more and more revenue without incurring any expenditure on constructions and purchases of real estate.

The increment in the number of franchisees is a critical method which has been able to maintain the stability of the company in that it continuously enjoys a revenue inflow.

This is a very important shield in the maintenance of the company and also as a protection against downturns. There are several reasons which can make the revenue of a hotel to keep fluctuating (Goldgaber 1997). A good example of the Hilton franchise is the island loses shown below.

Hilton franchise is the island loses

The key factor that can make the revenue to fluctuate is the number of customers that get into that particular hotel. This means that whenever people traveling to a particular region decline in number, hotels suffer from decreased revenue.

The advantage of franchising is that the revenue of the hotel remains constant when the hotel has been franchised in that even if there is a decrease in the number of customers coming into the hotel, the fee is standard and fixed. This makes the strategy of franchising the brand name a good income earner for Hilton.

The hotel industry is also vastly affected by ripples which increase airfare. This is because the customer is affected on the amount that he/she can spend in any particular hotel. The strategy which Hilton has employed to avoid this is the target of business class travelers who are not affected much the changes in the airfare as they seem insignificant.

The only way that the company gets affected on the revenue coming from this group of travelers is a slowdown in the economy like during the great depression or the recent economic recession (Higley 2001). All the above factors combined have made Hilton to have a very high growth rate.

Performance

The main areas which have been involved in the key performance of the company include: the vast number of the hotels and the rooms in the hotels, the rates of the occupancy in those rooms which overly is determined by the geographical process. The number of hotels which have been owned by the companies which are franchised by Hilton and the ever increasing room capacity is a good indicator of the expansion of the hotel in capacity.

The table below is a good example of how the company has been steered by the above mentioned factors as the key drivers of business. The diagram below is the logo of the hotel which has played a big part in brand maintenance.

The logo of the hotel which has played a big part in brand maintenance

Historical performance of Hilton

Year 2003 2004 2005
Number of Hotels 2173 2259 2800
Number of Rooms (Thousands) 348 358 475
Geographical Presence (countries) n/a n/a 80
Occupancy Rate (percent) 68.2 71.3 73.8
RevPAR (USD) 85.51 93.16 104.1

The hotel has continued to increase its hotels over time. At the end of the year 2005, it was the world’s largest known lodging facility (Binkley and Neal 1999). The rates in the rooms have also been seen to be in a gradual increaser which is a clear indicator that the hotel has been advertising and selling its rooms in a very good way.

Competitive analysis

The Hilton Hotel group has been known to be competing with a number of global companies main among them being; the intercontinental hotels which is based in France, the Marriott international, starwood among others. Competition is based on some success factors when it comes to the hotel factor of the hospitality industry.

The key criteria which is used to judge the success of the hotels is how attractive the hotel rooms are, the quality of the rooms which has to go hand in hand with the types of services that are offered in the rooms. Lastly in the criteria for success is the global operation of the specific companies. The diagrams below show the Hilton hotels in Texas.

Hilton hotels in Texas Hilton hotels in Texas

On the part of the Hilton hotel, it has made its presence felt in the whole of the United States and more so, it has been constantly involved in global expansion programs which have made the company to have a very strong global presence. A good example of the global programs is the acquisition of the Hilton International in the U.K in the year 2006 which made its presence felt in that country (Picker 1998).

Another grand acquisition was Destination Properties in Thailand which is one of the leading real-estate-developers in the country where they signed an agreement for managing a new golf resort with a capacity of 358 rooms. The following diagram is a paining at the Hilton capital center

Hilton capital center

In a bid to grow, the chain of hotels has had a lot of monetary support from franchisee based processes. In this way, it is able to get revenues without spending a coin. This has made the company to be able o buy and also constructing more hotels. This has gone ahead to make the company improve in its brand name and thus more revenue rather than concentrating on real estate development.

Here below is a table depicting the performance of the company in relation to some of the competitors. Below is a depiction of a painting by Linda Dautreuil showing the culture at Louisiana. You can also follow the following link to show the great works at Waikiki Hilton.

Hilton capital center

A comparison of Hilton to its competitors

Starwood Hilton Marriot Intercontinental
Number of hotels 871 2,935 2,832 3,600
Room number (Thousands) 266 501 514 538
Geographical presence (countries) 100 78 68 100
Occupancy (percent) 71.2 72.5 74.4 n/a
Daily average rate (USD) 191.56 115.43 153.99 n/a
RevPAR (USD) 136.33 82.46 114.61 n/a

As much as this hotel can boast of very many hotels as compared to its key competitors, its rates of occupancy and that of the daily average is lower in comparison. At the same time, some other competing companies like the Starwood and also the Marriot have a 7% growth in CAGR in the 2002/2006 period whilst the Hilton has 3.7% growth in the same. The diagram below shows some of the property tabulation.

Hilton properties

Porter’s five forces analysis

Threat of new competitor

This will less likely have a big effect on the Hilton due to the fat that the hotel has grossly established itself over years. The number of rooms in the hotel and the level of occupancy owing to the diverse bed capacity are hard for any new company to surpass. The brand name will help the company to beat new entrants and maintain profits (Porter 1980).

Competitive rivalry

There is stiff competition from some major hotels like the Starwood which is likely to affect profitability. The company has to focus more on the improvement of its current rates and terms and also the attractiveness of its facilities to get more customers (Porter 1980).

Substitute products/services threat

This is less likely to have an impact on the hotel due to the fact that the services being offered cannot be substituted in any way. It is not possible to switch to other means other than eat, spend and sleep in a hotel once you are visitor to a place (Porter 1980).

Customers’ bargaining power

Customers have little say on this because it is a place where people go out of choice. The target of up scale business travelers helps the Hilton with avoiding being much concerned with the lower standards thus escape bargain (Porter 1980).

Suppliers’ bargaining power

This is a field which can affect profitability of the company since they have to be in the company. If the cost of material or labour goes up, then there will be a decrease in profitability to the company. This cannot be controlled by the company and is upon the external environment to decide (Porter 1980).

Environmental Analysis: macro trends and tasks affecting hospitality industry

There are various issues which have affected the hospitality industry. Terrorism, disease outbreaks, politics and various other uncertainties are some of the critical external factors. Changes in technology through the never ending have also been key factors which have led to this (Moore 1985).

Socio cultural forces

After food and the automobile industry, the tourism industry follows suit closing the list of the three largest industries in the United States. Tourism and travel tops the employers list and also the export services and is also among the top industries in retails.

This industry is also interrelated with other industries which deal with rental services and all other forms of transports like air and cruises, lodging facilities and much more others. The growth of the industry is also going at a very high rate worldwide.

Earnings and revenue amongst the various firms involved in the industry at times go on moveing downwards due to changes in the way people are willing to spend. This has resulted fro more travelers willing to spend much of their pleasure travel within their boundaries. This is due to money issues as most people get affected y the financial question.

Economic forces

Economic forces have also vastly affected the industry. Some of the major factors are terrorism and the Iraqi war, the increase in the prices of oil, and much more devastating factors.

When factors like these go hand in hand with issues like global recession, people spend way less and thus the hospitality industry suffers a very big blow. This is mainly due to a weak and a decrease in the growth of jobs and wages. This situation narrows down the rate of occupancy and can only improve once these conditions stop having an effect to the people.

With an increase in security, projections have shown that the rates of occupancy for hotels which have a chain mode of business will be on the rise in the coming years. When the economy of the country picks, the hospitality industry increases the numbers of its business travelers.

When people are encouraged by the right sources to take vacations in areas that are close to their homes, there tends to be a decrease in the RevPAR and a subsequent increase in the occupancy rate at the national level.

Some industries like the; lodging industry have been the worst affected though such improves with an improvement of the economy. When this happens, there is a return on the capital in overall for the hotel (Gibbs 1997).

Political forces

Some new regulations in the country in where foreigners who require to work in the US have had a more strict regulation in the processing of the visa which is coming with a great negative impact. Negative economic conditions and politics in air travel have had pricing in the lodging industry o go down.

There is a decrease in international travel owing from security concerns and threats. Many tourists often postpone their plans of paying a visit to the US and other countries after they hear of a planned attack. The instability in the Middle East is another condition that is playing a huge part in this.

The economic situation in the country led by the economic recession has also played a huge part in that there are possibilities that this can cause an increase in the taxation to the industry thus becoming a great layoff. This has led to a further decrease in revenues (Lubove 1999)

Legal factors

Legal provisions like the introduction of smoke free hotels in various places are a deciding factor on the down trend. It has been argued that the introduction of such laws will lead to a decrease in revenues due to decreased umber of customers. These discussions have been there since the inception of the smoke Free states. The effect of this can be avoided by provision of more areas which allow smoking (Lee 1985).

Technological forces

Many hotels aim at improving their standards of technology in a bid to attract more customers. Such has been evident in the Hilton and other big hotels which have gone ahead to install very fast wireless internet in their hotels. More hotels are now capable of actualizing the online booking system in a method that is slowly proving to be very powerful (Moore 1985).

Conclusion

Throughout the paper, there has been a detailed discussion of various aspects that can affect a hospitality industry with the Hilton chain of hotels be the study case. Factors like competition from other similar industries play a major role though the external environment is another critical deciding factor. The reader can use the information to understand some of the trends that affect this sector.

References

Binkley, C. and Neal T. (1999) Hilton Agrees to Pay $4 Billion for Promus, Wall Street Journal, September 8, 1999, p. A4.

Gibbs, F. (1997) Hilton Hotels Corp.: The Sleeping Giant Wakes, National Real Estate Investor, February 1997, pp. 40-41.

Goldgaber, A. (1997) Honeymoon Hotelier: Hilton’s Stock Quickly Doubled after Stephen Bollenbach Took Over as CEO, Financial World, January 21, 1997, pp. 34-37.

Higley, J. (2001) Bollenbach: Hilton’s Portfolio Set for Long Haul,” Hotel and Motel Management, February 19, 2001.

Hilton, C. (1957), Be My Guest, New York: Prentice-Hall Press.

Lee, D. (1985) How They Started: The Growth of Four Hotel Giants, Cornell Hotel & Restaurant Administration Quarterly, May 1985, pp. 22-32.

Lubove, S. (1999) Hilton’s Head, Forbes, March 8, 1999, p. 50.

Moore, T. (1985) Barron Hilton Fights for Hilton Hotels, Fortune, May 27, 1985.

Picker, I. (1998) Saying Good-bye to ITT, Institutional Investor, January 1998, p. 91.

Porter, M.E. (1980) Competitive Strategy, Free Press, New York.

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IvyPanda. "Contemporary Trends in Hospitality Industry." June 10, 2019. https://ivypanda.com/essays/contemporary-trends-in-hospitality-industry/.

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IvyPanda. 2019. "Contemporary Trends in Hospitality Industry." June 10, 2019. https://ivypanda.com/essays/contemporary-trends-in-hospitality-industry/.

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IvyPanda. (2019) 'Contemporary Trends in Hospitality Industry'. 10 June.

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