Category: Trends

The Necessity of Error Management Training in the Hospitality Industry

March 20th, 2019 in Business Practices, Hotels, Restaurants, Trends, Winter 2019 0 comments

By Priyanko Guchait

Mistakes and errors come in all shapes and sizes. In 2015, a number of major hotel corporations fell victim to cyber breaches. Hyatt Hotels Corporation’s payment processing system was breached and affected 250 hotels in about 50 countries. In that same year, data security incidents also occurred in Hilton Worldwide Holdings Incorporated and Starwood Hotels & Resorts Worldwide Incorporated. Similarly, 2015 was also not kind to the restaurant segment of the hospitality industry (Chipotle Mexican Grill) where a series of outbreaks, including Norovirus, E. coli, and Salmonella Newport, sickened more than 490 people. While these negative incidents sound extreme, they often occur as a result of ignoring minor mistakes and errors that occurred earlier.

What is more damaging is that such errors and mistakes are not always reported and documented, and thus no measures are taken to prevent them. As a result, over time, these problems become bigger and bigger, leading to critical incidents with extreme negative consequences. While these more critical incidents make it to the news and tarnish the reputation and business of the companies, there are many other seemingly smaller mistakes and errors that occur in the hospitality industry very frequently such as overbooking, dirty rooms, incorrect reservations, incorrect billing, serving the wrong food, food safety errors, recipe errors etc.  If these problems are not managed, these small mistakes and errors will become more critical and damage the good name or ruin the business of companies as well.

The Need for Error Management Practices:

Hospitality organizations are faced with the possibility of errors, mistakes, and failures every day. The negative consequences these can produce include stress, accidents, loss of time, faulty products, quality and performance problems, negative word-of-mouth, customer dissatisfaction, increased costs, and loss of revenue. Since it is the duty of managers and owners to protect the profit margin, taking a proactive approach to mitigate these mistakes and errors is often attempted in organizations by the use of sophisticated technologies, rigid systems, and strict policies focused on controlling employee behavior.

However, the truth is that total elimination of errors is impossible, and it is very difficult to predict what and when specific errors will occur. Error results from physiological and psychological limitations of humans. In hospitality organizations, often times errors occur because of the very nature of the work (high work load, time pressure, fatigue, poor interpersonal communications, imperfect information processing, and flawed decision-making). Errors may also occur due to equipment malfunction and through no fault of an individual, but still the individual may be responsible to resolve the error. Errors can also happen anywhere in a hospitality organization, with external errors involving customers – both front of house (e.g. checking guests into rooms that are not cleaned), back of house (housekeepers forget to report items that need repairs) – and internal errors involving employees, managers, and department (incorrect accounts billings and payments, or scheduling errors resulting in inferior customer service). Therefore, it is important that hospitality organizations not only focus on error avoidance, but also on error management.  In other words, management and owners need to start asking the question of “what needs to be done after an error has occurred.” Error management is an approach that attempts to deal with errors and their consequences after an error has occurred. It is essential that organizations, managers, and employees develop this mindset that even after meticulous planning and training, things can still go wrong, and people need to be prepared to contain and resolve the problem, continue to provide the best service to guests, and learn how unexpected events can cause errors.

Minimizing Negative Consequences; Increasing the Positive:

Error management is both error prevention and error containment as it focuses on minimizing the negative consequences of errors by early detection, quick error correction, and on preventing similar errors in the future by analyzing the causes and learning from errors. Open communication about errors is a critical error management practice, as it allows for the development of shared understanding about errors, potential error situations, and effective error handling strategies. Many quality-award winners such as Ritz-Carlton use error management strategies – first, they make efforts to identify the errors (service failures) and then resolve the customer problems (service recovery), next they use error data to make decisions on process improvements to increase customer satisfaction in the future.

Therefore, for a successful operation, error management is crucial as it focuses on decreasing negative consequences (e.g. time loss; customer dissatisfaction) and increasing positive consequences (e.g. learning and innovation). The goal of error management is for employees to exhibit positive behaviors to handle the situation rather than panic, get stressed, blame others, or freeze, so that they can correct errors quickly and effectively, learn from the situation, seek feedback, share information so others can learn, and anticipate errors to handle it proactively in the future. However, while error management has proven to be prevalent and useful in aviation, manufacturing, and medicine, it has a notable potential positive impact in the hospitality industry. Research has demonstrated that error management practices influence organizational performance positively, irrespective of industry, and it also affects employee outcomes such as reducing job stress, increasing service recovery performance, exhibiting more helping behaviors, increasing engagement and creativity, and lessening turnover intentions in the lodging and food-services contexts/industry.

Advocating for Error Management Training:

Conventional training usually focuses on teaching the correct way to perform skills during training. Traditionally scholars and practitioners have focused on two types of training which are based on a negative perception toward errors, which considered as consequences of poor analysis, design, and lack of prerequisite behavior. The first type is errorless training. Errors are not mentioned in the errorless training process, because it is believed that error is not necessary for learning to occur. Instead, the focus of the training is to train employees to strictly follow the rules. Information regarding how to handle the potential error situation is not mentioned in the training process. In other words, the trainees are not exposed to any error-related elements as if errors didn’t exist in the workplace.

The second type of training is error avoidance training which is designed to prevent errors from occurring, and participants are not informed about the positive functions of errors. Trainees are encouraged to avoid making errors during the training process. Step-by-step instructions are provided to guide trainees to learn in an error-avoidant way. In both these training types, errors are framed as indicators of failure and lack of competence. Since errors are interpreted as having a negative effect on learning, it leads to self-doubt, dissatisfaction, stress and frustration among employees.

Researchers have recently become interested in investigating the effectiveness of error management training (EMT). This training type considers errors as a natural by-product of active learning and recognizes the potentially positive functions of errors. EMT acknowledges that workers will invariably commit errors for a variety of reasons. Errors are inevitable in the hospitality industry and often service providers do not know how to manage the error once it occurs. Error management training prepares employees to anticipate error occurrence and take preventive measures proactively to stop errors from happening and also prepares employees on how to manage and resolve errors effectively and efficiently once it occurs. According to EMT principles, training programs should not be designed to restrict error occurrence but rather should incorporate errors and train for them. EMT is predicated on the assumption that trainees should learn how to deal with errors rather than to avoid them.

The goal of EMT is to help trainees redefine errors as learning opportunities for which emotional and cognitive coping strategies are available. Errors are reframed as beneficial occurrences rather than stressful calamities. Errors are especially important in the training and learning process in that error can have an informative function for the learner, as they pinpoint where knowledge and skills need further improvement. The central premise of EMT is that the learning of complex cognitive skills is best accomplished in environments where trainees can actively engage in exploration, problem solving, hypothesis testing, making mistakes, and learning to recover from mistakes. EMT is likely to increase employee knowledge and by attending to errors and learning error management techniques, trainees are likely to have a deeper understanding of the job, process, and task knowledge than would otherwise be possible. Increased knowledge and understanding may reduce the risk of committing similar errors in the future.

Error management training leads to transfer performances. Transfer implies that knowledge, skills and attitudes are transferred from one task or job to another. Two types of transfer can be distinguished: (a) Analogical transfer refers to problem solutions that are familiar or analogous, and (b) adaptive transfer entails using one’s existing knowledge base to change a learned procedure, or to generate a solution to a completely new problem. From a practical perspective, adaptive transfer is more relevant in the hospitality industry because of the characteristics of the service products (e.g. simultaneity of service product production and consumption, coproduction of service product between customers and employees) and because errors are inevitable. For example, in a hotel, not all complaints of guests could be foreseeable during orientation. Back on the job, however, employees (trainees) may encounter unexpected problems while dealing with guests’ complaints and, in contrast to the protected training situation, might not have any Passistance at all. Therefore, employees are more likely to come up with unique solutions to unique problems and be more prepared and competent to handle difficult situations.

Scholars have noted three processes through which EMT can impact performance: emotional, cognitive, and motivational. Researchers found empirical support for the notion that EMT increases employees’ tendency to use two self-regulatory skills: Employees learn to exert “emotion control” aimed at reducing negative emotional reactions (e.g., stress, frustration) to errors and setbacks, and they engage in activities that involve planning, monitoring, and evaluating one’s progress during task completion and revision of strategies. Such activities are instigated because errors prompt learners to stop and think about the causes of the error and to experiment with different solutions. Finally, EMT creates a mind-set of acceptance of errors (high error tolerance) which can help to increase employee motivation.

EMT will be more effective in improving task and recovery performances (error identification, resolution, containment) compared to error avoidance or errorless training. Compared to employees who receive errorless or error avoidance training, employees who receive EMT will demonstrate high task and recovery performances because these employees are more likely to: (a) control negative emotions after failures/errors/mistakes and stay focused on the task (emotional process); (b) understand sources and causes of failures and come up with new solutions and improved procedures (cognitive process); and (c) be intrinsically motivated to deliver superior task and recovery performances (motivational process). Therefore, employees who undergo EMT are more likely to demonstrate increased knowledge, better task and recovery performances, and enhanced motivation and moods compared to traditional training methods.

Lessons for Hospitality Leaders:

Managers/trainers need to note some characteristics of EMT. Error management training aims to improve transfer performance, not training performance. In fact, training performance may be worse in error management training in terms of error rate, efficiency, or training time because participants are not directly guided to correct solutions. Instead, employees experiment, explore, make errors, and sometimes arrive at wrong solutions. Thus, managers need to hold a more positive view towards errors during the training process. Finally, when assessing the training effectiveness, the managers should not only focus on the evaluation at the end of the training process, but also how the training results have been applied to the work setting in the future. Compared to errorless and error avoidance training methods which concentrate on the problem solutions that are analogous to training process, the error management training focuses on the generation of new solution to new/unexpected problems.


PDF Version Available Here.


Key References
Frese, M., & Altmann, A. (1989). The treatment of errors in learning and training. In L. Bainbridge & S.A. Ruiz Quintanill (Ed.), Developing Skills in Information Technology. (pp. 65-87). New York: Wiley.
Frese, M., Brodbeck, F., Heinbokel, T., Mooser, C., Scheiffenbaxim, E., & Thiemann, P. (1991). Errors in training computer skills: On the positive function of errors. Human Computer Interaction, 6, 77-93.
Frese, M., & Keith, N. (2015). Action errors, error management, and learning in organizations. Annual review of psychology, 66, 661-687.
Guchait, P., Neal, J., & Simons, T. (2016). Reducing food safety errors in the United States: Leader behavioral integrity for food safety, error reporting, and error management. International Journal of Hospitality Management, 59, 11-18.
Keith, N., & Frese, M. (2005). Self-regulation in error management training: Emotion control and metacognition as mediators of performance effects. Journal of Applied Psychology, 90, 677–691.
Nordstrom, C. R., Wendland, D., & Williams, K. B. (1998). “Tor err is human”: An examination of the effectiveness of error management training. Journal of Business and Psychology, 12, 269-282.
Guchait, P., Simons, T., & Pasamehmetoglu, A. (2016). Error Recovery Performance: The Impact of Leader Behavioral Integrity and Job Satisfaction. Cornell Hospitality Quarterly, 57, 150-161.
Van Dyck, C., M. Frese, M. Baer, & S Sonnentag. (2005). Organizational error management culture and its impact on performance: A two-study replication. Journal of Applied Psychology, 90, 1228-1240.

Priyanko Guchait, PhD. is a tenured Associate Professor in the Conrad N. Hilton College of Hotel and Restaurant Management at University of Houston. He is an innovative researcher and hospitality educator. Dr Guchait is the author of more than 40 peer-reviewed journal articles, book chapters, conference proceedings and magazines. Dr. Guchait currently teaches Human Resource Management, Leadership, and Organizational Behavior at the undergraduate level, and Multivariate Data Analysis at the Ph.D. level. He taught at the University of Mississippi and The Pennsylvania State University before joining Hilton College in July 2012. Dr Guchait currently serves as the dissertation/thesis chair and in committees for Master’s and PhD students. He serves as the faculty advisor of Eta Sigma Delta—the International Hospitality Honor Society. Dr Guchait also serves as the Chair of Innovation lab in the Hilton College. He serves on the editorial boards of journals including IJCHM and reviews for several journals. Additionally, he is currently serving as Director of Marketing for WFCHRIE. Dr Guchait brings three years of work experience in hospitality management to his classroom.
Highlights
  • University of Houston’s 2012-13 New Faculty Research Award
  • Best Paper Award at the Southern Management Association conference in 2013
  • Provost’s Excellence Award in 2015
  • Stephen Rushmore/HVS Faculty Research Award in 2016
  • Best Paper Award at the ICHRIE conference in 2016
  • Best Paper Award at the WFCHRIE conference in 2018
  • Eta Sigma Delta Chapter Distinction Award

Panacea or peril? The implications of Neolocalism as a more intrusive form of tourism

March 20th, 2019 in Hotels, Trends, Winter 2019 0 comments

By Makarand Mody and Kyle Koslowsky

The tourism industry is like a mirror: what it offers often reflects the trends that we see in society more broadly. The tourism industry from 30 years ago is very different than the one we see today. In particular, there has been a renaissance of sorts in the accommodations industry with the emergence of a plethora of alternative lodging experiences. Companies like Airbnb and HomeAway have changed the way tourists immerse themselves in destinations and the kinds of experiences they have while there. It is important to reflect on how these new forms of travel impact the destinations they facilitate and the local populace who reside there. These new tourism experiences increasingly leverage a societal trend towards neolocalism, defined as “a deliberate seeking out of regional lore and local attachment by residents (new and old) as a delayed reaction to the destruction in modern America of traditional bonds to community and family” (Shortridge, 1996, p. 10). Flack (1997) identifies neolocalism as an attempt to reassert the “distinctively local” in response to a landscape increasingly devoid of the unique. When applied to the tourism industry, neolocalism appears in the form of tourists seeking out more “authentic” experiences that enable a deeper engagement with a destination and its locals, spurred by tourism providers that create specific products to cater to these new kinds of needs. In principle, much neolocal tourism rejects the kinds of tourism pursued by the mass tourist, perhaps best evidenced in Airbnb’s “Don’t Go There, Live There” campaign, which borders on disdain towards the habits of the mass tourist—the boat tours on the river Seine, “doing” Paris on a Segway, or taking selfies in front of the Eiffel Tower.

With neolocal travel practices becoming increasingly prevalent, consumer behavior in the United States is in a period of transition. Consumers are moving away from traveling like tourists—in a sanitized predictable environment often controlled by travel intermediaries—to wanting to live and experience destinations like locals do. No longer is traveling to Paris to see the Eiffel Tower enough, the consumer now wants to experience the cafés in Paris that only locals know about or learn about the secret spots of the Montmartre area of the city, spots that are “hidden from the usual tourist paths and crowded places. So, you will see the real Montmartre and you will get the feeling of a real Parisian” (Airbnb Experience – “Discover secret spots of Montmartre”). We argue that neolocalism in tourism, while noble in its ambitions and multifaceted in its benefits, potentially proliferates an unhealthy level of separation between the seer (the tourist) and the seen (the destination and all it has to offer), resulting in a level of intrusiveness that the traditional barriers of mass tourism do well to moderate.

The staged experiences of mass tourism

A tourist traveling to a new destination often has a checklist to cover—that famous landmark that defines the city, that vista that one has to photograph, that local delicacy one has never tried before. These experiences, although extraordinarily standard to the local, are invaluable to the incoming tourist, who will often pay good money for a peek into what locals take for granted. “Tourists can see the world with fresh eyes, unencumbered with the daily accumulations of local life” (Nagy, 2018). The tourist thus enters a destination with a perspective that is often very different than that of the local. John Urry (1992) describes this lens as The Tourist Gaze. This gaze is made up of “unique and distinctive signs that the tourist may collect” on their travels. By its very nature, the tourist experience is one that is intended to be visually spectacular, differentiated from the mundane activities of everyday life. In this gaze, even the most normal act on a new, exciting backdrop creates a memorable experience. Urry describes this ocular phenomenon by saying “many of these gazes are self-consciously organized by professionals,” i.e. the hospitality and tourism industry has acknowledged that the tourist is looking for these specific aspects, and they create experiences to cater to these touristic needs. Enter mass tourism. The professional intermediaries of tourism—moderators of the tourist’s gaze—allow the tourist to experience all that they seek out from the bubble of the tourist resort or the comforts of the tour bus. Such craftsmanship of specific experiences catering to the gaze of the tourist has been alternatively described as “staged authenticity” (MacCannell, 1973).

To cater to the tourist gaze, many tourism destinations established separate all-inclusive locations, creating a staged experience of tourism authenticity while maintaining a barrier between tourists and locals. These areas are often referred to as tourism enclaves, defined as “tourism that promotes all-inclusive facilities and services centred on controlling the cultural and physical environment that tourists experience as part of their stay” (Freitag, 1994). Enclave tourism, a phenomenon dating back to the 1980s, is most prevalent in island destinations. Because of the small geographic size of many of these islands, the need to isolate tourists into a specific locale is essential to the social and economic well-being of the destination’s inhabitants. Tourism enclaves essentially serve as a breakwater to the deleterious effects of rapid tourism growth. This logic applies equally to a small Caribbean island as it does to New Orleans’ French Quarter. While keeping the annoyances of tourism away from the daily lives of locals, an enclave approach to mass tourism development also presents its own share of problems—lack of local entrepreneurship in tourism, repatriation of tourism dollars to non-local owners and intermediaries, an excessive reliance on tourism in certain destinations, inauthentic intercultural contact, inequitable distribution of resources for tourism over local consumption (for example, locals not being able to access a beach due to a large number of tourists, as in Mallorca), environmental damage due to concentrated tourism activity, among others.

While the staged authenticity of mass and enclave tourism still remains a significant component of the industry, there has been a rapid growth in what Stanley Plog (1974) labeled the allocentric traveler—risk-taking, adventure seeking individuals who like to travel outside the confines of the tourist bubble and experience a destination like someone living there would. The search for the authentic in a world of the staged has made “tourist” a bad word. Instead, one seeks to be a “traveler”, a sexier antithesis to the one who seeks the standardized, cookie-cutter offerings of mass tourism and the tourism enclave. The traveler seeks out the neolocal in tourism.

Neolocalism—an emerging movement

So, what is neolocalism and why is it important? Neolocalism is perhaps the most recent corollary to a much longer trend of tourists not wanting to be seen as tourists. Instead, individuals want to travel in a manner that allows them to have more immersive, meaningful experiences, to the extent that they blend into the landscape of the destinations they visit. The roots of the neolocal movement in tourism can be traced to the call for more sustainable forms of tourism development in the 1980s, and its more recent manifestation of responsible tourism. In addition, a greater mainstreaming of counterculture trends—anti-hyper-consumerism, sharing over ownership, the search for well-being and self-actualization, the need for authentic connection in a hyper-connected world—have embedded the socio-cultural foundations for the neolocalism in tourism. Consequently, the clear and growing self-guilt of being seen as a tourist, an outsider, is best highlighted by MacCannell (1973):

“Touristic shame is not based on being a tourist but on not being tourist enough, on a failure to see things the way that they “ought” to be seen”.

As a response to this rejection of the role of the tourist, travelers are no longer following the path set out for them by travel intermediaries but are instead searching for authentic, locally embedded travel experiences. Enter companies like Airbnb, which have expertly leveraged technology and the power of crowdsourcing to enable access to the neolocal in tourism. Take Airbnb Guidebooks for example. Guidebooks are a collection of all the best places in every city, as told by Airbnb hosts—a way for travelers to “discover a city according to locals”. withlocals is another example of a platform that connects travelers with locals through food and experiences, allowing travelers to get “off-the-beaten track”. In addition, neolocal intermediaries such as KimKim, a company that connects travelers with local travel companies at destinations, are enabling access to a world of experiences that were previously outside the purview of the tourism enclave and typical mass tourism itineraries. In this regard, Tussyadiah and Pesonen (2016) found that the unique local experiences in atypical tourist neighborhoods drive tourists who stay at peer-to-peer (P2P) accommodations to explore the destinations more by staying longer. Similarly, Mody et al. (2017) found that in addition to the traditional dimensions of Pine and Gilmore’s concept of the experience economy, Airbnb enabled travelers to experience a greater sense of localness, communitas, serendipity, and personalization than in the case of hotel accommodations.

In theory, neolocalism has many benefits, many of which directly counter the perils of mass and enclave tourism, such as: enabling closer cultural interaction and thus a more educational experience for the tourist—mediating globalization through tourism (Brain, 2011), spreading tourism dollars to beyond the tourist zone—providing jobs, increasing community involvement in tourism and local pride (Gotham, 2005; Murray and Kline, 2015), encouraging local consumption patterns and support for local causes and charities (Graefe et al., 2018), redefining understanding of sense of place and identity construction (Cavaliere & Albano, 2018), and generating support for conservation and environmental stewardship, among others. However, the fact remains: despite its potentialities, research on the effects of neolocalism in tourism is scarce, other than that in the context of craft beer tourism. Instead, anecdotal evidence emphasizes the negative and unintended consequences of neolocalism in tourism, particularly in the context of tourism enabled by P2P intermediaries like Airbnb.

Neolocalism—(NOT) a solution to perils of mass tourism!

As several destinations are already struggling to cope with the challenges of overtourism, the introduction of neolocal forms of tourism, disseminating crowds of “travelers” away from the safety and security of already established tourist enclaves, often creates challenges that locals, businesses, destinations management organizations (DMOs), governments and policymakers are unable or unprepared to handle. The repercussions of this unpreparedness are multifold.

For destinations, there have been instances of local identity being distorted or lost altogether. For example, a mushrooming of short-term rentals through websites like Airbnb has resulted in tourists in New Orleans staying in neighborhoods across the city—instead of being fenced in to enclaves like the French Quarter, sparking a debate over the nuisance caused to neighbors and resulting threats to the city’s soul (Burdeau, 2016). In Ethiopia and Uganda, the wealthy adventurer’s quest for contact with authentic tribes is causing its own challenges in relation to these tribes’ character. Due to their exposure with Western travelers, some of the tribes look and act much different than a few years ago—dressing differently, asking for money, having drinking problems (“The Rise of Experiential Travel”, 2014). The level of intimate contact enabled by neolocal experiential travel is not always a boon to destinations.

With Airbnb’s rapid growth throughout major cities in Europe and the world, Barcelona is one of many destinations feeling the impacts of a travel industry growing faster than the city’s ability to sustain it. From contributing to overtourism to driving rents up and residents out [see, for example, Wachsmuth and Weisler’s (2018) examination of Airbnb-induced gentrification in culturally desirable and internationally recognizable neighborhoods of New York], Airbnb is cited by Barcelona as responsible for a variety of its tourism problems. Regulators have reactively put in place measures in place to slow the growth of homesharing listings (no new licenses for Airbnb rentals are currently being given out in Barcelona), as well as furthering their ability to monitor and punish those who do not follow regulation (with beefed up enforcement squads). However, enforcement of regulation remains a challenge across cities, with some local councils turning to private companies for enforcement (Leshinsky & Schatz, 2018). Meanwhile, local residents bear the brunt of neolocalism’s impacts, wading through crowds not only at tourism honeypots such as Las Ramblas and La Sagrada Familia, but also through traditionally quiet neighborhoods. Finding one’s once humble café being gentrified to serve tourist-oriented fare, to the meme-ification of physical spaces on Instagram, causing sharp increases of phone-wielding tourists hoping to “live local”, neolocalism has long-term consequences for actual locals’ lives (Spinks, 2018). In fact, neolocalism-oriented companies like Airbnb have acknowledged that the pursuit for neolocalism is transforming many neighborhoods around the world, and many before they are fully ready for mass tourism (Peltier, 2018).

Beyond destinations, travelers have often found themselves in challenging situations in their pursuit of the neolocal. For example, several Airbnb guests have received instructions from hosts telling them to conceal their identity as tourists so as to not expose the illegal listing to vigilant neighbors. This creates an uncomfortable environment for guests as it places them in not only an awkward but possibly illegal situation that they were not prepared for. Moreover, it’s simply unpleasant to book an Airbnb only to find that residents don’t want you there. Travelers have also been at the receiving end of horror stories involving physical harm, hidden cameras in bedrooms, discrimination, scams, and units that just didn’t match up to what they promised online. Traveling outside the predictable environmental bubble of mass tourism opens up a whole host of challenges that stakeholders are still grappling with.

If living like a local isn’t the answer, then what is?

While we are only beginning to wrap our heads around what the neolocal means for tourism, we stand to argue that everything is not all rosy, as the lofty rhetoric of neolocalism often suggests. Neolocalism is not and cannot be a panacea to the world’s tourism-related problems and challenges. At the same time, it is unseemly to make companies like Airbnb a scapegoat for often-inherent systemic problems that destinations like Barcelona and Rome face when it comes to their tourism industries. Instead, one must acknowledge that Airbnb is simply an exemplar, a reflection of society’s (apparent) need for connection with something deeper than the superficiality of mass tourism’s fleetingness. Our hope is simply to stir a debate around the “relatively new lack of separation between touristic and local life” (Spinks, 2018) enabled by neolocal forms of tourism. With international tourist arrivals expected to reach 1.8 billion by 2030, it is imperative that the confluence of mass tourism and neolocal tourism be managed effectively. This requires actors on both the supply and the demand side of neolocal tourism to act responsibly.

On the demand side, it requires sensitivity and thoughtfulness on behalf of the tourist to recognize the potential intrusiveness of their quest for the neolocal. For example, understanding the deleterious effects of using a not-typical tourist destination like Nashville as a “bachelor party” destination can go a long way in mitigating the nuisance that neighbors have to put up with. Moreover, recognizing that most tourism takes place over too short a duration—4 or 5 days, for example—for one to “live like a local” might make tourists more willingly accept their place as an outsider and the associated and often much-needed separation between touristic and local life. As Nagy (2018) stresses: “Pretending to be a local when you are not is inherently inauthentic”. Instead, he states: “to live like a tourist is to travel more deeply, without being concerned with pure harmony and fitting in. Tourists, especially the new wave of thoughtful, educated and self-aware kind, can double down on the moniker to unlock better and more meaningful days on the road and in the world”.

For the tourism industry, understanding the implications of the products they create and how they communicate with travelers is essential. While placing tourists in the heart of the local makes for a great marketing message, companies like Airbnb need to appreciate and take steps towards reconciling the tension between “traveler locals” and actual locals (Spinks, 2018). For example, while Airbnb has a Responsible Hosting policy that encourage hosts to think carefully about their responsibilities towards tourists, neighbors and the law, there are no guidelines for tourists on how they should behave when accessing some of most private spaces of a destination’s residents—be it their homes or their local religious affiliate. Moreover, for the industry to recognize its responsibility towards other stakeholders at destinations, and working with these stakeholders to manage the negative and unintended consequences of neolocalism, is essential. For example, Airbnb recently created an office of “healthy tourism”, which aims to promote proper tourism growth management across the world (Peltier, 2018).

Tourism suppliers can also look to leverage the power of the neolocal for more sustainable forms of tourism development. For example, Airbnb’s new innovation lab Samara’s first endeavor is a communal housing project designed to revitalize a small town in Japan. The project is deeply entrenched into the local economy—from using local building materials and craftsmen to training locals to serve as hosts to incoming tourists—and looks to leverage the power of the neolocal to bring a miniature tourism economy to a once moribund place (Kuang, 2016). Finally, it is important for suppliers to modulate their “anti-tourist” rhetoric, which is exclusionary and avoids the reality that most visitors spend their hard-earned money to live like a tourist and that’s not a bad thing (Stiker, 2016). For example, Tourists is a 55 acre property in North Adams, Massachusetts that aims to “reclaim and celebrate the beauty of the tourist as someone who removes oneself from the routines of their regular life through travel” (Nagy, 2018). A simple message of welcome to the humble tourist.

In sum, we contend that neolocalism cannot be viewed in isolation of other issues and developments in the tourism industry, such as overtourism. Instead, we argue that, as for the perils of mass tourism, neolocalism’s potential intrusiveness into the lives of locals needs to be carefully managed. As travelers, we must not be ignorant of the results of our choices and our actions. This mentality of conscious travel has been apparent in sustainable and ecotourism for many years, but our considerations today go beyond the natural environment and pertain to the destination’s cultural and social landscape as well. So, as you embark on your next vacation, remember that it’s not a bad thing to be a tourist and not seek out the hyperlocal. After all, as George Bernard Shaw famously said: “I dislike feeling at home when I am abroad”.


PDF Version Available Here.


References
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Mody, M.A., Suess, C. and Lehto, X. (2017), “The accommodation experiencescape: a comparative assessment of hotels and Airbnb”, International Journal of Contemporary Hospitality Management, Vol. 29 No. 9, pp. 2377–2404.
Nagy, C. (2018), “No Need to Live Like a Local: All Tourists Welcome”, Skift.
Peltier, D. (2018), “Airbnb Launching an Effort to Address Overtourism It Helped Create”, Skift, available at: https://skift.com/2018/04/17/airbnb-launching-an-effort-to-address-overtourism-it-helped-create/.
Plog, S. (1974), “Why Destination Areas Rise and Fall in Popularity”, Cornell Hotel and Restaurant Administration Quarterly, Vol. 14 No. 4, pp. 55–58.
Shortridge, J.R. (1996), “Keeping Tabs on Kansas: Reflections on Regionally Based Field Study”, Journal of Cultural Geography, Routledge, Vol. 16 No. 1, pp. 5–16.
Spinks, R. (2018), “The ‘live like a local’ travel ethos has failed-the question is what will replace it”, Quartzy.
Stiker, M. (2016), “Why ‘Live Like a Local’ Marketing Is a Slap in the Face of Most Travelers”, Skift.
The Rise of Experiential Travel. (2014). Available at: https://skift.com/wp-content/uploads/2014/06/skift-peak-experiential-traveler-report1.pdf.
Tussyadiah, I.P. and Pesonen, J. (2016), “Impacts of Peer-to-Peer Accommodation Use on Travel Patterns”, Journal of Travel Research, Vol. 55 No. 8, pp. 1022– 1040.
Urry, J. (1992), “The Tourist Gaze ‘Revisited’”, American Behavioral Scientist, SAGE Publications Inc, Vol. 36 No. 2, pp. 172–186.
Wachsmuth, D. and Weisler, A. (2018), “Airbnb and the rent gap: Gentrification through the sharing economy”, Environment and Planning A: Economy and Space, SAGE Publications Ltd, Vol. 50 No. 6, pp. 1147–1170.

Makarand Mody, Ph.D. has a varied industry background. He has worked with Hyatt Hotels Corporation in Mumbai as a Trainer and as a Quality Analyst with India’s erstwhile premier airline, Kingfisher Airlines. His most recent experience has been in the market research industry, where he worked as a qualitative research specialist with India’s leading provider of market research and insights, IMRB International. Makarand’s research is based on different aspects of marketing and consumer behavior within the hospitality and tourism industries. He is published in leading journals in the field, including the International Journal of Contemporary Hospitality Management, Tourism Management Perspectives, Tourism Analysis and the International Journal of Tourism Anthropology. His work involves the extensive use of inter and cross-disciplinary perspectives to understand hospitality and tourism phenomena. Makarand also serves as reviewer for several leading journals in the field. In fall 2015, he joined the faculty at the Boston University School of Hospitality Administration (SHA). He received his Ph.D. in Hospitality Management from Purdue University, and also holds a Master’s degree from the University of Strathclyde in Scotland.

 

Kyle Koslowsky is a sophomore studying Hospitality Administration with a concentration in real estate from Scarsdale, New York. He has held previous internships in hotel operations and food and beverage operations. Kyle is a teaching fellow for Fundamentals of Food Service Management as well as a BU Hillel engagement intern. He is also the current president of AEPi, a social fraternity at Boston University.

My Head in the Clouds (computing): A Case Study of a Restaurant Group Embracing Off-Site Technology

October 31st, 2018 in Business Practices, Fall 2018, Millennial, Restaurants, Technology, Trends 3 comments

By Tyler Titherington

I am a restaurateur.  I’m behind schedule.  Again.  Not because I am disorganized or have too much to do, more so because I have a hierarchy of tasks that are addressed based on priority.  Guest needs are my first priority, staff needs are a close second and everything else last.  There is a tertiary hierarchy in the last basket as well.  Some tasks with a lower priority fall through the cracks.  Not because they are unimportant, but rather there just was not enough time.  The truth is that I am obsessively organized.  I love “To Do” lists, calendars, flow charts and the accomplishment of tasks.  I eat projects for breakfast, while living on the edge of chaos and complete catastrophe.  Short staffed?  Yawn.  Drains flooding?  Been there, done that.  POS system crash during service on a weekend?  Bring it.  I am the duck – calm above water and feet moving nonstop below.  However, how do I manage all the curveballs and still manage to gain time without compromising any of my other priorities?  It is very simple – adapt and embrace technology wherever possible, specifically, cloud-based computing solutions that allow one to be in many places at one time.  These applications simplify daily tasks for management teams and staff, which will ultimately leverage senior management down to focus on the bigger picture.  Maybe even get a day off…

Over the last 10 years or so, the increased availability of cloud-based computing solutions (using network computers over the internet rather than property-based hard drives) has been a major paradigm shift for many industries.  However, as with most technological advances, the restaurant industry has been very slow to adapt.  Tight margins, resistance to change, and fear of unknown outcomes have long driven the restaurateur’s decision-making process.  However, with increased options, cheaper costs, and ease of use, that mindset is quickly becoming a thing of the past.  Restaurant operators are beginning to embrace cloud-based solutions for everything from Point of Sale and Tableside Payment to Menu Design and Scheduling.

Our foray into cloud computing began with an unfortunate set of circumstances that the entire industry was facing.  The year was 2010 and the impending doom of PCI Compliance was upon us.  At best, our network infrastructure was dated and we needed to act quickly to get it into compliance.  Like most operators, our hand was forced and we had no choice.  What is PCI Compliance?  The answer depends on who you ask.

Your guests have never heard of it and have no idea what it is.  Most restaurant operators will tell you that PCI Compliance is an almost unachievable set of network security standards designed to protect the credit card giants, who already charge them way too much for credit card processing and continually squeeze them with a plethora of monthly fees.  The definition of PCI Compliance is below, according to PCI ComplianceGuide.org

“The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to ensure that ALL companies that accept, process, store or transmit credit card information maintain a secure environment.  The PCI Security Council Card focuses on improving payment account security throughout the transaction process. It is an independent body that was created by the major payment card brands (Visa, MasterCard, American Express, Discover and JCB.).”[i]

PCI DSS is mandatory for any and all businesses that accept credit cards.  It involves a process of assessment, remediation and reporting.  Operators must identify network vulnerabilities, physical vulnerabilities, and operational vulnerabilities that could result in a credit card breach and fix them.  In summary, it is a painfully tedious, extremely time consuming, and potentially expensive process.

It is extremely important for the security of our guest’s payment information, both for ensuring trust with our customers and limiting legal liabilities.  In 2017-8, major retail stores including Home Depot, Macy’s, Sears, Kmart, Best Buy and Lord & Taylor made headlines across the country for data breaches possibly compromising customer’s credit card personal information. The restaurant industry is also plagued with security breaches, including large chains such as Darden (Cheddar’s), Panera Bread, Sonic and Arby’s. The number of customers whose credit card information may be compromised totals into the millions.[ii]

At Grafton Group, the process of obtaining Credit card security involved working directly with our IT vendor and POS vendor to achieve PCI compliance.  The first order of business was to get our network infrastructure in order.  Some of the major network upgrades that we undertook were upgrading wiring, locking down patch panels, securitizing external ports, adding wireless access points (WAPs), and replacing firewalls. The WAPs and new firewalls were the heart of the upgrades and would ultimately allow us to operate unencumbered in the cloud.  The new access points give our guests their own network and prevent them from accessing ours.  The security firewalls prevent intrusions and also allow our IT vendor remote access so they can make changes without actually being in the restaurant.  What used to be a scheduled visit from our IT vendor that may have taken weeks, is now a simple email and can often be addressed online in minutes.  In a nutshell, PCI DSS forced us to upgrade our network, which ultimately allowed us to operate in the cloud.  This unintended outcome to a painful requirement was truly a blessing in disguise and it pushed us into new territory – the cloud!  Being in the cloud has allowed us access to exciting applications and services that would otherwise be unavailable to us.

IBM defines cloud computing as “the delivery of on-demand computing resources — everything from applications to data centers — over the internet on a pay-for-use basis.”[iii]  For our purposes, these on demand computing resources primarily consist of “SaaS” or Software as a Service.  Here are some of the areas where cloud computing can streamline our operation.

Point of Sale

POS systems are the most interesting area of cloud-based solutions for restaurant operators.  Legacy systems such as Positouch, Micros, and Aloha are bulkier, more expensive, and much harder to program and implement.  There are quite a few cloud-based POS options, most notably Boston-based Toast.  Toast has done a great job streamlining and simplifying the interface for both front and back end users.  Management can access the system remotely for screen programming, troubleshooting or reviewing sales.  It is extremely intuitive, like using a smartphone, thus needing very little training. As wireless POS solutions evolve, legacy systems will eventually be phased out.  It is only a matter of time.

Tableside Payment

EMV (Europay, MasterCard and Visa) is another set of regulations that are coming to the restaurant industry. “EMV is a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions.”[iv]  Used in Europe for years, the credit card never leaves the customer and all transactions are processed tableside with a handheld device. One example of an EMV compliant, cloud-based device for tableside payments that we at Grafton Group are currently analyzing and plan on implementing is Pay My Tab.  Pay My Tab will fully integrate with our POS system and eliminates many bulky PCI DSS requirements. Many similar systems are already in use at quick service operations, where guests and staff have easily adapted to them.  In addition to tougher security, the implementation should decrease payment time, eliminate paper receipts (emailed instead) and simplify the process for management to search for specific receipts.

Reservations and Floor Management

There are a variety of solutions for reservations and floor management systems.  Our firm has been using OpenTable for over 15 years, so when they rolled out their cloud-based system, GuestCenter, we were early adopters.  This has been one of the single best applications in terms of roll out, ease of use, and seamless integration.  It is iPad-based and eliminates all the wiring and host stand real estate.  It is compatible to smart phones that allows for remote access, allowing management to check flow of service, identify unique reservations, and make sure that waitlists are being managed appropriately.  Soon to come is an interface with POS systems that automatically applies any “guest notes” from GuestCenter to the server’s check, such as special occasions, etc. Most importantly, due to its intuitive design, our millennial hosts use the system seamlessly.

Private Event Management

Private events are the foundation of most full service restaurant operations.  They are the difference between a good week and a great week.  However, it can be a very confusing process with all of the moving parts.  In order to stay organized, we use TripleSeat to manage leads, create BEOs and track our events calendar. The cloud-based event management system allows our Private Event Coordinators to respond at any given time from anywhere, giving them a leg up on the competition, giving them the opportunity to earn fees for each event.  Since our coordinators receive an administrative fee for each event, they enjoy responding when available off-site; good communication is key for making sure work-life balance is maintained.

Bar at the Russell House Tavern in Cambridge, MA. Photo: graftongrouphospitality.com

Inventory

An area which the cloud has really saved our restaurants time is with food & beverage inventories.  No more paper and no more transposing paper to spreadsheet.  Inventories can be uploaded in real time using a tablet, laptop or even a smart phone. BevSpot is used for both our food and beverage inventories.  We have also given access to our accounting firm, in order to reduce bulky invoice scans and uploads.  All information can be entered into the cloud and accessed by all of our approved users.  It also allows for multiple people to take inventory simultaneously.  One person can be on the bar, another in the walk in fridge, and another in the liquor room, all at the same time.  In addition to being a major time saver, it has helped Grafton Group to reduce sitting inventory by a significant amount across all properties.

Scheduling

Staff scheduling is a weekly administrative headache for managers, but there are cloud-based scheduling applications that lessen the pain. We have found HotSchedules to fit our needs as it interfaces with our POS system and allows our firm to do some creative reporting in regards to budgeting and forecasting, as well as taking employees requests and requirements into consideration.

Email and File Sharing

Grafton Group has come a long way from sharing access to a desktop version of Outlook and toggling between accounts.  We were able to eliminate our main server entirely and now we use Office 365 for our email and file sharing needs.  Not only is this highly securitized, it has redundancy so our information is always backed up.  We access both our email and files from anywhere in the world.  This has greatly improved productivity and allowed our management teams to communicate in real time.

Grafton Street in Cambridge, MA. Photo: graftongrouphospitality.com

Computer Hardware

Our office hardware now consists of much less expensive “Network Computers”, which do not require expanded memory for giant programs, CD drives for downloading drivers, or expansion slots for extraneous drives.  We can purchase more computers at a reduced cost and our managers no longer have to share computer access in the office.

Menu Design

For our menu design need, we have found InDesign to be the most efficient program, which is part of the Adobe Creative Cloud.  This program can now be selected a la carte from Adobe’s menu of programs and paid for on a month to month basis for under $20.  This is much more palatable than paying $600 for the entire Adobe suite.

These are just a handful examples of how cloud computing has impacted our operations and ultimately saved time for our management team and staff.  Ten seconds here, 5 minutes there, an hour tomorrow – it adds up to impactful chunks of time that can be better spent elsewhere.  We have only scratched the surface as an industry – we will see more and more options for cloud-based solutions to real world restaurant problems. Although the solutions highlighted above create efficiency and save time, they do not serve guests and they don’t understand the art of hospitality.  It is imperative that as restaurateurs we continue to create a positive environment, embrace innovation, and engage and train our employees in the art and skill of hospitality.

There are some things you will never have time for in the restaurant industry, regardless of cloud-based advancements.  “Lunch”, for example, I have heard is a meal that takes place in the middle of the day.  For me, “lunch” is the sandwich that I eat in 30 seconds somewhere between 2pm and 6pm standing over a trash can in the back of the kitchen.  There is no technology for that…


PDF Version Available Here


References
[i] “PCI Compliance Guide FAQ.” PCIComplianceGuide.Org. September, 2018. https://www.pcicomplianceguide.org/faq/#1.
[ii] Green, D. and Hanbury, M. (Aug. 22, 2018). “If you shopped at these 16 stores in the last year, your data might have been stolen.” https://www.businessinsider.com/data-breaches-2018-4
[iii] “What Is Cloud Computing?” IBM.com. September, 2018. https://www.ibm.com/cloud/learn/what-is-cloud-computing.
[iv] Kossman, Sienna. ” 8 FAQs about EMV credit cards.” CreditCards.com. August 29, 2017. https://www.creditcards.com/credit-card-news/emv-faq-chip-cards-answers-1264.php.

Tyler was born and raised in Portland, Maine and has lived in the Boston area since attending Boston University.  After graduating from the Boston University School of Hospitality Administration, Mr. Titherington operated a handful of bars and restaurants in Boston.  He has been with Grafton Group since October 2007. 

Restaurant Delivery: Are the “ODP” the Industry’s “OTA”? Part II

October 31st, 2018 in Business Practices, Fall 2018, Restaurants, Trends 0 comments

By Christopher Muller

In Part 1 of this analysis of the restaurant delivery system we looked at the owner/operator models which still offer some measure of control over price and quality.  This is fast becoming an issue with the rise of the Ghost Kitchen where the ODP is an integral part of the equation.  Here we present the larger challenges from the dominant ODP control of the marketplace.  It is good to remember that most of the ODPs themselves are still looking to find profits in what they do, a suggestion that those profits will need to come at the expense of the restaurant providers in one way or another.

5. The Aggregator or On-Line Delivery Provider (ODP) – No Driver Fleet

If someone were to say, “Let me take care of all of your delivery problems for a small cut of your revenues” many restaurant operators, especially those eager to get into the market with the least amount of upfront investment, would jump at the chance.  Enter the On-Line Delivery Provider with a business model built upon a brand name customer-facing APP, website or phone number and an enormous amount of back office computing power to drive order volume.

At its core, to be successful the Aggregator needs to be a world-class matchmaker for food orders, with both a large customer database of users and a broad assortment of restaurant menus offered in major cities.  Like many of what MIT’s Bill Aulet calls an Innovation Driven Enterprise (IDE)[1] the cost of customer acquisition is the key hurdle in entering this distribution channel. What it doesn’t need is its own fleet of employee delivery drivers. Capitalizing on the DIY gig economy, drivers are hired on a contractual basis, working as independent delivery agents with their own vehicles.

The barrier to lowering this high cost of entry has favored early market entrants and large well-funded digital innovators.  Worldwide, the fastest growing ODP is Uber Eats, the natural extension of car service provider, Uber, with its existing enormous data base of users, an ever expanding fleet of drivers, and the understanding for a driver that delivering food with an APP-based pre-payment system is considerably faster and easier than dealing with human passengers.

The upside for restaurant companies using an ODP such as Uber Eats, from those as dominant as McDonalds or as small as the local pizzeria, is that there is no need to hire and train non-core employees.  As touted by Uber Eats delivery service can begin almost immediately upon signing up.  The downside, that has a potential for long term impact, is two-fold.  The fee structure for traditionally low margin restaurants can be between 20-30% of a menu item price, leaving little to cover remaining expenses.  Worse though is that the restaurant gives away its brand and trade dress image to the company making the delivery to the front door.  McDonalds hamburgers may be in the bag, but the name on the ordering APP and the uniform on the person handing it to the customer says Uber Eats.

6. The Consolidator – Bulk “Bus Stop”

As noted, the most expensive single piece of the delivery puzzle is getting food from the restaurant to the front door, what is called “the last mile.”  One proven way to minimize that expense is to have the customer meet the food delivery at a central drop-off spot (see: Amazon [2]).  A start-up, Yun Ban Bao, in New York City is taking advantage of ethnic Chinese food deserts through direct targeted marketing using the dominant Chinese online service provider, WeChat.  By doing so it is creating a captive delivery market with the advantage of pre-ordering and payment.[3]

Taking online requests for delivery on the next business day, then consolidating orders using a bulk delivery model, Yun Ban Bao is lowering the cost of delivery while maintaining control with its own fleet of drivers.  It advertises a data analytics service for smaller restaurants as well as being a revenue growth accelerator for restaurants in suburban locations which otherwise could not find new or broader market opportunities.

Using a pre-arranged group delivery network, often outside parks, office towers or apartment buildings, the system mirrors a bus route, not the more traditional taxi route model of one-on-one delivery.  This also affords the network of restaurants a way to lower operating costs by controlling the production process in advance.

7. The Aggregator ODP – Owned Fleet

Some of the largest ODP players started in the delivery business by controlling their own fleets of employee managed delivery drivers.  The global leader, Just Eat,[4] has used this model throughout the UK, Europe and worldwide.  But it also has worked directly with restaurants who have their own in-house deliver fleets to create a broad partnership.  Just Eat acts as the online ordering platform, but then allows the local branded company to be the face at the door.

The ability to present a standardized customer facing brand identity means that trust may be established with the customer directly.  While this can come at the risk of the restaurant losing its direct brand relationship, what Just Eat has been able to master is the collection of a vast customer database of its users.  It has created a relationship with many of its restaurant partners to assist them in finding ideal store locations, menu item design and creative targeted pricing and promotions programs which would not otherwise be affordable or even available to smaller companies.

For these ODP companies, the costs for maintaining their own fleets or working as a hybrid with a local restaurant creates a higher operating expense, but these are often offset with a higher fee share from both the restaurant and the consumer.  It also creates a competitive advantage by building a broader network of restaurants to choose from for the customer, which builds long term loyalty and habitual purchase behaviors.

8. The ODP Aggregator – Dark Kitchens

One of the greatest threats to the bricks and mortar restaurant delivery partners is the emerging concept of a Dark Kitchen.  This is a space created by an OPD to facilitate the lowest cost per delivery mile from restaurant kitchen to the highest density of users.  While this is similar to the Cloud Kitchen model, in this case the OPD establishes a cluster of small dedicated but competitive restaurant kitchens in a single site.  A Dark Kitchen is also similar to the trending food hall concept, but comes with no direct customer interaction—no walk-in guest visits these production facilities.  In the UK this was pioneered by Deliveroo with its urban RooBox or Editions concepts.[5] Partner restaurants rent portable kitchen space from the delivery service and pay a larger percentage fee to cover the build-out costs for their space.  Restaurants staff the kitchens at their own expense, as well.

Earlier this year, Grubhub invested $1 million in Green Summit Group (see Ghost Kitchen in Part I), a startup with nine virtual restaurants operating from a single kitchen. DoorDash is renting extra space from the Santa Clara Fairgrounds in San Jose, Calif., and making it available to foodservice operators who want to create delivery-only options. In Los Angeles, Postmates leased a commissary kitchen space so its restaurants can reach new customers. And UberEATS is exploring the concept with Poke Café in Chicago — a virtual restaurant serving Hawaiian poke bowls.

“We can work with existing restaurant partners to create delivery-only menus. (They would) appear as entirely new restaurants on the UberEats app,” Ambika Krishnamachar, UberEats product manager, said in an article on Mashable.[6]

And again, while on its face this appears to be a positive opportunity for independent or chain restaurants to lower costs or disaggregate the dine-in from the delivery production process, it is not cost free.  In fact, as a logical progression would suggest, the OPD Deliveroo service has realized that the actual local restaurant in this mix is not a necessity for success.  Instead by using its own “innovation fund” it will to go directly into the restaurant business itself, creating “from scratch” concepts by working with celebrity chefs and data mining information from its enormous customer data base. [7]

As more of the OPDs look to find profits to pass along to the aggressive investors who have funded rapid growth, they will inevitably look to cut out the middleman and provide meals themselves to increase margins. The kitchen that may actually go “dark” is the local one on the corner down the street in an independent restaurant.

Conclusions

This is undoubtedly both an interesting and a challenging time for the restaurant industry and the Online Delivery Providers who are feeding from it.  Neither side seems to have figured out how to make the new consumer demand for off-site delivery work to their complete advantage.

It is impossible to believe that any restaurant can survive if it gives away up to 30% of its top line revenues when the average net profit is less than 10%.  No amount of increased volume in sales will make up for that.  As Cameron Keng wrote in his column “Why Uber Eats Will Eat You Into Bankruptcy” in March, 2018:

Based on the average profit margins above, every restaurant that engages Uber Eats will lose money on every order they take. The more orders coming from Uber Eats, the more money a restaurant would lose.[8]

At the same time, while it is hard to get exact information, it appears that almost none of the largest On-Line Delivery Providers, in any of the described segments is actually showing a profit.  Uber Eats is only profitable in 27 of its more than 100 urban markets,[9] and while Deliveroo’s sales rose in 2017 to £277 million ($356 million), the company lost an astounding £185 million ($237 million).[10]  Yet Uber Eats is offering over $2 billion to purchase/merge with Deliveroo.

Finally, as Jonathan Maze wrote in his Bottom Line column in early October the restaurant industry is simply unprepared for what appears to be a tectonic shift in traditional restaurant segments, consumer behavior, labor utilization, Real Estate valuation and investor interest.

If delivery is the future of the restaurant business, the restaurant business as it is currently constructed is in trouble.

The service is growing rapidly. But it’s increasingly replacing existing restaurant business rather than taking business away from grocers or other food retailers. [11]

As we noted in the beginning, it took the lodging industry almost 20 years to begin to make this kind of tectonic change and it is nowhere near complete.  A few very large hotel companies, through merger and acquisition, have consolidated enough power to start the move away from handing over all of their pricing to the OTA’s.  In economic terms, hotel companies are trying to go from being Price Takers to Price Setters.

At this early stage of the restaurant OPD’s domination of the delivery cycle, it is not clear that any restaurant organization is large enough to break the fever, especially now that McDonald’s is partnering with Uber Eats.  While it may appear that the On-line Delivery Provider is a restaurant’s partner, friend or even savior, it is none of those.  In fact, in order to become profitable the OPD is looking to become a direct competitor.

What is certain is that few restaurant companies, and certainly no independent operations, can survive the next two decades letting third parties dictate what convenience and price mean.  In fact, this might be a good time to get out of the house and go visit your favorite local restaurant.  Sacrificing some convenience for a great experience is a good value and that restaurant may not be around the next time you want to show up.


PDF Version Available Here


References
[1] See Bill Aulet, Disciplined Entrepreneurship,
[2] The Financial, October 25, 2018,  https://www.finchannel.com/~finchannel/business/76317-amazon-expands-grocery-delivery-and-pickup
[3] Menqi Sun, WSJ, September 9, 2018, https://www.wsj.com/articles/how-to-get-food-delivered-from-your-favorite-faraway-restaurant-1536516000
[4] See https://www.just-eat.com/
[5] James Cook, Business Insider, April 5, 2017, https://www.businessinsider.com/deliveroo-editions-pop-up-restaurants-roobox-2017-4
[6] Tim York, The Packer, March 23, 2018, https://www.thepacker.com/article/rise-virtual-restaurant
[7]Sophie Witts, Big Hospitality, May 21, 2018, https://www.bighospitality.co.uk/Article/2018/05/21/Deliveroo-to-create-own-restaurant-brands-using-5m-fund#
[8] Cameron Keng, Forbes, March 26, 2018, https://www.forbes.com/sites/cameronkeng/2018/03/26/why-uber-eats-will-eat-you-into-bankruptcy/#778a3b0621f6
[9] Ibid., DealBook, September 21, 2018
[10] BBC News, October 1, 2018, https://www.bbc.com/news/business-45707700
[11] Jonathan Maze, Restaurant Business Online, October 17, 2018 https://www.restaurantbusinessonline.com/financing/delivery-could-force-changes-restaurant-business-model

Christopher C. Muller is Professor of the Practice of Hospitality Administration and former Dean of the School of Hospitality Administration at Boston University. Each year, he moderates the European Food Service Summit, a major conference for restaurant and supply executives. He holds a bachelor’s degree in political science from Hobart College and two graduate degrees from Cornell University, including a Ph.D. in hospitality administration. Email: cmuller@bu.edu

Restaurant Delivery: Are the “ODP” the Industry’s “OTA”? Part I

October 31st, 2018 in Business Practices, Fall 2018, Restaurants, Trends 6 comments

By Christopher Muller

The entire restaurant industry, from the simplest quick service joint to the most complex fine dining jewel, is caught in a veritable frenzy of delivery.  It may be, unfortunately, a very risky path to travel for the uninitiated restaurant operation, but delivery is driving the investment community to a fever pitch. [1] We have entered into the time of the restaurant On-Line Delivery Provider (ODP) which mirrors in many ways the On-Line Travel Agent (OTA) which has so disrupted the lodging industry.

In two complimentary BHR articles here, we present a look at the 8 different models of restaurant delivery and how they are affecting both senior management and customer choices.

A Quick Lesson From Pricing History

For observers of the global Hospitality Industry this should send up warning flags.  In a galaxy far, far away, the Lodging industry managed revenues by using simple seasonal or attribute pricing models (On-, Shoulder- and Off-Peak rates, or premiums for “A Room With A View”) and sold some limited excess inventory through a network of independent Travel Agents (at an onerous 10% commission!).

Then, as the Internet expanded, and the travel market imploded after the 9-11 tragedy, a new and exciting model emerged – the On-Line Travel Agent (OTA) acting as a third party aggregator appeared.  Hotel companies willingly gave open access to all of their unsold room inventory to the OTAs (Expedia, Travelocity, Priceline, Booking.com, Kayak, Trivago, etc.) to sell directly at deep discounts, often between 25 and 30% off posted Rack Rates.  Occupancies rose, but Average Daily Rates plummeted, and profits quickly diminished.  Hotels, relying on the old pricing models were caught competing “with themselves” and watched as formerly loyal customers switched their buying habits and loyalties to the OTA that gave them the best rate.  Customers could scroll through pages of prices, often for the exact same room in the same hotel, searching for the cheapest rate.  Hotel rooms, instead of being unique destinations became interchangeable commodities.

It has taken almost twenty years, but through brand consolidation and a total system-wide transformation into a Revenue Management based pricing model, the hotel business has been transformed and the OTAs are being aggressively challenged for dominance. This should be a lesson for the restaurant owner/operator, the OTAs drove nothing but price as a decision attribute, the ODPs are poised to do the same thing with both price and convenience, unfortunately restaurants probably won’t have decades to recover.

Today’s Restaurant Delivery Frenzy –The Rise of the ODP

Whether it’s the savvy but shape-shifting Millennial, the rapidly aging Baby Boomer, or the rising young digital native from the i-Generation, it seems that customers in all shapes and sizes just want to have their meals brought to them at home, the office, or somewhere in between.  Breaking the code of the delivery model—becoming the customer’s choice of who serves up breakfast, lunch or dinner at home, work or play—has emerged as the Holy Grail of the foodservice business. But it may be more like the other mythic Dark Ages metaphor, the Plague, potentially killing upwards of 30% of existing restaurant units.

So, what exactly is “delivery” today, how did it evolve into such a big, expanding component of the restaurant offering and what are the implications going forward for the industry?  Just how do the On-Line Delivery Providers, the ODP, dominate the market?

We can begin by agreeing that delivery is a distinct and rapidly growing distribution channel, although it has been around in one form or another for a very long time.  And while not exactly a new technology, nor necessarily a profitable one, the exploding market for the delivery of food is poised for an inevitable shake out as it quickly approaches a mature phase consolidation.[2]

In late 2018 delivery is all about instant gratification, not just for the diner but some would suggest for the restaurant as well. At first glance, it all feels so simple and easy. But like so much in restaurant management, there is more than one way to get something done, even the simplest of things.

Emerging Key Success Factors

Like so many emerging business models in the on-line digital age, food delivery is developing its own metrics and factors to be considered and mastered. While still evolving, among these now are:

  • Addressing the profit challenges of “The Last Mile” in the delivery chain
  • Minimizing the high cost of Customer Acquisition
  • Developing an integrated APP, website, tablet and smartphone ordering platform
  • Designing the most effective delivery driver fleet system
  • Establishing an attractive and competitive user fee basis
  • Creating positive and immediate Brand recognition
  • Building a proprietary Knowledge Base of data storage, analytics and access

Delivery of food, especially from a restaurant to a consumer, has become a multi-billion dollar segment of the industry.  Some are predicting that it will overtake the traditional dine-in segment completely within a decade, although the complexity of getting it right and turning a profit while doing so, can still be elusive even for the largest players.  And of course, no one should forget that Amazon is over in the corner waiting to see how things evolve in an online delivery world they basically invented.

Traditional and Controlled

As noted, the delivery of food from a restaurant directly to a local customer is not a new idea although traditionally the customer came to the restaurant and picked up or carried out their food order.  Both delivery and carry-out were best suited to a restaurant with a simple, easily transported menu.  Where a significant amount of the value of the meal was the dining experience and table service, meals to go were often comprised of a package of leftovers or the long gone term “doggie bags.”

Here is a look at four models with some measure of control for restaurant owners and operators over the quality and profitability of their offerings.

1. The Independent – One Shot

As a service provider a restaurant may decide that in order to meet the needs of its local customer base it should provide a delivery option.  At one time, only a few restaurants in an urban core would have delivery offers and these might typically be delicatessens or Chinese restaurants with few seats and a very strong focus on offering takeout options. The food can be cooked, boxed, wrapped and brought quickly to an office or apartment within a few blocks on foot or by bicycle.

This model is the most basic – a caller, the kitchen, and an employee bringing hot food directly to the customer.  The restaurant controls the quality, manages the relationship with the diner and absorbs the full cost and all the revenues.  It typically comes with higher operating costs for labor (primarily from an in-house paid delivery driver fleet) and with premium rent from the need for an attractive customer-facing retail space.  On the plus side, all local customer information may be controlled by the restaurant and there are no fees to share with an outside third-party service.

But as the independent operator reaches for the brass ring on the delivery merry-go-round, they also need to be careful not to lose their grip on their existing ride.  A new distribution channel can be much more challenging that just taking a customer order.  As noted by Jennifer Marston:

…restaurants are under pressure to adapt…More and more, that means altering the physical restaurant space so it can better accommodate this influx of new orders. Extra meals require extra bodies to cook and package the food, after all, not to mention extra space for third-party devices, and somewhere to put completed orders waiting to be picked up by a delivery driver.[3]

An interesting twist on this single restaurant model of trying to find a way to both control and expand the delivery system while maintaining some measure of profitability is one recently proposed in the restaurant trade magazine Restaurant Business Online:

He (CMO Nabeel Alamgir) explained that Bareburger is already striving to convert customers ordering through third parties’ apps into users of the chain’s own channels. Patrons of an Uber Eats or Postmates might be offered a 10% discount on their next order if it’s placed through Bareburger’s website. The chain can afford a discount that deep because the financial impact is still less than the 20% or 30% discount an outside service typically charges.

Alamgir noted at the start of the panel’s presentation that a service started by restaurants for restaurants would have been an attractive alternative to some of the third-party giants. “Let’s make our own platform. Let’s make our own Grubhub,” he said.[4]

2. The Cloud Kitchen – A Hub & Spoke System

It can be argued that today’s focused delivery channel began in earnest when Domino’s offered up a “30 Minute or Free” guarantee in 1973.  In order to make this guarantee effective, the company created a hub and spoke system, in effect building a series of franchised units in low cost locations. They were characterized by being geographically market-centered but with no need for a “High Street” customer facing address.  This was directly in contrast to the overwhelming market advantage owned by Pizza Hut and its network of “Red Roof” full service pizzerias with their focus on dine-in and takeout service.  But the competitive advantage that came from having units with no dine-in, limited customer carry-out, and which were serviced by a central commissary set in motion the shift away from the traditional eat-in model.

“The reality is, when the red roof restaurant was created, the idea of delivery wasn’t part of the concept,” said Pizza Hut chief executive David Gibbs, a 26-year veteran at parent company Yum Brands…”so in many cases, our business has outgrown the capabilities of those restaurants…”[5]

Now, four decades later Domino’s is the world leader in delivery, pizza or otherwise.  It has done this by controlling the entire process or what is called the “full stack” in the delivery cycle.  Now describing itself as an IT and logistics company that sells pizza, the backbone of the system is that they control the customer ordering process, the production quality process, and through a vast franchise network the delivery process.

Next to come, using new GPS and AI technologies, Domino’s predicts that it will be able to make deliveries not just to a formal building address, but to anywhere a customer can be located by tracking their cellphone, even if that is a park bench or a blanket on the beach.

But Domino’s is not the only leader to be expanding its Cloud Kitchen delivery system. Already designed on a commissary production system model, giant fast casual leader, Panera Bread, tested delivery in Boston and then announced an expansion across the United States in early May, 2018 with a system based upon using its own delivery drivers. [6]  Following the trend in October the largest chicken sandwich chain, Chick-fil-A, announced it was beginning to test the hub and spoke model of delivery in Nashville, TN and Louisville, KY.

Chick-fil-A is opening two new restaurants that don’t have something you commonly associate with the chain: seats. 

Chick-fil-A, the Atlanta-based chicken sandwich chain, is testing catering and delivery locations in Nashville and Louisville, Ky., that will open this month.

The locations, according to an announcement on the chain’s website, have no dining rooms or drive thru’s and are designed to be hubs for catering and delivery orders. The restaurants will not accept cash, either.[7]

The Cloud Kitchen model can be very effective for restaurant companies with large enough scale, whether in a single city or across a region, to take advantage of a single production kitchen site with remote staging kitchens.  Ultimately the “full stack” control from order to front door can come from as few as three restaurants or as many as 3000. This also means that the foundation is laid for vast proprietary customer data collection and eventually data mining by the most forward-looking operators.

It can be argued that the Food Truck movement of the past decade is a subset of the Cloud Kitchen model.  By most local health code laws, food trucks must have a “home kitchen” or commissary for their bulk production that meets all health and sanitation code requirements.  In many urban centers, to be successful a food truck company needs to have multiple trucks on the road acting as a distribution network.  While this is also a classic Hub & Spoke model, it comes with similarities to a model in the next article, #6 The Consolidator, with distribution on a bus stop route and not a one-to-one last mile taxi route.

3. The Ghost Kitchen

One further refinement of the Cloud Kitchen is the Ghost Kitchen.  As delivery becomes more of a threat to the traditional dine-in restaurant option, some suggest that this model, in fact, is the future of restaurants—basically a highly efficient hybrid of menu concepts, specialized production and logistics, and low labor cost with no eat-in customers.

In that way, this model is identified by three key components.

First, it removes the dining room or takeout from the restaurant completely, working out of a kitchen whose location is based on nearness to its core customer market yet in a typically low rent out-of-the-way space.

Second, it does not hire any paid employees to deliver, instead making use (through partnership or agreement) of the many third-party delivery companies like GrubHub, Postmates or Doordash.

Third, and possibly the most important, because of the flexibility of only needing an APP, website or traditional telephone ordering system, more than one cuisine can be produced in the same kitchen space.  Easy to prepare, cook and deliver foods such as salads, sandwiches, Asian and other ethnic dishes, or gourmet pizza can all be offered while cross-utilizing similar ingredients in creative menu offerings.[8]

This can best be described as an “order only” restaurant.  The most prominent or well-known of these Ghost Kitchens would be Green Summit (see transition to #8 Dark Kitchen in Part 2).  While garnering a good amount of press, the celebrity chef David Chang’s Maple, closed its operation in 2017 with some assets moving to London and the delivery company Deliveroo.[9] Chef Chang sold the physical kitchen space, Ando, to Uber Eats after ceasing operations in January, 2018. [10]

Because no customer ever sets foot through the front door the owners can put all of their investment in kitchen equipment and the technology of ordering.  A Ghost Kitchen offers customers large menu choices, and just as its cousin the Cloud Kitchen, has the option to keep track of its own proprietary customer data set through the direct ordering process.  The tradeoff is that ownership sacrifices the customer interface at delivery of the Cloud Kitchen model.  Operating and start-up costs are low and efficiency can be very high.  The risk is that a large portion of the margin (sometimes up to 30%) from market-driven menu prices is taken by the delivery partnership, who also control the brand image when customers receive their orders off-site.[11]

4. Virtual Restaurants

Along with disrupting the taxi business, Uber Eats is about to globally disrupt the restaurant delivery business.  As of October, 2018, Uber Eats had over 1600 “virtual restaurants” around the globe, with almost 1000 in its US partnership portfolio.  The majority of these are not the Cloud or Dark Kitchen models mentioned above, but are existing restaurants with new brands that only exist through Uber Eats. This model, while charging very high fees to the restaurant, allows them to technically not compete with themselves in the home delivery marketplace.  Uber Eats gains more menus to offer, and limits any need for an investment in a commissary space.

For SushiYaa, Kim says the virtual restaurant concept has been transformative. “Because this concept worked so well for us, we actually changed one of our restaurants from a sushi buffet concept to a regular restaurant with 8 different virtual restaurant brands inside it. The buffet sales weren’t doing so well and the delivery side was doing better, so we thought — let’s change it completely so we’re focused more on delivery.” From a sales standpoint, he says it’s “almost as if we have another restaurant without paying additional rent and labor, even though [Uber Eats] takes about 30 percent.”[12]

One other type of Virtual Kitchen involves the licensing of existing restaurant recipes and menu items in a curated virtual model.  The start-up concept Good Uncle is using this to compete in the university meal plan segment, offering a range of pricing options for higher quality prepared meals, delivered by their own delivery fleet using the bus stop common drop off method.  This is a limited menu, limited target market, which benefits from a direct marketing approach, lower operating costs, and uses both a subscription and premium fee based pricing system.[13] It is a Virtual Kitchen because there is no restaurant or other customer facing facility, it exists only online.

Part One – Conclusions

Delivery models, some traditional, some evolving, offer many opportunities for restaurant operators, especially those in the QSR and Fast Casual segments, where speed and price and convenience are the drivers of consumer choice.

The challenge in today’s delivery market is how owners and operators can maintain both high quality and long-term profitability in the products/services they offer.  For many meals, the time and distance from kitchen to table can be more than 30 minutes or multiple miles. Quality of presentation and flavor may quickly diminish.  More importantly, where the medium annual profitability for restaurants across all segments in the USA is considerably less than 10%, losing up to 30% of top line revenues is not a path to a successful future, (even if total sales increase by 20%).


PDF Version Available Here


References
[1] Heather Haddon and Julie Jargon, The Wall Street Journal online, October 24, 2018, https://www.wsj.com/articles/investors-are-craving-food-delivery-companies-1540375578?mod=cx_picks&cx_navSource=cx_picks&cx_tag=contextual&cx_artPos=4#cxrecs_s
[2] Liam Proud, DealBook, NYTimes, September 21, 2018, https://www.nytimes.com/2018/09/21/business/dealbook/uber-eats-deliveroo.html
[3] Jennifer Marston, The Spoon, July 31, 2018, https://thespoon.tech/delivery-is-making-these-restaurants-literally-redesign-the-way-they-do-business/
[4] Peter Romeo, Restaurant Business Online,  Oct. 19, 2018 https://www.restaurantbusinessonline.com/operations/3-big-changes-looming-restaurants
[5] Karen Robinson-Jabos, Dallas News, Jan 6, 2016. https://www.dallasnews.com/business/business/2016/01/06/pizza-hut-is-ditching-the-iconic-red-roof-for-a-more-modern-look
[6] Janelle Nanos, Boston Globe, May 7, 2018, https://www.bostonglobe.com/business/2018/05/07/panera-expanding-its-delivery-service-cities/sZg4pO0yTw9cEdYpv514tL/story.html?event=event12
[7] Jonathan Maze, Restaurant Business Online, Oct. 09, 2018 https://www.restaurantbusinessonline.com/financing/chick-fil-opening-new-delivery-focused-prototype
[8] Neal Ungerleider, 01.20.17 Fast Company  https://www.fastcompany.com/3064075/hold-the-storefront-how-delivery-only-ghost-restaurants-are-changing-take-out
[9] Closing announcement from Maple, May 8, 2017 https://maple.com/letter/
[10] Whitney Filloon, Eater, October 24, 2018, www.eater.com/2018/10/24/18018334/uber-eats-virtual-restaurants
[11] See the online Audiopedia site https://www.youtube.com/watch?v=BKO5JFbqKTA
[12] Ibid, Eater, October 24, 2018
[13] See https://www.gooduncle.com/

 Christopher C. Muller is Professor of the Practice of Hospitality Administration and former Dean of the School of Hospitality Administration at Boston University. Each year, he moderates the European Food Service Summit, a major conference for restaurant and supply executives. He holds a bachelor’s degree in political science from Hobart College and two graduate degrees from Cornell University, including a Ph.D. in hospitality administration. Email: cmuller@bu.edu

Airbnb and the Hotel Industry: The Past, Present, and Future of Sales, Marketing, Branding, and Revenue Management

October 31st, 2018 in Business Practices, Fall 2018, Hotels, Marketing, Sharing Economy, Technology, Trends 0 comments

By Makarand Mody and Monica Gomez

For a long time, the hotel industry did not consider Airbnb a threat. Both the industry and Airbnb claimed they were serving different markets and had different underlying business models. Over the years, as Airbnb become more successful and grown to being larger than the companies in the hotel industry, the rhetoric has changed. The hotel industry began to realize they had something to worry about.

A stage of denial was followed by the American Hotel & Lodging Association (AH&LA) attacking Airbnb by sponsoring research to demonstrate its negative impacts on the economy and lobbying governments to impose taxes and regulations on homesharing. The association is arguing for a level playing field between homesharing and hotels (and rightly so). The next stage of this battle involves competition and integration. Not only are hotels looking to add homesharing-like attributes and experiences to their properties, to more effectively compete with Airbnb, but are also looking to tap into the platform-based business model that underlies Airbnb’s success.

 

The Past: How does Airbnb impact the hotel industry?

Airbnb’s disruption of the hotel industry is significant, both existentially and economically. A recent study by Dogru, Mody, and Suess (2018) found that a 1% growth in Airbnb supply across 10 key hotel markets in the U.S. between 2008 and 2017 caused hotel RevPAR to decease 0.02% across all segments. While these numbers may not appear substantial at first, given that Airbnb supply grew by over 100% year-on-year over this ten year period means that the “real” decrease in RevPAR was 2%, across hotel segments. Surprisingly, it was not just the economy but also the luxury hotel segment that was hard hit by Airbnb supply increases, experiencing a 4% real decline in RevPAR. The impact of Airbnb on ADR and occupancy was less severe. In Boston, RevPAR has decreased 2.5%, on average, over the last ten years due to Airbnb supply increases. In 2016 alone, this 2.5% decrease in RevPAR amounted to $5.8 million in revenue lost by hotels to Airbnb. Brands that felt the impact the most were those in the midscale and luxury segments, with a decrease in RevPAR of 4.3% and 2.3% respectively. These supply increases are also fueling Airbnb taking an increasing share of the accommodation market pie. For example, in New York City, Airbnb comprised 9.7% of accommodation demand, equaling approximately 8,000 rooms per night in Q1 2016 (Lane & Woodworth, 2016). As a whole, Airbnb’s accommodated demand made up nearly 3% of all traditional hotel demand in Q12016.

Buoyed by a growth rate of over 100% year on year, Airbnb now has over 4 million listings, with the U.S. being its largest market. The company also has significant room to grow in other countries, particularly emerging markets in Africa and India. The company has run into some competition in China, with local rivals Tujia and Xiaozhu. Also, within the U.S., the good news is that Airbnb will not grow at 100% indefinitely and will eventually plateau as it reaches a saturation point (Ting, 2017a). In view of this, the company has turned to alternative strategies to continue to increase supply. It is now targeting property developers to turn entire buildings into potential Airbnb units, through its newest hotel-like brand, Niido. Currently, there are two Airbnb branded Niido buildings in Nashville, TN and Orlando, FL with over 300 units each and Airbnb plans to have as many as 14 home-sharing properties by 2020 (Zaleski, 2018). Niido works by encouraging tenants to list their units on Airbnb, with Airbnb and Niido taking 25% of the revenue generated.  Airbnb has also clearly evolved from its original premise of “targeting a different market” to attracting segments traditionally targeted by hotels, such as the leisure family market, business travelers, and the upscale traveler, as evidenced through its latest offering, Airbnb Plus. These homes have been verified for quality, comfort, design, maintenance, and the amenities they offer. They also have easy check in, premium internet access, and fully equipped kitchens. Their hosts are typically rated 4.8+, and go above and beyond for their guests. Through Airbnb Experiences, travelers can partake in everything from the great outdoors—hiking and surfing—to “hidden” concerts and food and wine tours.  In addition to these products, Airbnb has also “created” its own segments of travelers: novelty and experience seekers who are looking for unique and unconventional accommodation like yurts, treehouses, and boats, all things that a traditional hotel company cannot provide.

 

The Present: Understanding what consumers want lies at the heart of the battle between hotels and Airbnb

There are larger societal trends that are impacting what consumers seek travel, and we think this has implications for the Airbnb and hotel dynamic. These trends include:

  • A shift to a “new luxury”—seeking out unique, authentic experiences that serve as a launchpad for self-actualization—fueled by an increased wealth gap in the United States.
  • An increased mobility, particularly among previously under-represented groups in the United States (the black travel movement, for example) and the global traveler (more Indian and Chinese international travelers than ever before).
  • The changing nature of brand loyalty: from long-term relationships to consumers’ needs for instant gratification and personalization.
  • Changing nature of “ownership”: In a post-consumerist society, the emphasis on “access-based consumption” has put a spotlight on wellness and well-being, beyond materialism.
  • A co-everything world where work, play, and life blend into one seamless mosaic: Technology has changed the way we live our lives, and how we are connected to work, to each other and to the things that drive us. An upcoming 5G world and the IOT is only likely to accelerate the pace of change. Take LiveZoku (https://livezoku.com/), for example: is it a residence? A hotel? A WeWork? A space for the local community? A thriving food and beverage destination? It’s all of these things.

What do these trends mean? They require marketers and experience designers to re-think what the travel experience means to the customer. The notion of the experience economy was created by Pine and Gilmore in 1998, and included four dimensions: escapism, education, entertainment, and esthetic. Leveraging one, or ideally, more of these dimensions creates memorable experiences for customers, which in turn results in brand loyalty. This dynamic has been fairly well-established in the academic literature. However, Airbnb has changed the game for the experience economy by emphasizing the sharing lifestyle and a sense of community, cleverly incorporating the above highlighted trends into its communications with customers. Because of Airbnb popularity and success, six new dimensions have been incorporated into the experience economy, in the context of the travel experience: personalization, communitas, localness, hospitableness, serendipity, and ethical consumerism, as was presented by Mody in 2016.

Interestingly, in a recent study by Mody and colleagues (Mody, Suess, & Lehto, 2017), the researchers found that Airbnb outperformed hotels on all the dimensions of this new, expanded, accommodation experiencescape. Airbnb outperforms hotels in the personalization dimension because of its wide array of homes and locations, enabling genuine micro-segmentation and the “perfect match” between guest and host (Dolnicar, 2018). Moreover, no one home is similar to another, giving customers a unique experience every time, enhancing the serendipity associated with an Airbnb stay. Airbnb elevates the sense of community that consumers seek, particularly when sharing space with other travelers and/or with the host, and allows consumers unparalleled access to “the local”—that café or cute little store that only locals know about. However, there are areas where hotels hold their own. For example, the pathways between these dimensions and memorability were just as strong for hotels as for Airbnb, emphasizing the need for hotels to engage customers by leveraging the “right” dimensions for the brand—dimensions that align with the brand’s mission, story, and personality.

One such dimension where hotels perform just as well as Airbnb is hospitableness, as confirmed in a study by Mody, Suess, and Lehto (2018). More “investor units” on the Airbnb platform means that the host is often not present when guests arrive to the home; moreover, all communication is done electronically and with someone who “manages” the Airbnb unit and doesn’t necessarily own or live in it. In turn, hotels that leverage the human factor—the welcome of a friendly check-in agent, the helpfulness of the concierge,  the warm greeting and genuine interaction between guest and food and beverage staff—create more positive emotions, which subsequently lead to higher brand loyalty. It is imperative that hotel brands really think about the high-tech, high touch experience they are looking to provide, particularly in the golden age of brand proliferation that we live in.

 

From a non-experience standpoint, regulation is another bone of contention that merits close inspection. After years of denying that Airbnb was a competitor, in 2016, the American Hotel & Lodging Association first began an extensive lobbying effort for the imposition of taxes and regulations on Airbnb that level the playing field. Over the last couple of years, the voices of the hotel lobby and other community groups have translated into governments taking some action, in the U.S. and abroad. However, in a study of regulation across 12 European and American cities, Nieuwland and van Melik (2018) found that governments have been fairly lenient towards short-term rentals with little to no (meaningful) regulations thus far. Moreover, regulations have been designed to alleviate the negative externalities of Airbnb on neighborhoods and communities rather than to level the playing field between Airbnb and hotels. Another challenge with regulating the peer to peer economy has been enforcement. In New York City, under the Multiple Dwelling law, it is illegal for a unit to be rented out for less than 30 days unless the owner is present in the unit at the time the guest is renting. However, it is still possible to find “entire homes” on Airbnb in New York City, even though, in principle, these typically include homes where the host is not present during the guest’s stay. Moreover, Nieuwland and van Melik (2018) and Hajibaba and Dolnicar (2017) have found that regulations tend to be very similar across cities, without accounting for the specificities of a particular location, which makes the process perfunctory and superficial. There also remains the danger of over-regulating Airbnb, given that there is still very little knowledge about effective ways of regulating these innovations in the sharing economy, thus stifling their potential. Avoid over-regulation is critical, since Airbnb has significant welfare effects in the economy. In addition to stimulating travel to previously inaccessible markets, Airbnb also creates customer surplus (Farronato & Fradkin, 2018), an important economic value measure. Moreover, other research has suggested that the average resident is not as negative towards the Airbnb as media rhetoric might suggest (Mody, Suess, & Dogru, 2018). The need for a data-driven approach to Airbnb regulation remains paramount.

 

The Future: Competing with the sharing economy requires re-thinking the brand and the experience

While regulation is outside the control of the hotel industry, the brand and the customer experience are not. We contend that these are the areas where hotel companies’ efforts need to be focused. Hotels need to re-think the brand promise, both for the parent brand as well as individual brands in the portfolio, and how it defines and shapes the guest experience. Recent research by Mody and Hanks (2018) indicates that while Airbnb leverages the authenticity of the travel experience—by enabling local experiences that provide a sense of self and sense of place, hotel brands that are perceived as being authentic—original, genuine, and sincere—can generate higher brand loyalty. Thus, while it’s hard to compete with homesharing in terms of experiential authenticity, brand authenticity is a pillar on which hotels can build a strong foundation for loyal brand relationships. This is particularly important because while Airbnb promotes experiential authenticity as a key reason to use the brand, most travelers tend to stay with the brand for much more functional requirements, such as space and price (Chen & Xie, 2017; Dogru & Pekin, 2017)

There is no one definition for or manifestation of an “authentic” brand. It’s a perception, a feeling that consumers have about what you stand for. An authentic brand has at its core the brand promise, an authentic value proposition that gives consumers a raison d’etre for associating with the brand. However, what an authentic brand does require is effective storytelling. A brand is perceived to be authentic, if it has an authentic story that feeds it. Brand stories can come from many sources: a brand’s values, personality, heritage, uniqueness, or its quest and purpose. What is important is telling compelling and coherent stories across the brand’s various touchpoints to engage consumers at a visceral, emotional level. Taking off industry blinders, and looking for inspiration outside the hotel industry, is critical. Tom’s Shoes is an excellent example of leveraging its quest—One for One—in creating a compelling brand story. As another example, in an industry typically focused on the in-store, “physical” experience, Burberry has set the gold standard for authentic, digitally-led and emotive storytelling, by looking within and leveraging over 150 years of history (Watch the YouTube Video here). In this vein, we think that Fairfield Inn and Suites’ return to “where it all began”—the Marriott family’s Fairfield Farm in the Blue Ridge Mountains of Virginia— to craft the brand experience of the future, from a design and communications standpoint, is an excellent example of leveraging authenticity and crafting a compelling brand promise (Ting, 2017b).

Another idea that lies at the heat of the brand promise is what we call the experiential value proposition, or EVP. For the longest time, hotel marketers have relied on the guest room as the primary source of value for the guest. But think about the last time you traveled. Was it the prospect of the hotel room that got you excited about your trip? Or was it everything that the hotel enables you to do – the experience outside the guestroom? From experiencing art and music in the lobby to its proximity to the must-do craft beer garden, hotel marketers must realize that it’s the complete package—what’s inside and outside the room—that customers use as cues for making  their decision to choose an accommodation. We call this proposition offered by the hotel—what’s inside and outside the guest room, enclosed within an experience of hospitableness and a connection to humanity—its EVP. We present the EVP in Figure 1.  The EVP mirrors the value paradigm of the modern traveler, something that must be reflected in the hotel brand’s sales, marketing and pricing and revenue management efforts. Thinking about a brand through the lens of the EVP paradigm has the power to re-orient the customer’s mindset from one of price-shopping to experience-shopping.

 Figure 1. The Experiential Value Proposition Framework

How does a hotel marketer apply the EVP paradigm? Its application can open up many avenues. Hotels can start by rethinking the design of their primary digital channels, led by the website by adding more rich, vivid content that goes beyond the guestroom, in order to better integrate aspects of the wider hotel and local experience. The Standard Hotels serves as an excellent example (http://www.standardhotels.com/) Its website feels more like a local lifestyle and culture magazine than a digital media property “selling” a hotel room. The website’s rich images and stories draw the visitor into wanting to learn more about what the brand has to offer. While not every hotel can or would want to go the Standard way, since the brand has its own distinct voice and personality, there is a case to be made for going beyond static images of beds in guestrooms, which tend to blend into one indistinguishable whole after a point, particularly on OTA websites. When was the last time the image of a hotel bed excited you to want to stay there? Yet, when you look at the imagery put out by most hotels, this is what marketers still focus on.

Placing an emphasis on humanity and providing a sense of hospitableness can also enhance a brand’s EVP. Instead of technology replacing the human connection, the industry needs to look for ways in which technology can actually free up employees so that they can spend their time crafting more personal and unique experiences, delighting guests instead of performing routine transactions. Moreover, if the human connection is what people seek out when traveling with Airbnb, why is it that hotel confirmation emails still get sent out by automated systems that highlight the “facelessness” of the hotel entity. Why not use that as an opportunity to truly welcome the guest; a simple touch such as a welcome letter from the GM with his/her photo, or that of an employee who is “assigned” as “your personal host” during your stay can go a long way in emulating the human connection that the sharing economy enables.

The design of the hotel’s public spaces can be used to enhance the guest’s experience of “communitas”. Ian Schrager would agree (Schaal, 2017). After all, with much of Airbnb’s supply being dominated by investor units that provide little or no host contact, what better an opportunity for hotel brands to show that they are the original connectors of human beings? Sheraton has been wise in incorporating some of these communal elements into its brand makeover by introducing productivity tables and studio spaces and a day-time coffee bar that transforms into a bar at night. In terms of another design element, Airbnb’s attractiveness to family and group travelers can be offset by offering connecting and/or multiple rooms for one price, with other experience value-adds thrown in (as with the Marriott family room connecting rooms package.

Finally, the role of the loyalty program cannot be emphasized enough. Loyalty programs must move beyond programmatic levels to being able to leverage data from guest history, social media, and other marketing data sources, powered by predictive analytics, to personalize and individualize the guest experience of the brand. In an age of instant gratification, the loyalty program has to be gamified to unlock value-adds and offer creative bundling.

At the level of the hotel company, beyond the individual brand, the hotel industry has started participating in the home sharing business and is increasingly looking to integrate these platform business models. For example, while Accor purchased Onefinestay, Marriott has teamed up with Hostmaker to create Tribute Portfolio Homes, a partnership that was recently expanded to four European cities (Fox, 2018). From an organic brand development standpoint, Accor’s newest Jo & Joe brand mimics the sharing economy within the confines of a traditional hotel space. Other, more innovative and bold ways of integrating the sharing economy ethos into a hotel could include offering an “Airbnb floor”, an antithesis to the club floor, one that would not offer housekeeping and other hotel services and thus be offered at a lower price. With hotel brands becoming “branded marketplaces” for accommodation and not just hotel rooms, perhaps there is merit in listing hotel rooms on alternative accommodation platforms. HomeAway is already adding hotels to its platform through the Expedia Affiliate Network, while Airbnb is making a push for bed-and-breakfasts and boutique hotels. Homesharing providers hope that by adding these options to their listings, they will fulfill their goal of being “for everyone”, while allowing independent and boutique hotels to reap the benefits of branded distribution at a lower cost than traditional OTA brands.

In sum, hotels must adopt a sales, marketing, and revenue management approach that is both strategic and tactical.

At a strategic level, hotel brands need to re-think their story, and how they portray and fulfill their authenticity and brand promises. At a tactical level, it’s the experience and value beyond the guestroom that must be factored into what is presented to current and potential guests, what they are charged for it, and how it is leverage to create “memorable memories” that lead to higher net promotor scores and brand loyalty. We present a graphical summary of the past, present, and future of Airbnb vs. hotels in Figure 2.

Figure 2. Summarizing the past, present and future of Airbnb vs. hotels


PDF Version Available Here


References
Chen, Y., & Xie, K. (2017). Consumer valuation of Airbnb listings: a hedonic pricing approach. International Journal of Contemporary Hospitality Management, 29(9), 2405–2424. http://doi.org/10.1108/IJCHM-10-2016-0606
Dogru, T., Mody, M., & Suess, C. (2018). Adding evidence to the debate: Quantifying Airbnb’s disruptive impact on ten key hotel markets.
Dogru, T., & Pekin, O. (2017). What do guests value most in Airbnb accommodations? An application of the hedonic pricing approach. Boston Hospitality Review.
Dolnicar, S. (2018). Unique Features of Peer-to-Peer Accommodation Networks. In S. Dolnicar (Ed.), Peer-to-Peer Accommodation Networks: Pushing the boundaries (pp. 1–14). Oxford: Goodfellow Publishers Ltd.
Farronato, C., & Fradkin, A. (2018). The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb.
Fox, J. (2018). Marriott expands homesharing program in Europe. Hotel Management. Retrieved from https://www.hotelmanagement.net/own/marriott-expands-homesharing-program-to-3-european-cities
Hajibaba, H., & Dolnicar, S. (2017). Regulatory Reactions Around the World. In S. Dolnicar (Ed.), Peer-to-Peer Accommodation Networks: Pushing the boundaries (pp. 120–136). Oxford: Goodfellow Publishers Ltd.
Lane, J., & Woodworth, M. (2016). The Sharing Economy Checks In: An Analysis of Airbnb in the United States. Retrieved from http://www.cbrehotels.com/EN/Research/Pages/An-Analysis-of-Airbnb-in-the-United-States.aspx
Mody, M. A., Suess, C., & Lehto, X. (2017). The accommodation experiencescape: a comparative assessment of hotels and Airbnb. International Journal of Contemporary Hospitality Management, 29(9), 2377–2404. http://doi.org/10.1108/IJCHM-09-2016-0501
Mody, M., & Hanks, L. (2018). Parallel pathways to brand loyalty: Mapping the consequences of authentic consumption experiences for hotels and Airbnb.
Mody, M., Suess, C., & Dogru, T. (2018). Not in my backyard? Is the anti-Airbnb discourse truly warranted? Annals of Tourism Research. http://doi.org/10.1016/j.annals.2018.05.004
Mody, M., Suess, C., & Lehto, X. (2018). Going back to its roots : Can hospitableness provide hotels competitive advantage over the sharing economy ? International Journal of Hospitality Management. http://doi.org/10.1016/j.ijhm.2018.05.017
Nieuwland, S., & van Melik, R. (2018). Regulating Airbnb: how cities deal with perceived negative externalities of short-term rentals. Current Issues in Tourism, 0(0), 1–15. http://doi.org/10.1080/13683500.2018.1504899
Schaal, D. (2017). Ian Schrager Calls Out Hotel Industry’s Airbnb Strategy as Misguided. Skift. Retrieved from https://skift.com/2017/12/08/ian-schrager-calls-out-hotel-industrys-airbnb-strategy-as-misguided/
Ting, D. (2017a). Airbnb Growth Story Has a Plot Twist — A Saturation Point. Skift. Retrieved from https://skift.com/2017/11/15/airbnb-growth-story-has-a-plot-twist-a-saturation-point/
Ting, D. (2017b). Marriott and Choice Take Varied Approaches to Reviving Classic Midscale Brands. Skift.
Zaleski, O. (2018). Airbnb and Niido to Open as Many as 14 Home-Sharing Apartment Complexes by 2020. Retrieved from https://www.bloomberg.com/news/articles/2018-08-14/airbnb-and-niido-to-open-as-many-as-14-home-sharing-apartment-complexes-by-2020

Makarand Mody, Ph.D. has a varied industry background. He has worked with Hyatt Hotels Corporation in Mumbai as a Trainer and as a Quality Analyst with India’s erstwhile premier airline, Kingfisher Airlines. His most recent experience has been in the market research industry, where he worked as a qualitative research specialist with India’s leading provider of market research and insights, IMRB International. Makarand’s research is based on different aspects of marketing and consumer behavior within the hospitality and tourism industries. He is published in leading journals in the field, including the International Journal of Contemporary Hospitality Management, Tourism Management Perspectives, Tourism Analysis and the International Journal of Tourism Anthropology. His work involves the extensive use of inter and cross-disciplinary perspectives to understand hospitality and tourism phenomena. Makarand also serves as reviewer for several leading journals in the field. In fall 2015, he joined the faculty at the Boston University School of Hospitality Administration (SHA). He received his Ph.D. in Hospitality Management from Purdue University, and also holds a Master’s degree from the University of Strathclyde in Scotland.

 

Monica Gomez is a graduate student in the School of Hospitality Administration at Boston University. She received her Bachelor’s degree in Tourism, Recreation, and Sport Management from the University of Florida and has held previous internship positions in hotel operations and event management. She is a member of the Hospitality Sales and Marketing International Association and is interested in hotel revenue management.

Change in the Hospitality Industry: New Paradigms, Frames, and Perspectives

June 12th, 2017 in Spring 2017, Technology, Trends 2 comments

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By Mike Oshins

Over the past 15-20 years, changes in hotel ownership and management, the growth and development of online reservation systems and the proliferation of lodging alternatives have altered the hospitality landscape, bringing new complexity to the industry. Two decades ago, a Marriott hotel was commonly owned and managed by Marriott; now, many are owned by one company, franchised with the Marriott name, and managed by a third company.  While customers used to be able to pick up the phone and call a hotel’s reservations center or use their local travel agency to book a room, today online distribution systems like Expedia, Travelocity, and Kayak are powerful intermediaries that have all but replaced traditional consumer travel agencies.  Travelers may choose among many alternatives to hotels for lodging, including AirBnB, HomeAway, Flipkey, and VBRO.  Mergers and acquisitions continue to multiply, exemplified most notably by Marriott’s purchase of Starwood to create the world’s largest hotel company with 30 brands. Millennials’ preferences have pushed the development of new brands with new thinking about hotel design, as demonstrated with Hilton’s Tru, Best Western’s Vib and Glo chains, and Intercontinental’s EVEN.

hotels

Hotel companies are expanding their portfolios to include Millennial-focused brands like InterContinental’s EVEN Hotels and Tru by Hilton. Image sources: Creative Commons InterContinental and Tru

Travel patterns have also changed.  China has become the largest exporter of tourists in the world, totaling almost 100 million outbound travelers and representing almost one in ten tourists in the world. Chinese travelers also spent the most money, roughly $250 billion in 2015. For reference, the second highest spenders were Americans at $110 billion.  In the U.S., national discussion about travel bans, new barriers to hiring non-domestic seasonal workers (a key element in New England’s summer tourist season), possible elimination of the national Brand USA marketing effort, and tenuous Cuba travel policies are all creating uncertainty in the tourism market.  These changes and ambiguities present new challenges, both large and small, for the hospitality industry, requiring those at the forefront of the field to anticipate and respond to the subsequent fallout.

Prolific business author John Kotter states that the main role of leadership is dealing with change.  Depending on how it’s viewed, with the appropriate perspective and pliancy, change can present an organization with new opportunities—the possibility of taking advantage of changing demographics, new technologies, or the emergence of new markets.  Change can also raise dilemmas, such as the need to address new competitors, contend with a crisis or cope with a lack of available employees.  Even before developing and implementing successful change management processes, organizational leaders must have the ability to recognize the opportunities and dilemmas presented by change and know how to think about them.  To see the need for change, to identify new realities, either current or future, one must be able to view the big picture and the current climate in new ways.  This ability to see the present and near future from a new vantage point is one of the main reasons General Electric (GE) CEO, Jeff Immelt, moved GE world headquarters to Boston’s expanding Seaport District.  GE’s new home will “place his leadership team in a vibrant city with a world-renowned innovation scene, instead of in a wooded Connecticut suburb” (Boston Globe), thus giving his senior team a new perspective, and the opportunity to make closer connections with institutions able to stimulate new ideas and create a new pipeline for employees.   Other than moving a $240 billion company’s world headquarters—something that’s not always feasible to achieve—how else can one enhance a leadership kit with tools for responding effectively to change?  The ability to think more creatively, form new habits, change paradigms, reframe one’s perspective, and think differently by learning new ideas are all tools that can aid in addressing the first element of leading change, that is identifying that change is needed.  The following examples highlight some of the ways one can learn to be more successful in thinking about and capitalizing on the opportunities presented by change.

Creative Thinking

21st May 1974: A chainmail-clad John Cleese reads a newspaper while Graham Chapman smokes a quiet pipe on the set of 'Monty Python and the Holy Grail'. (Photo by John Downing/Express/Getty Images)

Popular British comedy group Monty Python expressed creative thinking in all of their productions, further captured by their tagline, “And now for something completely different!”.  Pictured above: A chainmail-clad John Cleese reads a newspaper while Graham Chapman smokes a quiet pipe on the set of ‘Monty Python and the Holy Grail’. (Photo by John Downing/Express/Getty Images)

IBM interviewed 1500 CEOs around the world in 2010 and found Creativity is now the single most important leadership competency and is needed in all aspects of leadership.  If one thinks in the same way as everyone else, the opportunity for new ideas (and new solutions) is limited.  The irreverent and offbeat humor of Monty Python is captured in their tagline, “And now for something completely different!”  Think Different! is the mantra for Steve Jobs and Apple, as eloquently explained in Simon Sinek’s Start with Why. Sir Ken Robinson, author and the holder of the top TED Talk Do Schools Kill Creativity, defines creativity as, “the process of having original ideas that have value.” There are many ways to increase creativity, including:

  • Establishing a culture in which failure is a part of learning.  “A growing number companies are explicitly rewarding failure – giving cash prizes or trophies to people who foul up (WSJ). Earlier in his career, Johnson & Johnson CEO James Burke once went to see Mr. Johnson after his product launch failed miserably.  Instead of being fired as expected, Mr. Burke found instead that Mr. Johnson shook his hand and congratulated Burke on the failure.  Along with the handshake, Burke was given the following advice that became his philosophy: “Business is about making decisions.  You can’t make decisions without failures.  Don’t ever make that same mistake again, but please, keep making new mistakes!”  Burke made this philosophy “always making new mistakes” an important value within his leadership vision. Similarly, Michael Jordan credits his success with ability to overcome the fear of failure: “I’ve missed more than 9000 shots in my career. I’ve also lost more than 300 games. 26 times I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
  • Collaboration.  Ken Robinson touts that creativity loves collaboration as even individual creativity is almost always stimulated by the work, ideas and achievements of other people. Author Daniel Goleman agrees:  “A close-knit team, drawing on the particular strengths and skills of each member of the group, may be smarter and more effective than any individual member of that group. Yale psychologist Robert Sternberg calls it “group IQ”—the sum total of all the talents of each person in the group. When a team is harmonious, the group IQ is highest…The value of collaboration is a hard lesson to learn in [some] cultures, where the trailblazing lone hero has long been idolized, and where the role of the individual are so often placed over those of the group. But even those working alone can learn the advantages of teamwork.”
  • Positive thinking.  It has been proven that merely thinking you are more creative increases creativity. Change your attitude with the mantra: I am creative. IDEO founder David Kelley found positive reinforcement increased creativity for employees and helped discover new solutions to design challenges.  As people become more comfortable with the realization that they can be more creative, the upward spiral of success is reinforced.  Goleman concurs: “The more you can experience your own originality, the more confidence you get, the greater the probability that you’ll be creative in the future.”
  • Challenge the Rules. Pablo Picasso believed in challenging tradition, “Every act of creation is first of all an act of destruction.”  A questioning attitude of asking “why” multiple times for the same question (e.g. why do we use time clocks for front line employees?) may result in discovering established rules may be hurting more than helping and organization. For example, typewriters were designed with QWERTY keyboards to avoid keys from sticking together if the operator went too fast (i.e. slowed down how fast one could type).  Why do computer keyboards still use this configuration as a default?  World War II American five-star General Douglas MacArthur  believed “you are remembered by the rules you break.”
  • Humor. “More than four decades of study by various researchers confirms some common-sense wisdom: Humor, used skillfully, greases the management wheels” (Sala). When people are working together on a problem, those groups that laugh most readily and most often are more creative and productive than their serious counterparts. Joking around makes good sense because playfulness is itself a creative state (Goleman). The use of humor or “being silly” can reduce stress and create a learning environment conducive to new ideas.  Author Jonah Lehrer agrees: “When people are exposed to a short video of stand-up comedy, they solve about 20% more insight puzzles.”
  • Brainstorming.  Building upon the traditional brainstorming technique where ideas are developed in an atmosphere of non-judgmental environment, additional creative methods have emerged, including Edward Debono’s Six Thinking Hats, where “wearing” different colored hats requires addressing the situation with a special focus, Synectics’ inclusion of springboard and excursion techniques to expand idea generation and mind mapping to visually develop ideas. At IDEO, brainstorming sessions include the “odd person in” technique, involving people from very different backgrounds that can spark new ideas.

New Habits

Creating a new habit or set of habits is another way to change how we see things.  In his iconic 1989 book, The 7 Habits of Highly Effective People, Stephen Covey illustrates how powerful an influence habits can be in our lives. Covey describes a habit as the intersection of knowledge, skill, and desire: “Knowledge is the what we do and why we do it [principles], desire is the motivation, the want to do, and skill is the how to do.” His seven habits—Be Proactive, Begin with the end in mind, Put first things first, Think win/win, Seek first to understand…then be understood, Synergize, and Sharpen the saw—provide a way of thinking and acting in business and life.  By embracing these habits, one can maintain a better balance and create the opportunity to find new ways of looking at situations.

Barista Kim Jung Mi, a mother who had left the workforce seven years ago and is now employed by Starbucks Coffee Korea Co. under its "returning-mom" program, right, serves a customer at one of the company's stores in Gimpo, South Korea, on Friday, March 7, 2014. Starbucks Korea's "returning-mom" program is part of a drive to raise female participation in Asia's fourth-largest economy as the nation's first female leader, President Park Geun Hye, tries to counter the effects of an aging population. Photographer: SeongJoon Cho/Bloomberg via Getty Images

Through role playing, discussion, and feedback, Starbucks employees are trained to develop habits of willpower. (Photographer: SeongJoon Cho/Bloomberg via Getty Images)

Charles Duhigg’s more recent bestseller, The Power of Habit, addresses the idea of habits as “why we do what we do in business and life.”  Taking a psychological approach, Duhigg explores the theory of cues (something that triggers a habit), routines (actions taken in response to cues), and rewards (the positive experiences resulting from routines), which together comprise the habit loop.  For example, Starbucks develops habits of willpower to help their staff deal with stressful times. Through role-playing, discussion, and feedback, they train employees how to react to a cue (e.g., an angry customer or a busy period) by choosing a certain routine ahead of time (e.g., remaining calm, looking for solutions, etc.). When an inflection point arrives (cue), employees are able to handle the situation smoothly, resulting in the reward of a satisfied customer and successful chaos management. In this scenario, Starbucks helps their staff create habits by helping them change how they approach and address dilemmas.  One employee now thinks of his green Starbucks apron as a shield – when he puts it on, angry customers can no longer affect him!

Cue

Taking a psychological approach, Duhigg explores the theory of cues (something that triggers a habit), routines (actions taken in response to cues), and rewards (the positive experiences resulting from routines), which together comprise the habit loop.

Reframing

“The power of reframing things can unlock a vast array of solutions to problems big and small,” states author Tina Seelig.  She illustrates reframing using a classic scene from the Pink Panther movie (a hospitality example, no less).

Inspector Clouseau: Does your dog bite?

Hotel Clerk: No.

Clouseau [bowing down to pet the dog] Nice doggie.

[The dog bites Clouseau’s hand.]

Clouseau: I thought you said your dog did not bite!

Hotel clerk: That is not my dog.

We might be tempted to blame the clerk when the dog bites Clouseau, but the clerk’s final statement surprises us and causes us to consider the situation differently.

One of the key elements of reframing is to view a circumstance with a fresh perspective. In Tom Stoppard’s play, Rosencrantz and Guildenstern are Dead, we see Shakespeare’s classic story of Hamlet through the lens of two minor characters, and in the Broadway hit Wicked, the Wizard of Oz story is interpreted from the witches’ perspectives, revealing a more complex and altered understanding of the Wicked Witch of the West and Glinda, the Good Witch.  Reframing a situation allows the possibility of new lessons and solutions which otherwise may go unnoticed.

NEW YORK - JUNE 6: (HOLLYWOOD REPORTER OUT) American singer and actress Idina Menzel of "Wicked" performs on stage during the "58th Annual Tony Awards" at Radio City Music Hall on June 6, 2004 in New York City. The Tony Awards are presented by the League of American Theatres and Producers and the American Theatre Wing. (Photo by Frank Micelotta/Getty Images)

The Broadway hit Wicked, the Wizard of Oz story is interpreted from the witches’ perspectives, revealing a more complex and altered understanding of the Wicked Witch of the West and Glinda, the Good Witch. (Photo by Frank Micelotta/Getty Images)

In their approach to reframing, authors Bolman and Deal use frames as a useful tool to make sense of organizations.  The four frames, structural (emphasizing roles & policies), human resource (highlighting human needs, skills and relationships), political (focuses on power, conflict and competition) and symbolic (emphasizing culture, meaning, ceremonies and stories) offer different perspective on how to think about organizations.  Each frame provides a different language and model in managing, evaluating, diagnosing and understanding and leading an organization.  Altering the way in which we typically frame an organization can help us better communicate with those who interpret the organization differently.  Viewing an organization from different frames may also unleash a variety of new ideas to address current or emerging dilemmas or raise up new opportunities to respond to change in our world.

Another example of reframing is illustrated, quite literally, in how we view the world. This spring, 600 classrooms in the Boston Public School system switched from teaching the traditional European-centric Mercator map, developed in the 1500s, to the Peters Projection map (1974), in which land masses are more accurately represented in relation (size and proximity) to one another.  For example, using the Mercator map, Greenland and Africa appear the same size; in the Peters map, however, Africa, which is 14 times larger than Greenland, is more proportionally displayed.  This idea was brought to mainstream US in a 2001 West Wing clip by the ‘cartographers for social equality’. At one point, when confronted with these new perspectives, a West wing official asked, “You mean Germany is not where we think it is?”— to which a cartographer responded, “Nothing is where you think it is.” The issue of perspective and change about our world, met with incredulity in a fictional drama, became reality this spring in Boston Public Schools.

maps

Mercator Map (left, by Lars H. Rohwedder) and the Peters Projection Map (right, by Streb)

Paradigms Shifts

The Oxford Dictionary defines a paradigm as “a typical example or pattern of something; a pattern or model.” Scientist Thomas Kuhn introduced the concept of the paradigm shift in his influential 1962 book, The Structure of Scientific Revolutions.  Groundbreaking paradigm shifts include examples in areas as diverse as physics, health, and astronomy—think of what Galileo had to go though to convince royalty that the earth rotated around the sun (Copernicus theory) when most astronomers believed the reverse to be true.  A paradigm shift changes how we look at things. Malcolm Gladwell’s best-selling books focus on rethinking preconceived ideas, starting with his breakthrough 2006 book The Tipping Point and continuing with his more recent book David and Goliath, which offers several real life examples of when a perceived strength can be a weakness and a weakness… a strength.  For example, an extraordinary high number of successful entrepreneurs are dyslexic, including Jet Blue founder David Neeleman.  The challenge of dyslexia as a child may provide coping skills later in life – billionaire Sir Richard Branson of Virgin Air considers his dyslexia his greatest business advantage.

AUSTIN, TX - MARCH 15: Journalist Malcolm Gladwell attends 'Bill Gurley And Malcolm Gladwell In Conversation' during the 2015 SXSW Music, Film + Interactive Festival at Austin Convention Center on March 15, 2015 in Austin, Texas. (Photo by Robert A Tobiansky/Getty Images for SXSW)

“As the playwright George Bernard Shaw once put it: “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man,” from Malcolm Gladwell’s David and Goliath: Underdogs, Misfits, and the Art of Battling Giants. (Photo by Robert A Tobiansky/Getty Images for SXSW)

In business, paradigm shift examples include disruptive innovations (e.g., the Internet, mobile technology, and big data analytics), shifting global economies, climate change, employee and societal demands, and changing consumer preferences.  Futurist Joel Barker explains that when a paradigm shift occurs, everything resets to zero, past successes guarantee nothing, and shifting business models shift to create new realities.  For example, once-successful big box stores and corporations that could not adapt to the digital age, such as Borders Books, Blockbuster, and Kodak, went bankrupt. Compare these examples to Netflix, which was able to successfully navigate from their business model of renting DVDs through the mail to streaming movies and television shows over the internet to increase their market share.  Flexibility to adapt to paradigm shifts is a powerful tool. As Charles Darwin explains in describing his iconic research: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”           

UNSPECIFIED - AUGUST 01: Biology - Evolutionary theory: theories of Jean-Baptiste Lamarck and of Charles Darwin. Illustration. (Photo by DeAgostini/Getty Images)

An illustration of Darwin’s well-known idea of “Survival of the Fittest” (Photo by DeAgostini/Getty Images)       

Self-Reflection and Understanding

Shifting paradigms and changing one’s perspective starts with self-reflection: the better we understand ourselves, the better we can approach change.  Daniel Goleman provides the multi-faceted framework of emotional intelligence, including two personal competencies (self awareness and self management) and two social competencies (relationship management and social awareness) that should be examined to help better understand moods and how they affect those around them. Peter Drucker asserts in order to be productive over a 50-year work-life it is important to cultivate a deep understanding of one’s self.  He offers several penetrating questions in his Harvard Business Review article Managing Oneself, including “How do I work?” “Where do I belong?” and  “What can I contribute?”

There are also many tools available to help provide insight into the ways in which we each view and navigate the world around us. With over two million Myers Briggs Type Indicator (MBTI) assessments being administered every year in more than 70 countries, this personality profile tool, based on the work of noted psychologist Carl Jung, continues to be wildly popular in helping people better understand themselves. Key MBTI elements include how we focus our energy (introversion vs. extroversion), the way we take in information (sensing vs. intuitive), make decisions (thinking vs. feeling) and our attitudes toward the external world and how we orient ourselves to it (view the world to be organized and orderly vs. flexible and be experienced).  The Big Five personality traits, Fundamental Interpersonal Relations Orientation (FIRO), Thomas-Kilmann conflict mode instrument (TKI), and the Strong Interest inventory are all additional tools that can help analyze one’s preferences.

Identifying one’s personal values is also a strong trend in business today, with a plethora of instruments available for self-discovery.  For example, after a two-day, internal values-clarification exercise, each member of the senior leadership team of the Vail Centre posts his/her top five values on the company’s website for everyone to see.  Determining and focusing on one’s strengths rather than one’s weaknesses is the cornerstone approach to Gallop Poll and Don Clifton’s Strengthfinder 2.0.  This self-assessment tool enables one to identify their  top 5 of 34 different talent themes, from Achiever to WOO (winning others over).  By better understanding one’s natural instincts, strengths, weaknesses and personal preferences, one can increase the likelihood to learn how other colleagues or customers from different backgrounds, cultures, generations or perspectives see things differently, enabling new approaches or frames to address change.

In his book, The Spirit to Serve, Marriott International founder J.W. Marriott, Jr.  adopted 19th century philosophy Alfred North Whitehead’s  perspective when developing the Marriott Way, “The art of progress is to preserve order amid change and to preserve change amid order.”  The ability to think differently as the hospitality industry moves into uncharted territories—both nationally and internationally, within organizations and in local markets, online and in person—is becoming more important as change continues to evolve at a faster pace than ever before.  Being nimble and open-minded enough to adapt, addressing challenges and/or seizing opportunities, will determine which companies wither away and which ones thrive.  At the heart of these circumstances is the ability to recognize trends, realize the need for change and act on these situations in ways that navigate the needs of an organization, and its staff and customers.  Mental flexibility, adaptability, creativity and personal awareness are key tools in this process that can help hospitality leaders see things from different perspectives, gain new insights, develop and pilot new ideas and better respond to an ever-changing world.

 

PDF Version Available Here


Oshins

Michael Oshins is Associate Professor of the Practice of Leadership in the School of Hospitality Administration at Boston University. He is former Vice President of Integer Dynamics, a hospitality consulting firm focused on operational productivity and technology. He holds a doctorate in human resource education from Boston University and a master’s degree in hotel administration from Cornell University. Email: moshins@bu.edu

 

 

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Comparing apples and oranges? Examining the impacts of Airbnb on hotel performance in Boston

June 7th, 2017 in Hotels, Sharing Economy, Spring 2017, Trends, Uncategorized 1 comment

Left: Boston-area Airbnb hosts prepares her spare room for rent Right: A suite at the Godfrey Hotel, a recent addition to Boston's hotel offerings. Photo Sources: Getty Images

Left: Boston-area Airbnb hosts prepares her spare room for rent Right: A suite at the Godfrey Hotel, a recent addition to Boston’s hotel offerings. Photo Sources: Getty Images

By Tarik Dogru, Makarand Mody, and Courtney Suess

If you are in the hotel industry, chances are that Airbnb has come up in conversation at some point or another. The sharing economy phenomenon and the economic, social, and technological changes fueling its growth have challenged the hotel industry to rethink its experiential value proposition to the customer (Mody, Suess, & Lehto, in press). Airbnb founder and CEO Brian Chesky tweeted that “Airbnb hosted more than 2 million guests in the past New Year’s Eve,” and that with the last round of financing, which was $1 billion, Airbnb is now valued at $31 billion (Yurieff, 2017). As a result, Airbnb has been at the core of discussions in the world of hospitality and beyond, mainly due to its potential and uncalculated impacts. On one hand, Airbnb might have positive economic impacts on hospitality and tourism institutions, such as restaurants, bars, and other area attractions, through increases in income and job creations. On the other hand, potential adverse economic impacts of Airbnb cannot be overlooked: Airbnb might negatively affect the hotel industry, if visitors were to shift their demand from hotels to Airbnb accommodations. However, it is not yet clear whether Airbnb is taking a share of the existing hotel industry pie or increasing the size of the overall accommodations industry.

LOS ANGELES, CA - NOVEMBER 17: Airbnb founder/CEO Brian Chesky speaks onstage at "Introducing Trips" Reveal at Airbnb Open LA on November 17, 2016 in Los Angeles, California. (Photo by Stefanie Keenan/Getty Images for Airbnb)

Brian Chesky, Airbnb CEO and founder, tweeted that “Airbnb hosted more than 2 million guests in the past New Year’s Eve”. Photo Source: Getty Images. Photo by Stefanie Keenan/Getty Images for Airbnb

The results from the most comprehensive study analyzing the effects of Airbnb on the hotel industry showed that a 1% increase in Airbnb listings decreases hotel revenue by 0.05% (Zervas, Proserpio, & Byers, 2016). Thus, although negative effects on hotel revenues by way of Airbnb were reported in this study, the magnitude of these effects was small in the given location of Texas. On the other hand, a study conducted in Korea showed that Airbnb does not affect hotel revenues at all (Choi, Jung, Ryu, Do Kim, & Yoon, 2015). A recent study conducted by Smith Travel Research (STR) in 13 global markets reported that Airbnb listings did not affect hotel demand and revenues (Haywood, Mayock, Freitag, Owoo, & Fiorilla, 2017).

While there are limited studies from which to draw definitive conclusions on the effects of Airbnb on the hotel industry, according to Mr. Chesky, Airbnb does not directly compete with the hotel industry. He claims that Airbnb guests are not typical hotel customers, but rather those who would have stayed with friends and family (Intelligence, 2017). Although Airbnb argues that it brings new visitors to destinations and that 70% of its listings are outside of hotel districts, a report by Morgan Stanley indicates that about 42% and 36% of Airbnb guests switched from hotels and bed and breakfasts respectively, whereas only 31% of Airbnb guests represent those who would have stayed with friends and family (Intelligence, 2017). Furthermore, a recent study conducted in Los Angeles showed that more than 60% of the properties listed on Airbnb are solely used for commercial purposes and thus are excluded from the residential real estate market (Lee, 2016). According to a recent report by CBRE, revenue generated by hosts renting out two or more units was about $1.8 billion, and hosts renting out ten or more units generated $175 million in 13 major US markets in 2016 (CBRE, 2017). Despite this massive amount of generated revenue, the hosts are generally not paying taxes on their properties.

While there seems to be free-riders on the market that take advantage of the sharing economy platforms like Airbnb by listing multiple properties, based on the current knowledge, it is still not clear whether Airbnb has an adverse effect on the hotel industry. The present study compares the hotel industry and Airbnb in terms of key performance metrics, including occupancy, ADR, and RevPAR, to determine whether and how Airbnb affects the hotel industry in Boston. Boston is a strong hotel market, but italso has a considerable and growing Airbnb supply, so it provides an excellent context for our analysis.

In our analyses, we treated Airbnb as an accommodation firm to analyze whether it is directly competing with hotels in Boston. Accordingly, the number of Airbnb units listed and the number of units rented (including entire homes and private and shared rooms) multiplied by the number of days in a specified time period constitute Airbnb supply and demand figures, respectively. Occupancy, ADR, and RevPAR were calculated following the same methodology used to calculate these statistics in hotel industry. The Airbnb and hotel data were provided by Airdna and STR, respectively. We analyzed data for the period between January 2015 and September 2016.

ANALYSIS

Comparing changes in supply and demand

Tables 1 and 2 present the supply, demand, and revenue statistics for Airbnb and hotels in the city of Boston during the analysis period.

Table 1. Airbnb Supply and Demand

Period Airbnb Supply % Change in Supply Airbnb Demand % Change in Demand
Jan-15 79,110 N/A 575 N/A
Feb-15 85,890 8.6 4,506 683.7
Mar-15 91,710 6.8 7,811 73.3
Apr-15 106,380 16.0 18,733 139.8
May-15 114,330 7.5 30,547 63.1
Jun-15 123,180 7.7 38,545 26.2
Jul-15 122,670 -0.4 51,378 33.3
Aug-15 119,580 -2.5 37,555 -26.9
Sep-15 128,730 7.7 51,757 37.8
Oct-15 142,470 10.7 41,011 -20.8
Nov-15 363,660 155.3 76,451 86.4
Dec-15 383,880 5.6 65,064 -14.9
Jan-16 380,910 -0.8 73,300 12.7
Feb-16 375,480 -1.4 101,409 38.3
Mar-16 372,540 -0.8 112,501 10.9
Apr-16 373,050 0.1 134,951 20.0
May-16 374,970 0.5 137,347 1.8
Jun-16 378,870 1.0 147,947 7.7
Jul-16 385,260 1.7 148,473 0.4
Aug-16 385,620 0.1 123,588 -16.8
Sep-16 390,270 1.2 107,690 -12.9

Table 2. Hotel Supply and Demand

Period Hotel Supply % Change in Supply Hotel Demand % Change in Demand
Jan-15  1,588,843  N/A  896,065  N/A
Feb-15  1,436,512 -9.6  901,459 0.6
Mar-15  1,598,701 11.3  1,200,426 33.2
Apr-15  1,550,910 -3.0  1,216,283 1.3
May-15  1,605,304 3.5  1,328,932 9.3
Jun-15  1,558,800 -2.9  1,357,872 2.2
Jul-15  1,610,760 3.3  1,413,521 4.1
Aug-15  1,616,278 0.3  1,393,622 -1.4
Sep-15  1,564,170 -3.2  1,335,976 -4.1
Oct-15  1,616,340 3.3  1,394,364 4.4
Nov-15  1,564,170 -3.2  1,105,292 -20.7
Dec-15  1,616,309 3.3  906,619 -18.0
Jan-16  1,632,367 1.0  909,132 0.3
Feb-16  1,482,796 -9.2  895,546 -1.5
Mar-16  1,646,410 11.0  1,150,937 28.5
Apr-16  1,593,300 -3.2  1,273,368 10.6
May-16  1,650,409 3.6  1,303,974 2.4
Jun-16  1,603,050 -2.9  1,366,553 4.8
Jul-16  1,656,392 3.3  1,406,893 3.0
Aug-16  1,667,955 0.7  1,403,774 -0.2
Sep-16  1,622,130 -2.7  1,347,565 -4.0

The number of Airbnb listings has increased dramatically from 79,110 in January 2015 to 390,270 in September 2016. While the highest growth in hotel room supply was about 11% month-over-month (in March 2016), Airbnb supply experienced a phenomenal growth rate of 155% (in November 2015). Extraordinary changes in hotel room supply might be due to renovations and the completions of ongoing projects in the pipeline. However, the extreme supply shocks in the case of Airbnb are due to the greater flexibility of adding or removing existing residential properties in the market.

Changes in demand were greater than the changes in supply for both Airbnb and the hotel industry. Yet overall trends indicate that Airbnb experienced greater increases in demand as compared to the increases in the demand for hotel rooms. For example, Airbnb demand increased by 684%, 140%, and 33% in February, April, and July 2015 respectively, whereas hotel demand only increased by 0.6%, 1.3%, and 4.1% during these months. Although the changes in demand for Airbnb and the hotel industry during the analysis period were, for most part, in the same direction (albeit to varying degrees), there were some anomalies where the changes occurred in the opposite direction. For example, in September and November 2015, while hotel demand decreased by around 4% and 21% respectively, the demand for Airbnb accommodations increased by about 38% and 86% respectively. Also, demand for Airbnb accommodations decreased by 21% in October 2015, whereas hotel demand increased by 4% during the same period.

Comparing Occupancy, ADR, and RevPAR

Tables 3 and 4 shows occupancy, ADR, and RevPAR statistics for Airbnb and hotels in the city of Boston during the analysis period.

Table 3. Airbnb OCC-ADR-RevPAR

Period Airbnb Occupancy Airbnb

ADR

Airbnb RevPAR
Jan-15 0.70 $158.86  $1.15
Feb-15 5.20 $133.05  $6.98
Mar-15 8.50 $153.44  $13.07
Apr-15 17.6 $161.00  $28.35
May-15 26.7 $134.61  $35.97
Jun-15 31.3 $186.51  $58.36
Jul-15 41.9 $180.12  $75.44
Aug-15 31.4 $142.24  $44.67
Sep-15 40.2 $183.34  $73.71
Oct-15 28.8 $171.78  $49.45
Nov-15 21.0 $151.97  $31.95
Dec-15 16.9 $149.88  $25.40
Jan-16 19.2 $142.60  $27.44
Feb-16 27.0 $160.89  $43.45
Mar-16 30.2 $156.35  $47.22
Apr-16 36.2 $158.33  $57.27
May-16 36.6 $160.96  $58.96
Jun-16 39.0 $187.26  $73.13
Jul-16 38.5 $176.45  $68.00
Aug-16 32.0 $145.23  $46.55
Sep-16 27.6 $159.41  $43.99

Table 4. Hotel OCC-ADR-RevPAR

Period Hotel Occupancy Hotel

ADR

Hotel RevPAR
Jan-15 56.4 $142.74 $80.50
Feb-15 62.8 $144.29 $90.55
Mar-15 75.1 $170.58 $128.08
Apr-15 78.4 $188.01 $147.44
May-15 82.8 $205.62 $170.22
Jun-15 87.1 $206.68 $180.04
Jul-15 87.8 $200.44 $175.90
Aug-15 86.2 $193.64 $166.96
Sep-15 85.4 $209.00 $178.51
Oct-15 86.3 $220.10 $189.87
Nov-15 70.7 $183.17 $129.43
Dec-15 56.1 $147.97 $83.00
Jan-16 55.7 $146.43 $81.55
Feb-16 60.4 $146.65 $88.57
Mar-16 69.9 $171.94 $120.20
Apr-16 79.9 $201.51 $161.04
May-16 79.0 $207.29 $163.78
Jun-16 85.2 $212.35 $181.02
Jul-16 84.9 $199.52 $169.47
Aug-16 84.2 $198.45 $167.02
Sep-16 83.1 $219.26 $182.15

Hotel occupancy rates decreased to 83% in September 2016 from 85% in the same period of the previous year, whereas Airbnb’s occupancy has seen a greater decrease from 40% to 28% in the same period. In February 2015, Airbnb’s occupancy was around 5% and reached about 28% in September 2016. While Airbnb experienced a dramatic increase in occupancy growth throughout the analysis period, these gains did not seem to affect the hotel industry’s occupancy rates.

Although hotel ADR was generally greater than that of Airbnb, Airbnb’s ADR figures were greater than hotel ADR in three months (January 2015, December 2015, and February 2016). Hotel ADR was $209 in September 2015 and increased to about $219 in September 2016. Despite the lower occupancy in hotels in September 2016 as compared to the same time in the previous year (September 2015), the RevPAR was comparatively higher even after correcting for inflation. (Note: The RevPAR increased from $75.17 to $75.58 based on 1982=100 prices.) A clear trend can be observed in hotel ADR and RevPAR figures through 2015, and this trend seemed to persist in 2016 in terms of the month-over-month growth rates. However, Airbnb ADR and RevPAR seemed to fluctuate throughout 2015 and do not seem to follow a seasonal movement. Indeed, supply and demand dynamics may have caused the changes in Airbnb ADR and RevPAR, where the equilibrium price is set within the Airbnb market. However, the lack of revenue management practices by Airbnb hosts might also have contributed to these fluctuations in ADR and RevPAR.

Boston Change in supply Airbnb vs Hotels

Change in demand Airbnb vs Hotels Boston Change in occupancy Airbnb vs Hotels Boston

Figure 4

Change in RevPAR Airbnb vs Hotels Boston Boston Hotel Perforamnce Trends 2005-2016 12 years

Hotel performance before and after the arrival of Airbnb

We further analyzed the hotel industry trends for Boston during last 12 years (presented in Table 5), both before and after Airbnb’s entry into the market, to determine whether Airbnb has an effect on hotel supply, demand, and revenue dynamics. The hotel room supply has continued to grow, which suggests that hotel industry seem to continue to grow despite the rise of the Airbnb. The hotel industry’s occupancy saw its lowest point in 2009 and reached over 85% in 2015. Although hotel occupancy experienced a few declines year over year, these decreases appear to be due to supply shocks. For example, in 2016, occupancy decreased by about 2.7%; however, supply growth was around 3.7%. That is, the decline cannot be entirely attributed to the growth in Airbnb. Despite the declines in occupancy, both ADR and RevPAR have continued to increase without a decline after the crisis period and around the arrival of Airbnb onto the scene (2008-2009), and reached their peak in September 2016.

Table 5. Historical Hotel Dynamics

Period Supply Demand Occupancy ADR RevPAR
Sep-05 1418370 1092599 77.0  $143.85  $110.81
Sep-06 1460070 1095808 75.1  $152.20  $114.23
Sep-07 1472790 1164487 79.1  $165.97  $131.23
Sep-08 1492830 1105819 74.1  $171.52  $127.06
Sep-09 1504560 1091371 72.5  $143.20  $103.88
Sep-10 1512540 1176147 77.8  $155.26  $120.73
Sep-11 1512810 1225707 81.0  $162.31  $131.51
Sep-12 1528290 1208011 79.0  $170.08  $134.43
Sep-13 1538100 1251193 81.3  $180.20  $146.58
Sep-14 1537860 1306622 85.0  $202.38  $171.95
Sep-15 1564170 1335976 85.4  $209.00  $178.51
Sep-16 1622130 1347565 83.1  $219.26  $182.15

So, has Airbnb impacted hotel performance in Boston? The data suggests “no”!

Hotels were able to sell more rooms over the last 12 years—that is, more people stayed in hotels in 2016 compared to previous years, despite the demand that was captured by Airbnb. Although it is not clear whether the excess demand in the overall accommodations market was created solely because of Airbnb, the additional demand, at least to some extent, could have been accommodated by hotels in Boston. Hotels in the city have, on average, around 83% occupancy. Thus, for example, if the Airbnb guests were to be captured by the hotels in Boston, the average hotel occupancy would have been around 90% in September 2016. However, considering the fact that Airbnb’s ADR was lower than that of hotels ($159 vs. $219), hotels would probably have captured the Airbnb demand within this lower Airbnb price range. It should also be noted that, historically, the hotel occupancy in the Boston market has fluctuated between 74 and 85%. With this in mind, Airbnb does not seem to whip from the hotel industry’s market share, but rather seems to have created new demand. Although correlation does not indicate causation, the correlation coefficients between hotel and Airbnb supply, demand, revenue, occupancy, ADR, and RevPAR (presented in Table 6) also suggest that Airbnb does not seem to adversely affect the hotel industry in Boston.

Table 6. Correlations

Hotel Supply Hotel Demand Hotel Occupancy Hotel ADR Hotel RevPAR
Airbnb Supply 0.386
Airbnb Demand 0.289
Airbnb Occupancy 0.716
Airbnb ADR 0.494
Airbnb RevPAR 0.358

Nevertheless, as Table 7 indicates, Airbnb has been able to increase its market share quite remarkably. In particular, Airbnb’s market share in terms of supply has increased from about 5% in January 2015 to about 19% of the overall accommodation market (i.e., available room nights) in September 2016. Theoretically, the Airbnb supply can be as large as the residential real estate market in a location. However, it takes a few years to develop a hotel and thus boost the hotel room supply in the market, so comparing the market share in terms of supply is less than ideal. Airbnb’s market share in terms of demand also shows significant growth, from less than 0.1% in January 2015 to more than 7% in September 2016. Despite Airbnb’s penetration into the market in terms of supply and demand, Airbnb’s market share in terms of revenues was only around 5.5% in September 2016. The lower market share in revenues is likely due to lower prices compared to those of hotels and the lack of revenue management practices by the Airbnb hosts. While a 5.5% market share in terms of revenue is considerable for a start-up like Airbnb, it should be highlighted that Airbnb seems to have created new demand by increasing the market size. We estimated approximately $15 million in tax obligations based on the revenues generated by Airbnb during 2015-2016, which is similar to the figures found in the recent CBRE report.

Table 7. Airbnb Market Share

Period Airbnb Market Share (Supply) Airbnb Market Share (Demand) Airbnb Market Share (Revenue)
Jan-15 4.74% 0.06% 0.07%
Feb-15 5.64% 0.50% 0.46%
Mar-15 5.43% 0.65% 0.58%
Apr-15 6.42% 1.52% 1.30%
May-15 6.65% 2.25% 1.48%
Jun-15 7.32% 2.76% 2.50%
Jul-15 7.08% 3.51% 3.16%
Aug-15 6.89% 2.62% 1.94%
Sep-15 7.60% 3.73% 3.29%
Oct-15 8.10% 2.86% 2.24%
Nov-15 18.86% 6.47% 5.43%
Dec-15 19.19% 6.70% 6.78%
Jan-16 18.92% 7.46% 7.28%
Feb-16 20.21% 10.17% 11.05%
Mar-16 18.45% 8.90% 8.16%
Apr-16 18.97% 9.58% 7.69%
May-16 18.51% 9.53% 7.56%
Jun-16 19.12% 9.77% 8.72%
Jul-16 18.87% 9.55% 8.54%
Aug-16 18.78% 8.09% 6.05%
Sep-16 19.39% 7.40% 5.49%

While it is still not clear from our analysis whether the increase in overall demand was caused by Airbnb or other economic factors, the descriptive analyses presented in this study suggest that Airbnb does not seem to be competing directly with the hotel industry. However, this was an investigation of the overall hotel market with limited Airbnb data; further analysis is required to determine within-hotel industry effects (e.g. midscale, economy, luxury) and whether Airbnb has a greater impact on asset heavy hotel-REITs or asset-light hotel management and franchising companies (Dogru, 2017a).

With 242 rooms, the Godfrey Hotel is one of many recent additions to Boston’s hotel market. Photo by Pat Greenhouse/The Boston Globe via Getty Images.

Airbnb accommodations may provide substantial financial, economic, and social benefits to the city of Boston if the listings drive additional tourists to the city, which seems to be the case as suggested by our analyses. These benefits include but are not limited to generating additional tax revenues for cities and local governments, especially to neighborhoods not traditionally visited by guests staying within the hotel-dominated areas (Tussyadiah & Pesonen, 2016), and additional income for hosts, which would cause a surge in per capita income. Furthermore, during peak seasons or in the cases of mega-events like the Olympics, the availability of supplementary Airbnb rentals may be more beneficial than building hotels that will later not be utilized at optimal levels (Dogru, 2016, 2017b).

However, the positive economic impacts may not sufficiently compensate for the potential decline in residents’ quality of life. Airbnb could have an adverse impact on the quality of life of local residents in neighborhoods that contain Airbnb offerings because of nuisances and disruptions caused by visitors. Also, the increasing number of Airbnb listings might have undesirable effects on the residential housing market. Homeowners might simply turn their properties into Airbnbs if they believe they can make more money, which may exacerbate preexisting housing problems in metropolitan cities (Lee, 2016). There is little empirical evidence on the economic or social impacts of Airbnb to support either the proponents or the critics of Airbnb. Thus, the course and the magnitude of these impacts do not go beyond speculation for the time being. Moreover, the economic impacts of Airbnb might be better observed once the sharing economy market is regulated. Therefore, further investigations are necessary to measure the economic and social impacts of Airbnb.

Summary of key findings

  • Airbnb supply experienced more extraordinary “supply shocks” due to flexibility in adding inventory in Boston. Hotel supply displayed a marginal increase over the analysis period.
  • Airbnb experienced greater increases in demand as compared to the increases in the demand for hotel rooms, mirroring the trends in supply growth for the start-up.
  • While Airbnb experienced a dramatic increase in occupancy growth throughout the analysis period, these gains did not seem to adversely impact the hotel industry’s occupancy rates, or either hotel ADR and RevPAR growth rates.
  • Hotel ADR and RevPAR have continued to grow following the arrival of Airbnb onto the accommodation scene, continuing their pre-Airbnb growth momentum.
  • Key performance metrics for Airbnb and hotels indicate a strong positive correlation, suggesting that Airbnb demand is potentially different from hotel demand (i.e., they target different customer segments), and thus, Airbnb’s negative economic impacts on the hotel industry are, at best, marginal.
  • Future research should supplement economic analyses with the profiling of customer segments across the hotel industry and Airbnb and should also examine the social impacts of the sharing economy.


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Dogru Headshot
Tarik Dogru earned his Ph.D. in Hospitality Management from University of South Carolina, and holds Master’s degree in Business Administration from Zonguldak Karaelmas University in Turkey.Prior to joining the Boston University School of Hospitality Administration faculty, he was an adjunct faculty at University of South Carolina (2013-2016) and research assistant at Ahi Evran University (2009-2012) in Turkey. He has taught a variety of courses, including Economics, Finance, Accounting, Hospitality, and Tourism in business and hospitality schools. He is a Certified Hospitality Educator (CHE) and holds Certification in Hotel Industry Analytics (CHIA) from American Hotel & Lodging Educational Institute. Tarik’s research interests span a wide range of topics in hospitality finance, corporate finance, behavioral finance, real estate investment trusts (REITs), hotel investments, tourism economics, and climate change.

 

Mody
Makarand Mody, Ph.D. has a varied industry background. He has worked with Hyatt Hotels Corporation in Mumbai as a Trainer and as a Quality Analyst with India’s erstwhile premier airline, Kingfisher Airlines. His most recent experience has been in the market research industry, where he worked as a qualitative research specialist with India’s leading provider of market research and insights, IMRB International. Makarand’s research is based on different aspects of marketing and consumer behavior within the hospitality and tourism industries. He is published in leading journals in the field, including the International Journal of Contemporary Hospitality Management, Tourism Management Perspectives, Tourism Analysis and the International Journal of Tourism Anthropology. His work involves the extensive use of inter and cross-disciplinary perspectives to understand hospitality and tourism phenomena. Makarand also serves as reviewer for several leading journals in the field. In fall 2015, he joined the faculty at the Boston University School of Hospitality Administration (SHA). He received his Ph.D. in Hospitality Management from Purdue University, and also holds a Master’s degree from the University of Strathclyde in Scotland.

 

Suess Raeis New

Courtney Raeisinafchi, Ph.D spent 6 years designing and developing hotels and restaurants with Jordan Mozer and Associates, Ltd., an architecture firm based in Chicago, IL, after completing a bachelors degree at the School of the Art Institute of Chicago where she studied architecture. Some notable projects she was involved in includes Marriott’s Renaissance Hotel, Times Square and Hotel 57 in Manhattan, NY; both hotels have received the International Hotel , Motel and Restaurant Society’s Golden Key Awards for Best hotel design. While drafting new proposals for hospitality projects for Jordan Mozer and Associates in Southeast Asia, she began a masters degree, studying hospitality administration, at the University of Nevada, Las Vegas (UNLV) in Singapore. After graduating, she continued to complete her doctoral degree in Hospitality Administration at UNLV in Las Vegas and studied towards a second masters degree in architecture at UNLV’s School of Architecture. Courtney joined the Boston University School of Hospitality Administration in 2013. She teaches the Design and Development Class as well as Lodging Operations and Technology. She is an active quantitative researcher on the topics of hospitality development and built environments, as well as design and atmospherics impacts on consumer behavior.

 


References
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  • Haywood, J., Mayock, P., Freitag, J., Owoo, K. A., & Fiorilla, B. (2017). Airbnb & Hotel Performance: An analysis of proprietary data in 13 global markets. Retrieved from http://www.str.com/Media/Default/Research/STR_AirbnbHotelPerformance.pdf
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  • Lee, D. (2016). How Airbnb Short-Term Rentals Exacerbate Los Angeles’s Affordable Housing Crisis: Analysis and Policy Recommendations. Harvard Law and Policy Review, 10, 229-253.
  • Mody, M., Suess, C., & Lehto, X. (in press). The Accommodation Experiencescape: A Comparative Assessment of Hotels and Airbnb. International Journal of Contemporary Hospitality Management.
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What do guests value most in Airbnb accommodations? An application of the hedonic pricing approach

June 7th, 2017 in Hotels, Spring 2017, Trends, Uncategorized 0 comments

Creative Commons Tommypjr

Multiple photos, kitchen access, laundry, and friendly hosts are all listing properties that attract views and reservations. Photo source: Creative Commons Tommypjr

By Tarik Dogru and Osman Pekin

The sharing economy has become a major phenomenon; Airbnb, Uber, ZipCar, Kickstarter and many more comprise the rapidly expanding list of pioneers in the world of the sharing economy. This new concept has introduced an alternative platform for consumers, widely known as peer-to-peer marketplace, in which participants are motivated by the idea of “what’s mine is yours” (Botsman, 2010). Unlike traditional businesses, the concept of the sharing economy is a two-way street wherein users at both ends can benefit either as consumers, suppliers, or both. Sharing economy platforms allow people to share their underutilized properties through user-friendly websites or mobile applications with relatively lower transaction costs and usually at a lower rate compared to those of traditional businesses. Thus, many people have started to participate in sharing economy platforms because of the economic and financial benefits it provides both for consumers and suppliers. In particular, these platforms provide cost-saving benefits and convenience to the consumers, while allowing suppliers to generate extra income (Mohlmann, 2015).

Participants of sharing economy platforms, however, have indicated that social benefits are more important than the economic and financial benefits that sharing economy platforms provide (Tapio & Airi, 2015). Indeed, consumers may perceive differently the value of services offered through sharing economy platforms than they do the value of traditional businesses. For example, consumers may value the sociability, trustworthiness, and friendliness of their Airbnb hosts and the experience they enjoy during their stay (Mody, Suess, & Lehto, in press). However, the value placement might be more closely tied to the dollars consumers spend. That is, the way consumers perceive the benefits from goods and services is likely to be different in sharing economy platforms. While traditional businesses are slow to keep up with these changes, the mutually beneficial characteristics of sharing economy platforms seem to be one of the main reasons behind the significant growth of the sharing economy marketplace, which is now considered a major threat by traditional businesses.

Airbnb, the largest accommodation firm in the sharing economy marketplace, has about 3 million listings, including entire homes, shared rooms, and private rooms, which is more than world’s largest three hotel chains combined (IHG, Marriott, Hilton, 2.58 M listings). Over five years, it hosted about 50 million guests, 30 millions of whom were hosted in 2015 alone (Airbnb Summer Travel Report, 2015). In a recent report, STR showed that Airbnb currently has around 9% of the market share in terms of supply. Although Airbnb supply dynamics are much more flexible than those of traditional accommodations, such a large supply capacity might create a substantial threat to the lodging industry (Haywood et al., 2017).The remarkable volume of listings and record-breaking growth in number of guests has caused Airbnb to be recognized as a “disruptor” for the lodging industry (Guttentag, 2015). Critics of the sharing economy argue that if Airbnb did not exist or if it were to operate by the same rules that traditional lodging firms do, then most, if not all, of the room nights would be booked in traditional hotels. In a recent study, researchers found that a one percent increase in the number of Airbnb listings decreased hotel room revenue by 0.5% in Texas (Zervas, Byers, & Proserpio, 2017). These results provided support for the concerns expressed by stakeholders in the lodging industry that the growth of sharing economy platforms is likely to adversely affect the lodging industry’s revenue stream. Furthermore, if the hotel demand were to be shifted to Airbnb, hotel developments in the pipeline might create an overinvestment problem in the market (Dogru, 2017a).

The impact of Airbnb on large lodging corporations’ revenue streams does not necessarily suggest that Airbnb will disrupt the overall economy or local economies. In other words, despite the potential adverse effects of the sharing economy on traditional business platforms, the sharing economy could instead provide positive economic benefits for local communities and the tourism industry by generating new jobs and new sources of income (Fang, Ye & Law 2015). According to an economic impact study conducted by Airbnb, guests spent $352 on average in the neighborhood where they stayed, supporting 490 jobs with an overall economic impact of $51 million from July 2013 to June 2014. The company also suggests that this sharing economy platform helped conserve energy equivalent to 220 homes in Boston during this period. Similar findings were also reported in other major cities in the US and around the world. Although these reports might be biased and independent studies should be conducted to determine the economic impact of Airbnb, these findings point out the flip-side of the coin and provide insight about potential positive impacts of the sharing economy on local economies.

Regardless of the potential economic, social, and environmental impacts, whether they be positive or negative, Airbnb should be considered one of the major competitors in the lodging industry, considering its market share and value (Dogru, 2017b). Recent efforts of the lodging industry to “ensure [regulatory] legislation in key markets” suggest that the industry indeed considers Airbnb to be such a major competitor (Benner, 2017). Therefore, understanding what drives consumers to book Airbnb accommodations becomes necessary for the hotel industry in developing strategies to compete with Airbnb. The physical (i.e., space, location, amenities, etc.) and non-physical (i.e., sociability, trustworthiness, friendliness, etc.) attributes, which are reflected on the price of the Airbnb accommodations, may play a crucial role on Airbnb guests’ decision making. In other words, the price of Airbnb properties is determined based on the value consumers place on the attributes of Airbnb accommodations. Therefore, examining the price determinants of Airbnb properties may play a crucial role in understanding the factors that drive the growth of the sharing economy based accommodation services. This study examines the price determinants of Airbnb properties listed in the city of Boston using the hedonic pricing approach.

Studies that have investigated the pricing determinants of sharing economy-based services are limited. A number of studies have examined the effects of reviews, ratings, and host photos on the prices of Airbnb accommodations. Hosts awarded a “Superhost” badge, a status given to hosts with a good standing and excellent service standards, post their properties at higher prices, especially when they receive more reviews and higher ratings (Liang, Schuckert, Law & Chen 2017). Furthermore, studies have shown that guests determine the trustworthiness of hosts from their photos and are willing to book more expensive Airbnb properties if the hosts seem to be trustworthy. However, online reviews and ratings did not appear to have an effect on the listing price (Ert, Fleischer, & Magen, 2015). These results can be attributed to the fact that, on average, Airbnb hosts have a rating of 4.5 out of 5, which is very extreme compared to hotel firms’ ratings (Zervas, Proserpio, & Byers, 2015). Analyzing the price determinants of Airbnb accommodations in 33 cities, where demand and supply dynamics for accommodation services are likely to be different, Wang and Nicolau (2017) found results similar to those of the hotel industry (see e.g., Chen & Rothschild, 2010).

In general, factors related to the site and property characteristics, amenities, services, rental rules, and customer reviews significantly affect the prices of sharing economy-based accommodations. In particular, Airbnb listings that offer amenities such as real beds, wireless Internet, and free parking had higher prices compared to those that lacked these amenities. Although the city of Boston was included in this study, the time period studied was limited to October 2015, and Boston was defined as the greater Boston area. In our study, we analyzed the price determinants of Airbnb accommodations in the city of Boston, and we included properties listed during the period of January, 2015 to September, 2016. Although the price determinants might vary greatly from one city to another, the former study analyzed these determinants using aggregate data from 33 cities around the globe. Therefore, it is necessary to conduct a city-level analysis to identify the price determinants more accurately.

Analysis

The data was obtained from Airdna, which is a company that provides data and analytics to entrepreneurs, investors, and academic researchers (Airdna, 2017). Airbnb listings with no reviews were removed from our analysis in order to provide more accurate estimates, as Airbnb listings with at least one review will be closer to the market equilibrium price. The final sample consisted of 2,699 Airbnb properties listed between 2015 and 2017. Table 1 presents the summary statistics of the dependent and independent variables used in this study, along with minimum and maximum values of these variables where applicable.

Table 1. Summary Statistics
Variables Mean Std. Dev. Minimum Maximum
Dependent Variable
Published Rate 215.12 214.17 10 10,000
Space Attributes
Entire Home 0.70 0.45
Private Room 0.27 0.44
Shared Room 0.03 0.17
Quality Attributes
Cleaning Fee 0.70 0.45
Overall Rating 92 9.40 20 100
Number of Reviews 18 32.31 1 374
Number of Photos 12 9.19 0 105
Superhost Badge 0.09 0.28
Friendliness
Pets allowed 0.12 0.33
Handicap Accessible 0.06 0.24
Family Friendly 0.46 0.49
Freebies
Kitchen 0.94 0.23
Washer 0.69 0.46
Dryer 0.69 0.46
Free Parking 0.05 0.22
Breakfast Included 0.06 0.23
Commerciality Attributes
Suitable for Events 0.04 0.19
Business Ready 0.17 0.38
Hosts with Multiple units 18.34 45.65 1 242
Location
Distance from City Center 3.25 1.39 0.19 7.24

The dependent variable, the published nightly room rate, averages $215 in the city of Boston and ranges anywhere between $10 and $10,000. We classified the attributes of Airbnb accommodations, which are the independent variables of this study, into six categories. Exhibit 1 shows the attributes of a luxury Airbnb accommodation in Boston.

Luxury Airbnb Accommodation

Exhibit 1: Luxury Airbnb Accommodation (Click to enlarge) Source: Airbnb.com

Space attributes include entire homes, private rooms, and shared rooms. According to these results, 70% and 27% of the Airbnb listings are entire homes and private rooms, respectively, whereas only 3% of Airbnb listings are shared rooms. Exhibits 2, 3, and 4 illustrate examples of Airbnb listings in Boston.

Exhibit 2: Shared Room listing in Boston

Exhibit 2: Shared Room listing in Boston (Click to enlarge)

Exhibit 3: Private Room listing in Boston

Exhibit 3: Private Room listing in Boston (Click to enlarge) Source: Airbnb.com

Exhibit 4: Luxury Entire Home listing in Boston

Exhibit 4: Luxury Entire Home listing in Boston (Click to enlarge) Source: Airbnb.com

Quality attributes consist of the cleaning fee, overall ratings, number of reviews, number of photos, and the Superhost Badge status. A major percentage (70%) of Airbnb hosts require a cleaning fee. While overall ratings vary greatly between 20 and 100, on average hosts receive an overall rating of 92. Further analysis showed that there were only 242 hosts with an overall rating below 80. The data for the number of reviews indicates the number of times an Airbnb property was booked, since only people who have stayed in a property are allowed to provide a review. On average, Airbnb hosts had 18 reviews or stays during the study period. Airbnb hosts on average posted 12 photos of their properties, and only 9% of the hosts had the Superhost status.

Friendliness attributes define whether the property listed is pet-friendly, handicap accessible, and family-friendly. Only 12% of the properties studied allow pets. While 46% of the Airbnb properties listed in Boston are family-friendly, only 6% are handicap accessible.

In general, a kitchen and laundry services are the amenities most commonly offered in an Airbnb property. In Boston, 94% and 69% of the hosts offered access to a kitchen and the use of washer and dryer, respectively. Furthermore, the percentage of Airbnb hosts who offered free parking and free breakfast were about 5 and 6%, respectively.

As we define it, the commerciality category includes attributes like suitability for events, business-readiness, and hosts with multiple units. Only 4% of the Airbnb properties are suitable for events and about 17% are business-ready. On average, a host has 18 units listed on Airbnb. More strikingly, some hosts in Boston have 242 properties, whether they be entire homes, private rooms, or shared rooms, listed for rent.

The last attribute category is the location, which represents the geographic distance of an Airbnb property from the city center. Distance from the city center seems to be low—3.25 miles on average—suggesting that most of the properties are in close proximity to the city center, which may create a convenience to the guests.

We examined the price determinants of Airbnb properties utilizing the ordinary least squares regression technique. In particular, we analyzed the effects of space, quality, commerciality, friendliness, freebies, and location factors on the nightly published rate of Airbnb listings. Table 2 presents these results.

Table 2. Price Determinants of Airbnb Accommodations
  (1) (2) (3) (4)
Space Attributes Coefficient t-statistics Significance Relative
Entire Home 0.88 15.60 *** 141%
Private Room 0.25 4.33 *** 28%
Quality Attributes
Cleaning Fee 0.16 8.14 *** 17%
Overall Rating 0.005 5.38 *** 0.5%
Number of Reviews -0.001 -8.00 *** -0.4%
Number of Photos 0.01 10.11 *** 1%
Superhost Badge 0.05 1.80 * 5%
Friendliness
Pet friendly -0.02 -0.72 -2%
Handicap Accessible 0.11 3.26 *** 11%
Family Friendly 0.10 5.43 *** 10%
Freebies
Kitchen -0.15 -3.73 *** -14%
Washer 0.06 1.04 6%
Dryer 0.10 1.71 * 10%
Free Parking -0.002 -0.06 -0.2%
Free Breakfast 0.11 2.88 *** 11%
Commerciality Attributes
Suitable for Events 0.06 1.52 6%
Business Ready -0.04 -1.88 * -4%
Hosts with Multiple units 0.001 6.25 *** 0.1%
Location
Distance from City Center -0.01 -1.84 * -1%
Notes: The dependent variable is published nightly rate. ***, **, and * denotes 0.01, 0.05, and 0.1% statistical significance level respectively.

Key findings can be summarized as follows.

  • Entire homes and private room prices are 141% and 28% higher than shared rooms, respectively.
  • The prices are 17% higher for Airbnb accommodations that require a cleaning fee compared to Airbnb properties that do not require such fees.
  • Overall ratings positively affect Airbnb listing prices, albeit only slightly.
  • Posting more photos of the Airbnb accommodations positively affects prices at a corresponding rate. That is, a 1% increase in number of photos increase prices by 1%.
  • Airbnb accommodations listed by superhosts have 5% higher prices compared to those of hosts without such status.
  • The price increases 10% if Airbnb accommodations are handicap accessible.
  • Family-friendly Airbnb accommodations have 11% higher prices.
  • Offering access to a washer and dryer increases prices by 6% and 10%, respectively.
  • Serving free breakfast increases prices by 11%, compared to the Airbnb accommodations that do not offer free breakfast.
  • Airbnb accommodations that are suitable for events have 6% higher rates.
  • A 1% increase in the number of reviews decreases prices by 0.4%.
  • The prices of Airbnb accommodations with a kitchen are 14% lower.
  • Airbnb listings that are defined as “business ready,” which provide additional amenities for business travelers, have 4% lower prices than those of without this status.
  • Prices of Airbnb accommodations decrease with increased distance from the city center.

What do these results tell us about Airbnb hosts and guests and what can hoteliers learn?

The motives driving people to stay in Airbnb accommodations are yet to be determined for certain. Although Airbnb guests might place more value on the sociability, trustworthiness, and friendliness of their Airbnb hosts and the experience, Airbnb guests are, to some extent, economically motivated. That is, Airbnb guests might be specifically comparing Airbnb and traditional hotels for cost-saving purposes. The results of our study showed that Airbnb guests place more value on space, cleanliness, number of photos, handicap accessibility, family friendliness, free breakfast, location, and unique experiences. Based on this information, hotel firms might focus on these factors to attract guests from Airbnb’s consumer base.

Airbnb guests pay more for space and privacy, despite the conception that the sharing economy is a social platform wherein participants are motivated by potential social interactions. While such social interactions may still occur when guests rent entire homes, they either value privacy and hence do not want to live with the host, or they value the space because they are traveling in big groups and they require more area in which to spread out. Despite the potential economic gains, Airbnb guests seem to pay extra for cleanliness. Specifically, Airbnb guests pay an additional cleaning fee that may range between $5 and $700 and also pay 17% higher rates compared to properties that do not require cleaning fees. Airbnb guests pay less for properties that allow access to the kitchen, suggesting that these properties are regular apartments, condos, and houses and that Airbnb guests are not likely to pay extreme prices for staying in such properties. The price difference might rather be due to the rate deviation within Airbnb listings, where unique properties, such as treehouses, villas, and yachts, are posted and guests pay more for the experience. However, further research is required to analyze this issue. Airbnb guests also appreciate and pay more for more photos of the Airbnb properties; however, they pay lower rates for Airbnb properties that seem to have commercial purposes. Previous studies have shown that Airbnb hosts do not seem to utilize revenue management practices, which serve to maximize hosts’ profits, but rather list their properties around the median market price (Tapio Ikkala & Airi Lampinen, 2015). Our results may guide Airbnb hosts in determining their properties’ rates. For example, Airbnb hosts may offer free breakfast and hence increase their rates by about 10%.

In conclusion, Airbnb guests pay higher rates for space, quality, friendliness, and unique experiences. To compete with Airbnb properties, traditional hotels should create more opportunities for unique experiences, post more photos of the hotel and guest rooms and provide a family-friendly environment. In particular, hotel firms might offer alternative packages to attract Airbnb guests, especially when operating at lower occupancies. Hence, it may be the time for hotels to include Airbnb in their competitive sets or regularly track Airbnb demand and supply dynamics, especially in the markets with a large Airbnb presence.

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Dogru HeadshotTarik Dogru earned his Ph.D. in Hospitality Management from University of South Carolina, and holds Master’s degree in Business Administration from Zonguldak Karaelmas University in Turkey.Prior to joining the Boston University School of Hospitality Administration faculty, he was an adjunct faculty at University of South Carolina (2013-2016) and research assistant at Ahi Evran University (2009-2012) in Turkey. He has taught a variety of courses, including Economics, Finance, Accounting, Hospitality, and Tourism in business and hospitality schools. He is a Certified Hospitality Educator (CHE) and holds Certification in Hotel Industry Analytics (CHIA) from American Hotel & Lodging Educational Institute. Tarik’s research interests span a wide range of topics in hospitality finance, corporate finance, behavioral finance, real estate investment trusts (REITs), hotel investments, tourism economics, and climate change.

 

Osman Pekin

Osman Pekin is a recent graduate from the Boston University School of Hospitality Administration. As a student he served as a research assistant and accounting tutor while working as a Food and Beverage Supervisor at the Westin Boston Waterfront Hotel.

 

 

 

References
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  • Airbnb’s Economic Impact on the NYC Community [Web log post]. (n.d.). Retrieved April 28, 2017, from http://blog.airbnb.com/airbnbs-economic-impact-nyc-community/>.
  • Airdna. (2017). Airdna Data Service. Retrieved from https://www.airdna.co/services/datafeed
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  • Botsman, R. (n.d.). The Case for Collaborative Consumption. Speech presented at TEDxSydney, Sydney. Retrieved April 28, 2017, from https://www.ted.com/talks/rachel_botsman_the_case_for_collaborative_consumption
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In 2017 What Will A Restaurant Actually Be? A New Taxonomy

October 3rd, 2016 in Fall 2016, Restaurants, Technology, Trends 1 comment

Photo Source: Stokpic

Photo Source: Stokpic

By Christopher Muller

What is a restaurant?

In today’s omni-channel foodservice system what exactly does it mean to say something is a restaurant meal?  Does it mean a full formal dining experience with a chef-prepared customized meal, presented by a waiter to a guest at a table with a white tablecloth or can it be a hand-made burrito delivered by a kid on a bicycle working for a third party service directly to your front door?

Ultimately the question comes down to determining the two main components of a restaurant, food and service. For the food the questions are: how fresh is it; what form is it in; and how close to immediately edible is the preparation of each meal? For the service the main question is: how much supplier labor intensity is required versus how much consumer labor intensity is necessary?

The Evolution of Form and Function

Just a few decades ago the restaurant experience was divided into only two categories, Full Service (or “white table cloth”) and Limited Service (or “counter service’) restaurants.  Both were built on the requirement that food was personally served by someone to the consumer, typically in a very structured menu format, inside a simple square meter of physical space.  The diner was expected to have a working knowledge of this system: being informed of the hand crafted preparation in the kitchen by the trained chef or a skilled short-order cook; the nature of the logical flow of the courses as they were presented; and how to order and pay (including how to properly leave a tip).  For the vast majority of customers this was something done only on special occasions or when dining away from home, and could be too intimidating to master.

Then in the mid-1950’s came a new upstart, the Fast-Food or Quick Service Restaurant, which by being systems based and not chef driven created a new approach to how consumers viewed the dining experience.  In a disruption of tradition, both the composition and order of the meal (“…if I want to eat my fries before my burger, who cares?”) and the concept of self service (“…no waiter, no tipping, I’ll gladly clear my own table”) were controlled by the consumer, not the supplier.  Much of the food was prepared in an off-site facility and assembled to order or batch cooked by semi-skilled kitchen workers. Once the drive-thru window came into play, the need to even get out of the car for a meal disappeared (“…is my front seat a restaurant?”).  Anyone could use this system at any time during the day. While the QSRs were not originally considered “real” restaurants, dining out became an easy and every day option.

During the 1990’s the market saw the explosion of the Casual Theme restaurant which took all of the formality out of Fine Dining, including the white table cloth, and significantly sped up the dining process. Table service was still an integral part of the experience but with less personal connection to the waiter as food was often delivered by a runner directly from the kitchen. Standardized meal choices were assembled on-site by slightly more skilled journeymen led by a kitchen manager instead of a chef, who used a mass customization process to match the individual desires of the consumer.

In the last decade the Fast Casual restaurant came to the attention of the consumer public. This new hybrid is a mix of the self-service from fast food with the consumer selection options presented by a traditional cafeteria system.  Table service is replaced by a modified multi-phase counter service with customers being given more customizable options, whether by a barista or a burrito-maker.  This customization is made possible with the return of an on-site short-order cook who assembles to order food which has the appearance of being hand-crafted, but is prepared in a batch style and often brought in from an off-site commissary.

This brings us up to date where we are witnessing an explosion of segments and dining choice. Today we see a marketplace of narrow segments (Casual Elegance, Food Trucks, Grab & Go, Build Your Own, GastroPub, Convenience Store, Market Hall, Delivery) and other fine grained niches that defy simple categorization.  For example, Panera Bread is a leader in the fast casual segment while filling the role of the top retail bakery/café offer. But it also leads in the technology of smartphone based customized take-out.  The top of the food chain for fine dining is at one and the same time a celebrity chef-driven stratospheric offering such as Keller’s French Laundry or a standardized, national prime aged steakhouse chain like Del Frisco.  For the dining public, what exactly does Casual Elegance mean except that there are no tablecloths, there is a wine list and expensive cocktails, no chef and the wait staff wear logos on their shirts? What really is the difference if I buy a packaged turkey sandwich at a Pret a Manger, at a 7 Eleven, or at a Whole Foods?

Where Are We Heading?

So, the answer to the question “what is a restaurant?” can really only be answered with “it depends.”  What does it depend on- mainly how the dining public continues to redefine how, when, why, where and what a meal actually is?  Is a smart phone a modern day vending machine? Is a communal table in a market hall a dining room? Is a “sous vide” pouch heated by a chef in a two-star restaurant a freshly prepared dinner? Is Chef Chang’s Ando really a restaurant or just a conceptual kitchen? Are Just Eat, Grub Hub, Deliveroo, Uber Eats and Amazon Prime just waiters expanding the last square meter of personal restaurant service? The answers are probably all yes.

When someone wants to eat, it might be better to ask “what isn’t a restaurant?”

A Restaurant Taxonomy for 2017

A Restaurant Taxonomy for 2017

 

 

 

If I Bring It Home To Reheat For Dinner Tomorrow, Is It A Restaurant Meal? Photo Source: Olive Garden

If I Bring It Home To Reheat For Dinner Tomorrow, Is It A Restaurant Meal?

Photo Source: Olive Garden

 

 

 

Is Eataly a restaurant or a market?Source: Creative Commons / Mary Crosse

Is Eataly a restaurant or a market?

Source: Creative Commons / Mary Crosse

 

 

 

What Does It Mean If My Pizza Restaurant Is On My iPhone?  Photo Source: Pizza Hut Mobile App Screenshot

What Does It Mean If My Pizza Restaurant Is On My iPhone?

Photo Source: Pizza Hut Mobile App Screenshot

 

 

If I Pick Lunch Up In 10 Minutes And Eat In My Office Is It A Restaurant Meal?Photo Source: Panera Bread Mobile App Screenshot

If I Pick Lunch Up In 10 Minutes And Eat In My Office Is It A Restaurant Meal?

Photo Source: Panera Bread Mobile App Screenshot

 

 

How About Dinner Arriving Via UberEats in 3 Minutes To My Front Door? Photo Source: Uber

How About Dinner Arriving Via UberEats in 3 Minutes To My Front Door?

Photo Source: Uber

 

 

Is It Really A Restaurant, Chef Chang?

Is It Really A Restaurant, Chef Chang?

 

 


chris-muller-423x636Christopher C. Muller is Professor of the Practice of Hospitality Administration and former Dean of the School of Hospitality Administration at Boston University. Each year, he moderates the European Food Service Summit, a major conference for restaurant and supply executives. He holds a bachelor’s degree in political science from Hobart College and two graduate degrees from Cornell University, including a Ph.D. in hospitality administration. Email cmuller@bu.edu

 

 

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