The Hospitality Industry - Assignment Example

Marketing Management and Strategies Discuss the strategies which hospitality enterprise might adopt to create a sustainable competitive advantage. Illustrate your answer with examples from the hospitality sector. Your Name, University Name/College name January 14, 2008 Introduction The paper analyses the hospitality industry using the porter's five force model and the interpretations are made. Then a SWOT analysis of the hospitality sector is done. Then market segmentation of the hospitality sector is discussed with segmentation models. Finally the various strategies adopted by the hospitality sector are discussed. Broadly, the strategies can be classified into three major types: Cost leadership, Differentiation and Focus. In Hospitality industry, Cost leadership strategy is not considered to a great extent because it is a luxurious sector. The main focus of the hospitality sector is to adopt the differentiation strategy and technology focus to achieve competitive advantage. A lot of innovative practices are introduced and customer service and value added service play a major role in the hospitality industry. This paper will discuss the differentiation and technology focus strategies adopted in the hospitality enterprises. Some of the strategies used by hospitality enterprises to achieve competitive advantage include Strategic Planning, Market Research. Business Planning, Retail Growth Strategy, Meal Plan Strategy, Sourcing and Procurement Strategy, Concept Development, Health and Well-Being Strategy, Information Systems Strategy, Food Facilities Planning and Design. Vital Statistics about Hospitality Industry Accommodation and food services makes up about 8.1 percent of all employment. (U.S. Bureau of Labor Statistics). Employment in the accommodation and food services industries is predicted to grow 18% between 2002 and 2012, adding more than 1.6 million new jobs. (U.S. Bureau of Labor Statistics). Of the 8,740,000 total workers employed in the accommodation and food services industry in 2003, 5,343,000 works full-time (61%), while 3,397,000 work part-time (39%). (Annual average for 2003, according to the Current Population Survey, a joint project of the U.S. Bureau of Labor Statistics and Census Bureau). The Total Industry Investment is $1,765,000 and the total leveraged resources are $5,900,000. - U.S. Bureau of Labor Statistics, 2004-05 Career Guide to Industries and Occupational Outlook Profit and average room rate at the UK's chain hotels continued to increase in November, according to the latest HotStats survey from TRI Hospitality Consulting. Across the total UK sample of 462 hotels, income before fixed charges (IBFC) - also known as gross operating profit - rose by 5.6 per cent to 52.81 per available room. Average room rate increased by 7.4 per cent to 95.03 in November, a similar rate of growth to the 7.2 per cent achieved during the year so far. In London, profit grew by 7.9 per cent to 82.19 per available room. London's hoteliers continued to achieve rate growth at near annual levels with an 8.9 per cent increase taking average room rate to a new high of 125.85. - Jonathan Langston, UK Chain Hotels Market Review November 2007 | TRI Hospitality, www.trihc.com Michael Porters Five Force Analysis Threat of New entrants: The Entry barriers include Capital The capital outlay needed for starting up the operation in this industry is huge ($60 - $70 million), since the leasing expenses and the taxes are high. The capital includes land and building, infrastructure etc. Labor: In this industry the retention rate is high when compared to the others because of the demand for the experienced chefs in the industry. Finding and Retaining skilled labor is a major issue for a new entrant. Tax Structure: Hoteliers have to bear huge taxes levied on them by the government for property, water, electricity etc. Beside the high entry barriers, new entrants in this industry are high in recent days. Threat of substitutes: The growth of Home business restricts travel to a certain extent. So people consider their homes as substitutes for hotels. Rivalry: There is a fierce price war going between existing players. The growing popularity of resorts can be a huge challenge to Hoteliers and other players in the hospitality industry. Bargaining Power of Suppliers The bargaining power of suppliers can be crucial. The suppliers are whole sale dealers of grocery and the like. The suppliers have undergone a drastic change over the years and with it their bargaining power also has increased. The following diagram shows the transition in the grocery market from 2000 to present. In 2000, there were a number of players in the field, subsequently, it got narrowed down and a consolidation is seen in this market. This increases the bargaining power of the suppliers. Here the customer is the hospitality enterprises. UK Grocery Market in 2000 Present UK Grocery Market Source: Primary data Bargaining Power of Customers The bargaining power of customers has grown drastically in this internet era. The customer is well informed in all aspects including price, service etc. and their decision making is very rational. A lot of online services provide a comparison of hotels and customers can bargain more considering these aspects. The customers include Corporate, Individual households etc. As suggested by Michael Porter, stronger the forces, difficult it is to enter and survive in the industry. For Hospitality industry, all forces are very strong indicating the level of competition and fierceness of the industry. To combat these challenges, the following strategies are adopted by the hospitality enterprise. Technology Focus Strategy: Hospitality Sector Internet Strategies In 2008 approximately 40% of all hotel bookings will be generated from the Internet (one-third in 2007, 29% in 2006). At least another third of all hotel bookings will be influenced by the Internet, but done offline (call center, walk-ins, group bookings, etc). By the end of 2010, over 45% of all hotel bookings will be completed online (Merrill Lynch). Now, more than 13 years after the first online hotel booking, hoteliers taking full advantage of this dramatic channel shift from offline to online. Thus technology acts as a key success factor for attaining competitive advantage. This has increased customer loyalty in this environment - Hotelier's 2008 Top Ten Internet Marketing Resolutions | By Max Starkov and Jason Price SWOT ANALYSIS or TOWS Matrix STRENGTHS 1. Natural and cultural diversity: UK has a rich cultural heritage attracting most tourists. The various tourist places and historic sites attract many tourists to UK. Mostly, tourists flood into UK to watch sports like Football, Base ball, cricket etc. 2. Demand-supply gap: The hotel industry is facing a mismatch between the demand and supply of rooms leading to higher room rates and occupancy levels. With the privilege of hosting many major sports events, there is more demand of rooms in five star hotels. This has led to the rapid expansion of the sector. 3. Government support: The government has realized the importance of tourism and has allocated a portion for the development of the industry. The priority is being given to the development of the infrastructure and of new tourist destinations and circuits. 4. Increase in the market share: UK's share in international tourism and hospitality market is expected to increase over the long-term. New budget and star hotels are being established. Moreover, foreign hospitality players are heading towards UK markets. More in the global era, a lot of employees are coming to UK as expatriates and this is a welcome measure to the hospitality sector. WEAKNESSES 1. Terrorist attacks: UK has now become a destination of interest for terrorists. Recently, the train bombings and many such incidents make the country an unsafe one prone to terrorist attacks. 2. Susceptible to political events: The internal security scenario and social unrest also hamper the foreign tourist arrival rates. OPPORTUNITIES 1.Rising income: Owing to the rise in income levels, Indians have more spare money to spend, which is expected to enhance leisure tourism. 2. Open sky benefits: With the open sky policy, the travel and tourism industry has seen an increase in business. Increased airline activity has stimulated demand and has helped improve the infrastructure. It has benefited both international and domestic travels. THREATS 1. Fluctuations in international tourist arrivals: The total dependency on foreign tourists can be risky, as there are wide fluctuations in international tourism. Domestic tourism needs to be given equal importance and measures should be taken to promote it. 2. Increasing competition: Several international majors are entering the UK markets. This will increase the competition for the existing UK hotel majors. Market Segmentation Market segmentation is classifying customers on various criteria. Clear market segmentation will lead to the success of the firm. The main reasons for market segmentation include Become more numerous, we have many more types of segments, the differences among groups have become more distinct, the groups have become large in number The various criteria based on which market segmentation is done are Homogenous, Heterogeneous, Substantial, Competition and resources. The major classes of segmentation include demographic, geographic, environment etc. A sample of demographic segmentation in hospitality sector is as follows: Origin of Toronto's Immigrants (1991-1996) Place of Birth GTA Toronto % in Toronto Total Recent Immigrants 446,515 315,470 71 Hong Kong 48,730 25,355 52 Sri Lanka 36,835 32,175 87 China 35,460 26,260 74 India 33,575 17,215 51 Philippines 33,560 25,780 77 Poland 19,120 11,485 60 Jamaica 17,050 12,500 73 Guyana 13,310 10,145 76 Viet Nam 12,425 10,045 81 Trinidad & Tobago 11,695 7,500 64 Iran 11,060 8,930 81 Pakistan 10,760 6,750 63 Other Countries 162,935 121,330 74 Source: Statistics Canada, 1996 Census Differentiation Strategy: Labor force Labor force is one of the key success factors to attain Competitive advantage. The strategy of differentiation can be attained through labor force. The skill, knowledge and the culture of the organization make it unique from the rest. This aspect is hard to copy or imitate. Hoteliers have started understanding the importance of labor in attaining competitive advantage and are spending huge amounts of money in recruiting and retaining skilled labor. This set of workforce solutions is based on the hospitality industry's priorities that address issues such as: Image: Like other service sectors, hospitality careers are often stereotyped as low-wage and entry-level with little opportunity for advancement. Consequently, qualified workers, especially youth, are unaware the range of hospitality careers available. Recruitment: Historically the hospitality industry had drawn heavily from the youth labor pool to meet their workforce needs, but in recent the industry has been left with an insufficient pipeline of new workers to satisfy demand. Faced with a shrinking pipeline of workers, the hospitality industry is increasing its recruitment efforts towards youth and developing targeted strategies for previously untapped labor pools. Retention: High turnover is a key challenge in the hospitality industry. The restaurant, hotel and lodging sectors have difficulty retaining skilled workers because of the negative image that the industry faces. Language skills: English proficiency is a key challenge because a large percentage of the hospitality workforce does not speak English as their primary language. Employers seek language training programs that allow workers to effectively perform their job, which includes providing good customer service and understanding safety requirements. Employability/Soft Skills: Employers have difficulty finding workers who possess basic "soft skills," which are often a prerequisite for success in a customer service-oriented field. Consistent training models and skills certifications: The hospitality industry as a whole lacks consistency and portability in their training models and skill certifications. Many employers run their own internal training programs for entry-level workers, which makes it difficult to monitor the content of training and the skills acquired. The grants are intended to provide genuine solutions, leadership, and models for partnerships that can be replicated in different parts of the country. - U.S. Department of Labor, Employment & Training Administration, www.doleta.gov Reference: Charles W.L.Hill, Gareth R.Jones, STRATEGIC MANAGEMENT THEORY, Houghton Mufflin publications. Harvey M. (2000) Innovation and competition in UK supermarkets, Supply Chain Management, Vol 5 No 1, pp15-21 (via Emerald) Flavian C, Haberberg A, Polo Y. (2002) Food Retailing Strategies in the European Union. A comparative analysis in the UK and Spain, Journal of Retailing and Consumer Services, 9, pp. 125-138 (via Science Direct) U.S. Department of Labor, Employment & Training Administration, www.doleta.gov U.S. Bureau of Labor Statistics, 2004-05 Career Guide to Industries and 2004-05 Occupational Outlook Handbook Jonathan Langston, UK Chain Hotels Market Review November 2007 | TRI Hospitality, http://www.trihc.com/ Hotelier's 2008 Top Ten Internet Marketing Resolutions | By Max Starkov and Jason Price http://www.naukrihub.com/india/hospitality/overview/ http://www.city.toronto.on.ca/ourcity/profile02.htm#2 Read More