At the upcoming International Hotel Investment Forum in Berlin, David Kong, CEO/Best Western Hotels & Resorts, will be speaking on the panel, "Adapting to Survive and Thrive: Hear from the CEOs Leading the Change," during which five hospitality CEOs will discuss how global hotel groups are adapting to changing economic conditions, travel trends, operational requirements, labor markets and more.
Ahead of the conference, Kong discussed the future of the hotel-investment market, the challenges facing the industry as a whole, the inspiration he takes from Amazon, and Best Western's strategies for success.
1. How would you describe the hotel-investment market in 2019?
The industry has enjoyed a long upcycle recently. I don’t recall a time where we experienced more than one hundred months of positive RevPAR growth. By all indications, we are most likely at the peak of the cycle. Given this, new construction projects are facing numerous headwinds as land and construction costs are at an all-time high. In addition, banks are more reluctant to lend for new projects unless they are associated with a well-established brand and there is a high equity-to-loan ratio.
As the share prices of hotel REITS have declined, it will be more difficult for them to continue to be active buyers. Conversely, private equity firms have significant amounts of cash on hand, so they will likely continue to be strong buyers.
2. What is Best Western’s position and strategy for the year to come?
We will remain focused on increasing our scale to maintain and gain competitive advantages. Similar to companies like Tide and BMW, we need to protect our market share by launching new products to appeal to today’s traveler and developer. Just think about how many more models of cars BMW has in the market today versus 10 years ago. Not only are they trying to protect their market share, but they are trying to take market share from their competitors. Similarly, if today’s Best Western wants to be successful, we need to think about protecting and growing our market share by offering exciting and contemporary products to broaden our appeal. We also need to explore opportunities to grow in the upscale and luxury segments in order to offer a full portfolio of options.
Best Western will continue to invest in our platforms: technology, sales and marketing, operations and our loyalty program. We have built a solid foundation by bringing together a global portfolio of high-quality hotels and investing [more than] $2 billion in these properties over the past few years. This solid foundation of quality hotels has positioned us for growth for years to come.
3. What are the biggest challenges faced by hoteliers/investors in the current hotel-investment market?
The biggest challenge facing hoteliers is escalating costs and the lack of quality talent. Independent hotel owners have an additional challenge of being highly dependent on OTAs. They do not benefit from revenue production from brands or attractive commercial terms with OTAs. In the downturn, independent hotels will be particularly vulnerable.
For investors, new construction will be difficult because of high costs and financing challenges as lending institutions become even more selective and cautious. Therefore, there will be an increase in conversion opportunities for the purpose of repositioning existing assets.
To respond to this challenge, Best Western launched two new boutique hotel brands last year—Sadie Hotel and Aiden Hotel. Sadie Hotel competes in the upscale segments and Aiden Hotel competes in the upper-midscale segment. These conversion brands offer developers an opportunity to reposition their properties to improve their performance and enhance their asset value.
4. What existing hotel brands do you think are most interesting to watch?
The hostel and home-sharing segments are thriving and they will seemingly continue to increase in popularity. Therefore, we have kept close watch on hostel-like brands such as Motto by Hilton and home-sharing brand Tribute Portfolio Homes by Marriott. These brands have pioneered new operating models in these segments and we believe there are further opportunities to be disruptors for these segments.
5. Who or what is the biggest inspiration guiding your career?
Amazon founder, chairman and CEO Jeff Bezos famously coined the phrase “It’s always Day 1,” so the excitement and can-do attitude of a start-up company can be preserved for the long-term vitality of the company. Bezos says, "Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1."
The points Bezos makes provide an insightful roadmap for large organizations like ours. Day 1 brings excitement and a sense of urgency. For those working at a start-up, the threat of going out of business early in the life of the business is real, therefore the Day 1 mentality helps to maintain a focus on advancing what is important and urgent.
The four points Bezos makes for how organizations can keep the vitality of Day 1 are outstanding: remaining “customer obsessed,” maintaining a skeptical view of proxies (not letting the process become the “thing”), adopting rather than fighting external trends, and high-velocity decision-making.
6. What are you most looking forward to at IHIF?
I always look forward to the opportunity to rekindle acquaintances, network, and hear valuable insights from industry leaders.
7. What are your views on the role of hotel brands and their relevance to the next generation of travelers?
Given where we are at in the cycle, independent hotels will face increased challenges given their lack of support from a well-established brand. Powerful brands through their high brand awareness and preference can drive revenue delivery through brand channels, retain and attract new guests through innovative sales and marketing strategies, loyalty programs, powerful distribution infrastructure and modern digital platforms. Additionally, brands will continue to play an integral role in negotiating preferred commission structures with OTAs, ultimately driving more profitability to the properties.
David Kong will be speaking on the Global CEO Panel: Adapting to Survive and Thrive: Hear from the CEOs Leading the Change, 10:40 a.m.-11:30 a.m. on Tuesday, March 5, during the International Hotel Investment Forum,) which takes place March 4-6 at the InterContinental Hotel, Berlin. IHIF is presented by Questex, the parent company of Hotel Management magazine.