The Millennials: Leading To the Damnation of Hotel Brands?
By Laurence Bernstein Managing Partner, Protean Strategies | January 12, 2014
There is much being made of the importance of Millennials, people born between 1982 and 2004(1), to the hotel business. Certainly, as the vast majority of people born during that period are people, there is no doubt that in one way or another they are of great significance to the hospitality industry, and industry leaders must be applauded for their interest in this market segment. There were, after all, 80 million of them living in the US in 2012, and it's likely that some of them, at least, will stay in hotels. Some already have.
However, the notion that understanding this cohort is the magic bullet that will propel hotel brands into stratospheric profitability is misguided and possibly not helpful. I say possibly because, as we will see, the focus on this generation has had some very positive consequences for the industry for which we should all be grateful. On the other hand, the intense focus on these young people is having a dampening effect on the real growth potential in the industry, with the greatest opportunities being ignored in favor of what is, in real terms, a not very appealing market segment.
The most simplistic precis of the argument runs something like this:
Jimmy (not his real name) is given a choice of two market segments to go after. Which of the two should he choose?
The first segment consists of 80 million young people (between the ages of 9 and 31), a disproportionate number of whom live at home with their parents because they are too young to live alone (unsurprising and not unique to millennials) or because there are no jobs or only very menial low paying jobs for them, even if they have expensive college degrees. Some forecasters wonder whether there will ever be jobs for them (there will, but when depends on when the other segment retires or dies!). Other than a miniscule few, people in this segment have no assets, and those who do are highly in debt (mortgages and car loans). All in all prospects for this bunch don't look very good for the next thirty or so years.
The second segment consists of 76 million people ranging in age from 40 to 67. While unemployment is relatively high (7% in the US), there is no systemic reason why those who want to work won't find jobs. While not necessarily well prepared for retirement, these people own houses and are paying down their mortgages – the older part are entering retirement. The generation currently owns 80% of personal financial assets and more than half of all consumer spending. They buy 77% of all prescription drugs, 61% of over-the-counter drugs, and 80% of all leisure travel(2). They are about to inherit trillions of dollars from their parents and they are entering retirement: they'll have nothing else do with their time than spend their money – in the initial stages of retirement heavily skewed toward travel.
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