What is the Future of Hotels Now that Millennials are the Largest Generation (in the U.S.)?
By Marc Stephen Shuster Partner, Berger Singerman | May 03, 2015
Co-authored by Barry D. Lapides, Partner, Berger Singerman
Whether it is Hyatt Centric, Canopy by Hilton, AC Hotels by Marriot, Vib by Best Western Hotel, Radisson Red, or OE Collection from Loews Hotels, established hotel chains are deploying a new strategy to address the ever growing buying power of Millennials. These chains are creating new brands that specifically cater to Millennials. In fact, besides the established Hotel companies, new chains are being (or have been) created to address the Millennial generation (or there corporate ownership is being disguised). Think Virgin Hotels, Moxy Hotels (another hotel concept from Marriot), Tommie Hotels (by Commune Hotels and Resorts) and Kimpton Hotels (now owned by the InterContinental Hotels Group). The focus on Millennials by Hotel companies is not just a U.S. trend; it's worldwide. India-based Park Hotels created Zone to focus on Millennials. Same with Europe-based City Living that created the Student Hotel with four (4) locations in Europe. The Middle East has Venu from Jumeirah Hotels. And Asia is also in the game: Shimao Group based out of Shanghai is creating two new flags: MiniMax Hotels and MiniMax Premier Hotels and Shangri-La Hotels is converting all of their Traders Hotels into Hotel Jen, which will be Millennial friendly. All of the foregoing are simply examples of how hotels are not only recognizing but catering to Millennials.
So who are Millennials? Millennials, otherwise known as Generation Y, are individuals who generally reached adulthood around the turn of the 21st century. According to an October 2014 report by The Council of Economic Advisors for the President of the United States (the "Report"), they comprise the largest and most diverse segment in the U.S. population. They are the first generation to have had access to the Internet during their entire lifetime, and this translates into the fact that Millennials grew up in an electronics-filled and increasingly online and socially-networked world. Due to this, Millennials expect an instantaneous connection to the Internet and, because of that, their real world blends into the online world, expecting instant gratification online and offline. According to the Report, Millennials value quality of life and experiences and that is why 20th century Hotels just can't compete. More importantly, Millennials came of age during the Great Recession and this impacts how they save and spend their money. According to the Report, the Great Recession can impact future earnings of this group; however, because Millennials are the most educated generation in history, this may counterbalance any adverse effects emanating from the Great Recession.
So what are hotels doing to attract Millennials? First and perhaps foremost, Millennials expect free (and high speed) Internet access. Consequently, if a hotel does not provide free Internet service (something which is today becoming increasingly aberrational) and that Hotel is lucky enough to attract a Millennial, chances are better than not that Millennials will simply go someplace that does have free Internet service (e.g., the local Starbucks). That's why according to The Wall Street Journal, most budget and limited service hotels provide free Internet service while luxury hotels are still perhaps mistakenly using Internet service as an additional revenue source.
A hybrid approach is seen with the likes of Marriott and Starwood, which are using free Internet service as a loyalty inducement (e.g., provided the customer is in the hotel's loyalty rewards program, that customer will receive a certain level of free Internet service). However, the general point here cannot be overemphasized: Millenials require free and easy Internet access. We know this is true because there are even significant movements afoot to disband with cellphone carriers and go completely off of Wi-Fi, wherever so located. And although that may be somewhat unrealistic for now, why is this notion important? Because Millennials value socialization (think about their connectivity online) and hotels that do not have free Internet access is bound to lose out to Millennials spending money in the hotel.
For instance, Caesars Entertainment is repositioning and renovating the recently renovated Quad Hotel and Casino in Las Vegas into the LINQ Hotel with Millennials in mind. Tariq Shaukat, Executive Vice President and Chief Commercial Officer of Caesars Entertainment, is quoted as saying "The resort will provide guests with a highly social and connected environment, with all of the great restaurants, shops and experiences available at the LINQ Promenade right at their fingertips." The phrase "highly social and connected environment" is directed at exactly what Millennials want and expect out of their Hotels.
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