Incresing demand of turnkey services in the hotel contract segment
19 November 2010
In the furnishing world there is one market that is not recording a crisis: the middle and upper-end hotel contract segment. But this is not a market in which it is possible to “improvise”. A good 4 or 5 star hotel is a real business – for those who win the contract for furnishing the rooms (on average 100-140), the communal areas, providing the “moveable” parts (furnishings, doors, lamps) and the “fixed” ones (plasterboard, marble, glass) – worth in the region of Euro 4 million. For a small or medium-sized firm, one or two hotels a year can have a significant effect on the end of the year balance sheet. Without considering that having “qualified” for one large hotel chain means entering a pipeline of other hotels that need refurbishment, on average, every 15 years.
The great majority of 4-5 star hotels in the world are owned by about 300 hotel chains. Simply identifying the headquarters of the chain naturally has little bearing on the location of demand (although frequently the head office manages the tenders). A large hotel chain will have, for example, a central purchasing office in the United States, one in Asia and one in Europe. Generally speaking they tend to identify one specific supplier of furnishings for each hotel brand (in a broad sense, from mattresses to curtains). It is quite likely that a Westin Hotel or a Four Seasons will be furnished by the same general contractor all over the world.
The lynchpin between the hotel chain and the furniture manufacturer is almost always an international architectural design studio. In fairly rare cases (boutique hotels in cities of art, for example) the owner of the real estate may have his say. Some of the architectural studios that are famous in this sector are Peter Silling Associates, Pierre-Yves Rochon, Alex Kravetz and Lissoni Associati.
Demand determinants include the renewal of furnishings for existing hotels (the average renewal rate is estimated to be 15 years, frequently with partial renewal every 5-7 years and a radical refurbishment every 20 years) and the creation of new hotels. In Europe the predominant determinant is renovation, in emerging markets, from Libya to Brazil, it is new construction. The average cost of a room (including the communal areas) is estimated at about Euro 30,000-40,000. The incidence of the communal areas on the total cost may exceed 50% in 6-star hotels and in resorts, but it is lower in business hotels and in the lower range of 4-star hotels.
In the hotel contract market there are no “dominating positions”. Very few firms achieve a share of 1% or more of the continental market in which they operate (Europe, Asia or America) and these shares are subject to great fluctuations over time, according to the contracts won.
The firms that operate in the contract sector tend to have quite different “visions” of the market: while B&B, for example, has a strong position in the naval segment, Poltrona Frau is well known in the automobile contract segment, Cassina specialises in boutique hotels, Molteni is stronger in the retail segment, and so on.
Firms that are capable of providing a true “turnkey” solution for the hotel sector control no more than 35% of the market. As for the rest of the market, it is legitimate to say that a good 65% is managed on a more or less sporadic basis by no fewer than a further 500 firms worldwide. These are firms that are capable of offering, according to the case, just the rooms, just the fabric elements, just the bathrooms, etc.
It is also legitimate to expect that along with the process of greater organisation in the hotel sector, there will be an increase in the demand for turnkey services. For the “turnkey” firms the medium-term rate of growth should therefore be close to the 4%-10% annual growth expected for the luxury hotel segment (according to the geographical area), while for the small firms the rate should be in the region of 2%-5%.