Bullish on digitizing the hospitality industry
Thesis on the consumerization of the hotel tech stack, solving for the labour shortage and application of AI!
Namaste Dear Reader,
A key emerging theme that India is focusing on is tourism development. The recent interim budget highlighted that the number of airports has 2xed in the last 7 years with India now operating close to 150 airports.
If this fact is not impressive enough, Hotelivate estimates that the country will add ~70k new rooms over the next 4-5 years, reflecting a 33% rise on its existing base of organized/ branded rooms. Despite this demand growth outstrips supply!
At Malpani Ventures, we have witnessed rapid growth in startups in this category, having been early investors in StayVista.
Some themes such as the explosion of Gross Merchandise Value through Online Travel Agencies (OTAs – MakeMyTrip, Booking.com, etc.) and the rise of alternative accommodations/ homestays have already played out and large players have emerged in the space – I am not focused on these trends in this piece.
In this piece, I want to focus on some themes/ areas where I believe where value can be accrued by startups over this period:
Consumerization of the hotel tech stack:
The hotel tech stack is the collective suite of software solutions and digital platforms that together enable efficient hotel management.
The Property Management System (PMS) is at the heart of the hotel technology stack. It is the backbone of managing a hotel's operations, encompassing important modules such as front desk, room assignment, housekeeping, and back office amongst others. It's virtually a must-have in hotels.
PMS for hotels can be thought of as the core banking system of banks – difficult to replace however very difficult to upgrade & cater to new features as well.
Many of the leading solutions in the PMS space were built 10+ years ago and have primarily focused on backend functionality for hotels. These do not cater to the needs of guests today
Today consumers want everything to be done for them at the click of a button. Guests want to be able to check into rooms, order food, and explore activities in and around the hotel simply via their cell phones. The "front end" of hotels has long been disregarded since purpose-made solutions to manage, enhance, and automate the guest experience were simply not prioritised when the PMS was established. Startups that build software platforms that can manage end-to-end visitor interaction and create personalised experiences for guests with a chance to upsell have a high chance to upend the existing stack!
Can large Indian companies be built into hotel management software?
Reports estimate the global hotel management software TAM at $ 10 Bn. One quip I often hear is the lack of large Indian pure-play software companies. One only needs to look at Rategain here: The company offers distribution, marketing and revenue optimisation software to the global hospitality industry and is currently tracking an ARR of $125 Mn!
Solving the skilled labour shortage:
Hospitality was among the most affected sectors due to Covid-19. While hotel owners have since recovered, reports indicate that an estimated 25% of the workforce permanently left the global hospitality industry. While there has since been a resurgence in demand, the industry now faces a labour shortage.
The shortage of skilled labour has always been an issue for the industry. In India alone, a study estimated a demand-supply gap of 8 to 10 lacs employees between 2022 for the industry:
This gap has been exacerbated after COVID-19 and has resulted in hospitality chains upskilling existing talent or hiring from other industries as they seek to overcome a manpower crunch. Indian Hotels Company Ltd, the operator of Taj Hotels, has opened 16 skilling centres and aims to skill 100,000 people in the hospitality industry by 2030.
This is not an Indian phenomenon alone – In the US, over 82% of hotels are experiencing staffing shortages as per a survey of hoteliers conducted by the American Hotel & Lodging Association in May 2023 and over 1 lac positions remained unfilled.
Hoteliers want more done with less! Several ways for startups to hack this problem:
Verticalized labour marketplaces that focus on upskilling and aggregating quality, credentialed talent
A combination of hardware + software solutions: self-check-in + mobile-entry, drink-dispensing machines, and robots to facilitate room deliveries, amongst other ideas
Application of AI:
Finally, as in all industries, Artificial Intelligence companies are poised to deliver superior results and disrupt existing workflows at hotel chains.
Consider this, most hotel chains today employ a revenue manager at each unit to maximise pricing of room inventory – this involves looking at OTA/ PMS data, fill rates, rates of competing hotels in the area, revising pricing based on holidays, events, etc. amongst other activities. This primarily devolves into a human looking at a screen for a period of time and adjusting inventory pricing basis his judgement. A quick search on Naukri shows 4000+ active job postings for revenue managers in India. The AI-inclined readers will quickly discern that this process can massively be simplified by AI. AI can help hotels select and analyse critical data points, making it easier and faster to respond to real-time market insights while also allowing them to go deeper with further analysis if necessary.
Several operations in the hotel industry are poised to be rapidly transformed. From chatbots that provide automated multi-language guest messaging, and AI-powered virtual assistants/ concierge services to personalize recommendations, to analytics/ monitoring at the backend, AI is poised to help hotels operate more efficiently and provide better service.
Conclusion:
In my opinion, hospitality is unequivocally a high-touch industry, and hence finding the right balance with technology is crucial. With strong tailwinds to the underlying market, hotel chains are actively looking for solutions and I believe a lot of value can be captured by startups here. Given the advancements in AI combined with a change in consumer expectations, post the pandemic, we are on the cusp of a very exciting phase of the digitization of the hospitality industry.
If you are a founder building in this space, I’d love to hear from you. Reach out to me on LinkedIn or Twitter
I would love your (anonymised) feedback! Do share your comments & questions below or write to me @SaneDhruv on Twitter
Thank you for reading this post!