Briefing Report on Situational Analysis for Hospitality Business
Introduction
Established in 1993, Xeal hotels have grown to become a leading 4-star hotel across Australia. It currently operates 24 hotels distributed across the major cities in Australia. Headquartered in Melbourne, Australia has, over the last five years, become a famous brand in the Melbourne CBD, and targeting both local and international business people who visit the city. On the other hand, the company utilizes a franchise business model whereby it has franchises located in 53 nations across the world. Considerably, the Hotel chain offers its unique experience and services through bundled offerings, and other complementary services such as Gym, Spa, and other hygiene factors. Moreover, Xeal operates as a premium brand that targets the upper class, high profile, and business class of the society wherein it employs a differentiation strategy to reach the customers. This report seeks to give an in-depth situational analysis of the hospitality industry in Melbourne city. The situational analysis will include external environment analysis, competitive analysis, commercial partners, and market and consumer reach.
Situational Analysis
According to the recent report released by CBRE, on average, hostels in Australia recorded 1.2 percent RevPAR growth in 2018, which suggested an incredible growth of the hospitality industry (The Hotel Conversation, 2019). Last year, Australian hotels benefited from the weaker Australian currency, which played a vital role in encouraging locals to stay at home as well as enticing international visitors. Similarly, the relatively weaker Australian economic growth in 2018 was partly compelled by the uncertain decline in extended stay nights that translated to -1 percent in international guests. Nonetheless, the CBRE report also indicates a strong annual growth trend in the Australian hospitality industry of approximately seven percent whose impact was mostly felt in Melbourne and Cairns, where hotel accommodation and occupancy reduced (The Hotel Conversation, 2019). Don't use plagiarised sources.Get your custom essay just from $11/page
External Environment
Political and Legal Factors Affecting the Hospitality Industry in Melbourne, Australia
The hospitality industry is susceptible to political and legal influence. Internationally, political and legal factors have posed a direct effect on the hospitality industry. Over the years, Australia has exemplified a politically stable climate that has supported the booming of hotels. In other words, the hospitality industry and tourism activities usually thrive in an environment that is free from political turmoil about terrorism and political unrest, including civil wars (Australian Trade and Investment Commission, 2020a). Despite being Australia’s main earner of foreign currency, the hospitality industry has been negatively affected by recent political events as a result of political events both in Australia and globally. Remarkable pollical events that have affected Australian hotels include terrorism and Brexit, which continue to hurt hotels’ revenues.
On the other hand, the recent increase in corporate tax by 30 percent for companies within the hospitality sector has directly affected the hotel’s returns. Alongside the high corporation tax, the Australian hospitality industry has been affected by high-interest rates. An increase in interest rates affects businesses in two ways in that customers with debts will have less disposable income to spend in the hospitality industry since they are paying more interest to the lenders. Hence hotels’ sales tend to fall sharply. Likewise, high-interest rates mean that hotels with overdrafts will experience higher costs because they must pay more interest. Essentially, high-interest rates affect sales in the hospitality industry in that customers will reduce their consumption of luxurious hotel service since they are cutting back on non-essentials when their income declines due to high-interest rates. Specific influences usually create interrelationships in the political industry. For instance, political decisions influence Australia’s socio-cultural environment; politics affect the extent to which new technologies are introduced and implemented. Moreover, politicians’ decisions regarding the increase in tax affect the hospitality industry’s economic environment.
Economic Environment
Considerably, a recent economic transaction in the industry suggests that offshore capital continues to increase and accounts for nearly half of the volume of transactions in the hospitality industry. Coupled with the broadening of the capital base with foreign investors from Germany, the United States, and New Zealand, it is evident that the Australian business environment is conducive for the thrive of hotels since it is characterized by fewer market barriers and open market business. The hotel business is also influenced by fluctuations in exchange rates whereby a devaluation of the currency makes hotels face higher costs of importing supplies and raw materials, while an appreciation of currency makes raw materials cheaper.
Social and Cultural Factors
Similar to economic trends and politics, social and cultural factors affect the Australian hospitality industry as well. Modern technology and enhanced transport and communication systems have enabled people to travel around the world, which has led to the integration of nations into global hotel markets (Reisinger, 2019). Recently, the consumers have shifted their preference in lodging towards private accommodations. Although emerging hotels are increasingly considering Air BnB, it has become a challenge for such businesses to flourish owing to cultural factors. Melbourne is a multicultural society that nurtures and fosters cultural diversity. This has made the city attract visitors from around the world. Equally, the lifestyle among consumers is increasingly shifting towards luxurious spending in the hotel industry owing to the increase increased consumer purchasing index.
Nair & Choudhary (2018) affirms that, cultural diversity plays a vital role in Melbourne’s hospitality industry due to the global customer-related industry. Nonetheless, it has created challenges like communication barriers. Through the cultural sovereignty principle, the Australian government has also developed and enacted cultural policies that support hospitality activities by attracting visitors from diverse cultural backgrounds across the world. Therefore, the hospitality and tourism industry represents a complex multicultural sector that requires hotels to understand the perception and the role of the Australian national culture in influencing both tourist and employee behavior (Reisinger, 2019).
Technological Factors
The emergence of new technologies is increasingly shaping hospitality activities. The integration of technology in hospitality operations has helped in reducing costs, improving services, and customer experiences as well as enhancing customer experience. One area in which new technologies, particularly the internet, is influencing the hospitality industry is marketing operations (O’Connor & Murphy, 2014). Internet is critical for helping the hotels in their internationalization strategy by increasing their reach and improving interaction with customers, and decidedly impacting market development. Hotel corporations are now focusing on building up a strong online presence in the target market by investing in modern technologies that support websites for brand promotion which will be appealing to the target market, such that it is presented an informative, attractive and simple to navigate (O’Connor & Murphy, 2014).
Environmental Factors
Environmental issues such as pollution have had a significant effect on the hospitality industry. Environmental regulations are increasingly affecting the industry by mandating the industry to minimize the impact of its wastes on the environment. Following these environmental issues such as energy management, efficient use of resources, and pollution, hotels across Melbourne are investing heavily in research and development (R&D) to develop sustainable waste management to minimize its effects on the environment. Customers are also becoming environmentally friendly and are shifting their preference for hotels that encourage sustainable management practices. On the other hand, hotels are focusing on ecotourism, particularly in managing the ecological influence and waste management practices. The Melbourne government has also implemented environmental policies that aim at transforming the city to becoming greener and cleaner in a bid to increase the number of tourists the city receives annually.
Competitive Analysis
The main competitor for Xeal hotel is the Hilton Hotel. Hilton Hotels have been in existence for over 100 years and currently operates in over 85 countries in the world, including 570 hotels and resort properties, which are operated as a franchise or independently across the world (Bhasin, 2019). Hilton is one of the famous and well-established brands in the world and targets the employees, travelers, and target customers. Moreover, the hotel chain can leverage by selling high quality and diverse portfolios, representing a long-term strategy that has enhanced its sustainability over the last few years. Hilton Hotel has gained a competitive edge over other players in the industry by offering high-quality services to guests, and meaningful opportunities to the owners, and team members. This creates value for owners and positively impacts the lives of the people. With a vision of filling the world with hospitality warmth, and deliver an exceptional experience to customers, the hotel chain leverages itself by selling high quality and diverse portfolios. This is a long-term strategy that has enhanced its sustainability over the last few years (Bhasin, 2018).
Melbourne CBD growth rate is expected to remain strong in the next five years with various new properties and hotels such as Next hotel Melbourne and Parkroyal Docklands expected to be complete in the short-term comparative to the demand outlook reach (Australian Trade and Investment Commission, 2020c). The outlook of the city’s hospitality industry suggests intense competition that would require companies like Xeal to develop effective marketing plans to increase their reach (Australian Trade and Investment Commission, 2020c). Generally, the outlook of Scotland’s tourism industry is promising. The number of tourists is likely to come from Asian and American tourists who prefer premium hotels. The growth in the number of hotels in Melbourne will increase competition and make Hotels provides high-quality products. Currently, the average room rate in Melbourne is not high, as it should be compared to that of other cities like Sydney. Introducing more hotels in the cities will serve as an opportunity for new hotels to increase their offerings to the guests and increase in profitability levels (Australian Trade and Investment Commission, 2020c).
Commercial Partners
Commercial partners for the Melbourne hospitability sector include the Melbourne Retail and Hospitality Strategy, which comprises of a joint initiative by the Victorian government and the City of Melbourne (Melbourne Retail and Hospitality Strategy 2013-2017, n.d). The partnership consists of a combined strategy that embodies the great strengths of both sectors and their relevance in promoting the hospitality business in the city. The partnership is founded on strategic objectives, including positioning and activations, environmental sustainability, business development, and innovation, which are vital in stimulating the development of the hospitality sector in the future (Melbourne Retail and Hospitality Strategy 2013-2017, n.d). Apart from the Melbourne Retail and Hospitality Strategy, Tourism Australia, or Destination NSW, has increased government spending on the hotel hence expanding the industry. Sector markets are crucial in providing an avenue by which Destination NSW targets promotional actions towards addressing the interest and needs of particular customer targets as well as strengthening or broadening awareness and unique range of experiences and products (Destination NSW, 2020).
Market and Consumer Research
The long-term outlook of the Australian hospitality industry remains strong, demonstrating an influx of new entrants. The booming of the hospitality sector across the country owes to the increased demand for hotel rooms in both the international and domestic visitor markets, coupled with the relatively high levels of new supply which are anticipated to be fully absorbed over the next year (Australian Trade and Investment Commission, 2020b). Recent statistics released by the Australian Trade and Investment Commission (2020) indicates that the number of accommodation rooms in hotels across Australia has grown from 281 798 rooms in 2018 to nearly 296 655 rooms in 2019 (Australian Trade and Investment Commission, 2020b). On the other hand, key destinations in Australia have also risen from nearly 168 08o to 175 193 destinations in 22018 and 2019, respectively (Australian Trade and Investment Commission, 2020b).
One of the key products that hotels in Melbourne offer are accommodation. Most hotels such as Xeal and Hilton offer ideal places where guests can hold rest for different purposes, including during business, leisure, and other activities. The hotel chains and resorts are meant to serve both middle- and high-income people in society. Due to this, politicians, musicians, and business visitors from Germany, the United States, China, and Singapore have considered Melbourne hotels the ideal place to hold their events. The guest rooms in both are designed with the latest diligence that other competitors are unable to craft. Additionally, the hotels offer membership programs that provide the customers with discounts exclusively to its members. Such an approach allows the companies’ products to be viewed and accepted as high-end, and hence, the promotion complements the positioning of the accommodation product as luxurious. In terms of pricing, the companies offer a wide array of pricing that can be considered to be lying between mid-range and high-end as compared to what other similar facilities offer. In this case, by pricing its accommodation at a premium, Melbourne hotels create a perception that the services that it offers are high-end. Furthermore, the rooms have advanced services such as free Wi-Fi and room options, which make customers repetitively use the products.
Conclusion
Recently, Xeal’s long-term manager retired and has been replaced last minute by a senior executive from the company’s Tokyo sister property. The new top executive manager is interested to know the company’s current strategic position in the industry and its prospects of expanding its business both locally and around the world. As a 4-star hotel, Xeal is bound to be affected by various forces ranging from environmental influences, political and legal factors, technological factors as well as social and cultural factors. From the situational analysis, the long-term outlook of the Australian hospitality industry remains strong, demonstrating an influx of new entrants. The booming of the hospitality sector across the country owes to the increased demand for hotel rooms in both the international and domestic visitor markets, coupled with the relatively high levels of new supply, which are anticipated to be fully absorbed over the next year. This provides Xeal with an opportunity to maximize profitability in the industry, in addition, increasing its customer base.
References
Australian Trade and Investment Commission. (2020a). Australia’s Business Environment. Retrieved from. http://www.tourisminvestment.com.au/en/why-australia/easy-place-to-do-business.html
Australian Trade and Investment Commission. (2020b). Australia’s Hotel Industry Growth. Tourism Australia. Retrieved from: http://www.tourisminvestment.com.au/en/why-australia/strong-performing-accommodation-sector.html
Australian Trade and Investment Commission. (2020c). Melbourne Hotel Supply Map. Retrieved from: http://www.tourisminvestment.com.au/en/research-insights/hotel performance/melbourne-hotel-supply-map.html
Bhasin, H., (2018) Marketing Strategy of Hilton Hotels. Marketing91, Available at https://www.marketing91.com/marketing-strategy-of-hilton-hotels/
Destination NSW (2020). Sector Marketing. Retrieved from: https://www.destinationnsw.com.au/tourism/marketing-overview/sector-marketings
Melbourne Retail and Hospitality Strategy 2013-2017. (n.d). Retrieved from: https://www.melbourne.vic.gov.au/SiteCollectionDocuments/melbourne-retail-hospitality-strategy-report-2014-15.pdf
Nair, G. K., & Choudhary, N. (2018). Sustainability in the Hospitality Industry: A Social Factor Dimension. EMAJ: Emerging Markets Journal, 8(2), 34-44.
O’Connor, P., & Murphy, J. (2014). Research on information technology in the hospitality industry. International Journal of Hospitality Management, 23(5), 473-484.
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