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  Does the family-run hotel still have a future?

Reinhard MÜCKE - Managing Director of the Austrian Bank for Tourism Development, Vienna, Austria

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Austria’s tourist sector is characterised by a predominance of small and medium-sized enterprises, whereby the following observations focus exclusively on holiday hotels and do not include city hotels!

As of 31 August 2004, there exist:

total numbers	establishments	beds
14,063	hotels	605,711
142	spa and recreation facilities	13,383
5,363	other accommodation facilities	175,236
49,177	private accommodation establishments	363,394
68,745	establishments	1,157,724

 

On average, Austrian hotel operations have 43 beds. However, this figure varies from category to category:

Average size of operation: categories beds 5/4 stars 105 3 stars 42 2/1 stars 23

 

The number of beds in commercial hotel establishments has decreased from 629,000 beds in 1994 to 588,000 beds in 2004.

The following graphic shows the development of beds in different categories

 

In 2004, the available beds accounted for the following number of overnight stays:

Hotels	74,007,395
Spa centres	3,065,120
Camping	5,203,185
Other	12,974,306
Private accommodation	9,139,598
Holiday apartments	12,853,595
total overnight stays	117,243,199

 

Corporate structure by number of employees:

Number of employees	% of business
1 – 4	72 %
5 – 9	17 %
10 – 19	7 %
20 – 49	3 %
50 – 99	0.8 %
above	0.2 %

The classification of hotel operations both by their number of beds and by their number of employees clearly reveals the predominance of small and medium-sized enterprises in the Austrian tourist sector. An operation with an average capacity of 43 beds can only be run within the family, so that large hotel chains can be ruled out as operators, i.e. providers, right from the outset.

Since every expert, and perhaps even every holiday-maker, is able to develop a strengths and weaknesses profile of a family business, this issue will only be touched upon very briefly. 

STRENGHTS

at operational level:

• work arrangements in the family – flexible (time and costs)
• clear structures
• high level of customer loyalty
• short decision-making processes
• etc.

on the market:

• quick adjustment to market changes
• local knowledge
• charming character
• etc.

WEAKNESSES

at operational level:

• weak capital base
• succession problems
• lack of strategy
• insufficient financial control (bookkeeping, cost accounting)
• organisational infrastructure
• training deficits (entrepreneurs and staff)
• etc.

on the market:

• competing on its own
• no market power
• weak market appearance (marketing)
• size of business
• etc.

The major problem of Austrian family businesses is their size. This does not mean that small enterprises cannot succeed on the market, but that small enterprises also have to provide an infrastructure which they actually cannot afford.    

From the Austrian point of view, the initial question, whether family hotels do have a future, can only be answered in the affirmative! The strategy for the future has to aim at creating larger units which generate a higher turnover, make more efficient use of staff resources, improve their distribution of fixed cost and ,in consequence, achieve a better GOP. A higher GOP enables operations to make the necessary investments – also in the non-profit sector – allowing them to grasp the existing market opportunities.      

The future solution to the problem – an increase in capacities – looks quite simple on paper, but cannot be regarded as a holistic solution approach because of the individual nature of the different requirements. A capacity increase by 10% would be equivalent to approx. 60,000 additional beds in commercial establishments, a number which certainly cannot be absorbed by the market.

Is an increase in capacity – with all its financial consequences – really the only conceivable solution? Certainly not! The market position of each individual business can also be strengthened through cooperation.

 

EXAMPLE

 

One example is the “Millstättersee” cooperation model, which is particularly successful in the areas of marketing, human resources, sales and administration.

The Cooperation was founded in 1997 with 14 participants, familiy-run hotels of 3 and 4 stars situated around Millstättersee. They have total capacity of 1,100 beds. In 2004 they counted about 173,000 overnight stays.

Destination Cooperation Model – “Millstättersee”

 

Fields of cooperation

operating cooperation

• staff   (reservation, housekeeping, back office,...)
• production (F&B, laundry & cleaning,  maintenance,...)
• common acquisition

sales and marketing / guest relation

• common umbrella brand, TV info channel, call center, homepage

quality management

• common quality seal of approval
• design of holiday packages and tourism programmes/activities to extend peak  seasons

finance and investments

• regulation of total loan depts
• financing investments to improve quality
• generating subventions of public authorities

business administration

• exchange of financial figures (incl. balance sheet)
• controlling & monitoring, coaching
• benchmarking        

Success

for the single enterprise (SMEs)*

• over 30% reduction of total bank loans
• improvement of turnover/dept –ratio (1:4 to 1:2)
• improvement of equity ratio
• turnover + 31%
• optimization of cost structur (cost of sales, payroll, administrative and other operating expenses)
• increase of Gross Operating Profit +7%
• reduction of average interest rates of bank loans and improvement of financial result
• shortening of payback-periode (-70%)

for MHK Cooperation Ltd. & SMEs bednights + 30% occupancy rate + 15% consolidation of winter season (+218% bednights)

the region in the same periode registered stagnation of bednights decline of occupancy rate (- 15%)

 

Keys to success

• tailor-made pool financing for a specific tourism-destination
• formal cooperation of regional accommodation providers (at least 300 beds)
• total transparency among cooperation members
• open-minded to innovation
• external supervision & coaching

 

In this context, mention should also be made of the issue of summer tourism. In general, the range of activities offered during the summer months is considered too small, but a single operation cannot or can hardly afford to offer more. Cooperations in this field enable the participating operations to create a high-quality “fun programme”, whose financial costs only constitute a small burden for the individual business.

In contrast to large operations or chain hotels, family hotels not only have to bear the risk of market opportunity and market development but also a family-related risk. In a business segment which strongly depends on personal relations, family problems are of particular relevance and in the worst case may lead to a business failure. 

The future of Austria’s small family businesses – whose size is unlikely to change in the near future – lies mainly in the professional quality of their management. If “small” is not equivalent to amateurish and bad, Austrian family businesses will be able to maintain their chances on the international travel market! 

Slideshow