Industry Update
Opinion Article 1 September 2014

Boutique Hotel Stadthalle: A successful sustainablity case study

By Arturo Cuenllas

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Cuenllas

The Boutique Hotel Stadthalle

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This Case Study shows the successfulness of a sustainable strategy. A truly committed sustainability path can provide hotels with wider economical results. Ultimately, this is what sustainability should aim for balancing the triple bottom line: environmental results, social results and economic results. The decision about whether going or not going green, in the case of Michaela Reitterer, owner of the hotel Stadthalle wasn't just a strategic debate but a firm decision based on her own personal values.

The Stadthalle Boutique hotel is a 3-star, 79-room hotel in Vienna. The property is defined as a "green oasis". Contrary to conventional opinion about boutique hotels, the hotel Stadthalle is not located in the city center nor can it be considered a luxury property. Boutique hotels don't have to be necessarily high-end properties. We saw this in the Joie de Vivre hotels' case study, and in Chip Conley's vision. Stadthalle can be seen as a midscale property, yet it still offers a memorable experience, a great service because of a great hospitality team, unique decoration and atmosphere, as many other boutique hotels do.

Revenues by Going Green: A Holistic Approach

The Center for Hospitality Research at Cornell University published a study in November 2013 called Hotel Sustainability: Financial Analysis Shines a Cautious Green Light, by H.Chong, and R.Verma. These academic authors analyzed eco-certified hotels trying to answer the question whether advertising an eco-certified hotel decreases or increases the hotel's bookings and rates. This study monitored millions of bookings over 9,000 hotels, mostly in North America, drawn from Sabre's Travelocity and GDS sales platform. The authors concluded that, on average, booking revenue neither increased nor decreased for the eco-certified hotels. Earning a green certification does not automatically result in a large revenue bump or a revenue fall. In short, green is not a "silver bullet" strategy.

The study also included the phenomenon called "Green Gap". That is, consumers saying that they want green products but generally not willing to pay for them.

Although these kind of academic studies are positive for measuring "green" responses from customers, we believe that in order to be able to provide a clearer picture of reality, more questions should be included: Is it "green" in itself enough for customers to pay a premium? Should hoteliers expect profits just by going green? How much "green" is enough for a company?

Joel Makower puts it very well asking these questions: "What does it mean to be a green business? Are eco-certifications a guarantee of greenest for hotels? How do you know if mainstream environmental policies and programs are "good enough? What eco-certifications are the ones that count for being more serious and having more prestige?"

In any case, besides green attributes, customers are still demanding value. "Green itself is not actually a functional product benefit. It does nothing for me directly, unless you count saving the planet that I am standing on," says John Grant in his Green Manifesto. "A green product does not answer the ultimate value proposition: What's in it for me?" In other words, green products need to be more than merely green, they must be better too.

Sustainability must be definitively seen as a new quality management dimension, a source of innovation and as a new paradigm for the twenty-first century; yet it still needs to keep up with other strategic variables such as providing memorable experiences, offering a good product and an outstanding service. And of course, sustainability still needs to fulfil the classic economic axiom: to offer great value for money.

So the final customers' decision in choosing green hotels instead of their browner counterparts, and even paying a premium for them, will not only be defined by their green attributes. It is the green attributes together with the overall and unique experience that customers will have.

In addition to green virtues, customers at hotel Stadthalle appreciate its great service, decoration, terraces, lavender roof-top and lavender aroma spread all over the place, the overall comfort, the green façade and vertical-garden, the friendliness and professionalism of the team members, the quietness of the place, its organic and bio-breakfast, the free Wi-Fi, etc.

Hotel Stadthalle's Higher Room Rates and Occupancy Percentage

While the average rate per night in Vienna in 2013 was 64,80€ for 3-star hotels, Stadthalle had an average daily room rate of 92,36€, compared to 80,14€ for 4-star hotels and 152,91€ for 5 star hotels. In spite of the increasing competition with more properties and rooms in the city during the last years (+7 percent), occupancy rates were still higher at hotel Stadthalle than the average. Boutique hotel Stadthalle accomplished a 74,90 percent occupancy rate in 2013, while the average occupancy rate in Vienna the same year was 71,62 percent (69,68 percent -3 star; 72,43 percent -4 star; 72,95 percent -5 star).

Claudia Plot, hotel director, clarifies its price positioning: "Though there was bigger competition we could show that we had also a unique product, something which was incomparable in the city an even in the country. That made us believe we had to stick to our price policy."

What is even more interesting is the hotel lesser dependency on distribution channels. Recognized brands, not to mention independent hotels, are struggling to reduce hotel dependency on online travel agencies and other distribution channels. Hotels rooms are for sale in a dynamic and volatile distribution landscape and the power of online distribution channels is continually growing. Mainstream debate focus on online marketing, revenue management strategies and social media actions as a way of counterbalancing OTAs, tour operators and other distribution channels dependency. For many hoteliers getting 25 percent in direct bookings can be considered almost utopian. Nevertheless, Stadthalle generated 65 percent in direct bookings from its own website and direct phone reservations to the hotel. The other 35 percent came from different distribution channels (15 percent through OTAs and 20 percent through tour operators and other travel agencies). "Account Managers of online travel agencies do not believe us when we tell them our percentage of direct bookings" says Monika Haas, Sales and Marketing Manager.

Is Stadthalle's competitive advantage happening because they spend more money in Search Engine Marketing (SEM)? Could it be due to having genius consultants in SEO and SEM tactics? Or, is it because of a wider advertising budget? Not at all.

Renewable Energies On-Site: Zero-Energy Balance

The boutique hotel Stadthalle was renovated and built in zero-energy balance in 2009. Zero energy balance means that the hotel produces its own energy on-site in renewable sources on a yearly basis. Surpluses of energy, especially in summer, go back to the grid, although conversely some energy necessities in peak periods of occupancy or winter days can also be needed from the grid sometimes–municipal heating in Vienna is Biomass and Cogeneration. However, on a yearly basis, the hotel energy balance is zero; kilowatts of energy-produced on-site in renewables cover all of the hotel energy needs.

The hotel has 130m2 of solar panels producing hot water, and 93 m2 photovoltaic panels, producing electricity. But the main source of energy comes from its heat water pumps. The system collects water at 14º from ground water levels and takes the energy out to heat the building in winter or cool it in summer. Cold water collected from the warm water pump is also used to flush room toilets.

Solar and photovoltaic panels can be seen also as a part of the hotel aesthetic. These renewable technologies cover one façade of the building and part of the entrance façade as well.

Mainstream hoteliers see sustainability in general and renewable technologies in particular as a big investment not worth making, as the payback period could range between 8 to 14 or more years. Hoteliers are not sure about this kind of investment, especially if their strategy consists in matching short-term results. Such capital expenditures generally don't fit in when it comes to maximizing profits in the short-run.

We may lose an opportunity when we see renewable energies in strictly traditional financial terms. Conventional wisdom would ask the following questions: "What is the return of investment?" Or, "what is the payback period?" And while the responses sometimes could be encouraging, maybe because of government's direct or indirect subsidies, the norm is to postpone the decision about investing in renewable energies.

But there is a different approach. Let's take, for example, Interface's case study. Interface is a carpet producer known to be a role model in sustainability. Against all financial odds indicating that renewable energy was a poor investment for Interface, it turned out to be the opposite: a terrific one. Ray Anderson, founder and former CEO of Interface, puts it this way: "In fact, the classic approach to problem solving - about investing in solar arrays for producing its products- turned out to be the problem. But what is the payback period for being a global leader? What is the return on investment for making a public commitment for a better world? How will our main market –interior designers and architects- respond? Classic scientific analysis is not equipped to answer any of those questions." Using solar energy Interface made and commercialized Solar-Made Carpet TM, and their sales skyrocketed.

Michaela Reitterer of boutique hotel Stadthalle used a similar approach; she did not follow the classic thinking when deciding to invest in renewable technologies. She did it because she thought it would be a good investment in the long run. "There was no question about how much did it cost or if there was going to be a return on the investment," affirms Michaela. "10, 12 or 14 years? Who cares if your view of the business is for the long run. It seemed logical to develop a hotel not dependable on the volatile and ever-changing prices of gas and electricity." Contrary to Interface, Michaela did not anticipate the tremendous success her decision was to going to have. Sustainability was pretty much in her DNA, so her betting in renewable energies was based both on caring for the environment and lowering utility costs. She was surprised by the tremendous public relation and media attention that her decision attracted from all over the world. Boutique hotel Stadthtalle was in the forefront of reducing carbon emissions in the hospitality industry.

Values, Culture and Higher Purpose

Former CEO of Scandic hotels Ronald Nilsson prognosticated in 1994: "Tomorrow's market is about mutual values. Scandic had been looking inward –as many hotels today do; only focusing on the product and services- instead of outward at the values of the market. The next generations won't tolerate insensitivity with the environment".

He was right. It might not be so obvious yet for mainstream companies as it is for Scandic or hotel Stadthalle, but the reality is that sustainability is pushing to be a value more demanded. The advantage of these companies is that they "share values" with their customers and employees. The result is that normally they generate more admiration for their brands and customer loyalty. These businesses are also better positioned to attract (and retain) more talented employees; intrinsic motivation is boosted when employees realize that they are working for a business with a higher purpose than just making profits. Their jobs have more meaning. Meaning comes from engagement in positive work that challenges the person capacity, but also is about making a larger contribution to the overall well-being of humanity and the planet. "I chose to stay," says Monika Haas, Marketing and Sales Manager at hotel Stadthalle; "I could have gone somewhere else but this is my place. There is a higher purpose to working here: to tell other people that sustainability is working".

A good example of employees' personal values matching those of the company can be seen in other team members. For example, when I interviewed Maria Leifer, serving at the bar and breakfast, she told me that she had worked for an NGO in Ghana, Africa, before she started working for Stadthalle.

Every company at its inception is imbued with a set of beliefs, sometimes also with a higher purpose. Or they develop it throughout the company's life. Whatever the case, a company's higher purpose answers the basic question of "Why". "Why are we in this business?" In this manner, leadership can be seen as the practice of helping people envision, and then participate in creating a better world. Sustainability at boutique hotel Stadthalle is a higher purpose, which also includes inspiring others in the same direction. "I am an entrepreneur, and certainty I need profits," declares Michaela. "But good business isn't just about profits. When I started the path to sustainability I did it because it was the right thing to do. I didn't know this was going to be so successful". "I don't want my hotel to be the only hotel going for sustainability, the more hotels we get into this strategy the better."

Michaela's personal values have permeated hotel Stadthalle culture. These values are: (1) environmental consciousness through action; (2) authentic hospitality with passion and service with heart; (3) treating employees and customers with fairness, helpfulness and compassion as members of a family; (4) enthusiasm, performance and competence by constantly looking for ways to improve business; (5) community at work and having fun. Like many other high-performing companies such as Southwest Airlines, Jet Blue or Zappos, hotel Stadthalle is more than a group or people working together, it is a community of people sharing goals and objectives who enjoy working together and support each other.

"Healthy leaders first must tap into the higher purpose of the organization", writes Bob Rosen in Grounded. "When individuals pursue more than a simple livelihood, they fulfill the quintessential to the community of their fellow man. A higher purpose feeds the spirit of the organization."

Employees' Sustainability Awareness and Education

Awareness and education are both needed and key to promote sustainability engagement in employees. Social Responsibility should not be a matter of one isolated department or group of selected persons when the rest of the organization neither have the knowledge nor the necessary commitment to helping improve social and environmental actions. Not everyone in a hotel needs to be an expert in sustainability-related issues, but employees can have enough knowledge to make a contribution with their actions to improving cost savings in energy efficiency, water management, waste reduction, reusing or recycling.

Education is a way of capturing people's minds and hearts in environmental and social stewardship. "The interesting thing of educating employees in sustainability is that the more they know, the more they are convinced and engaged. Even to a point in which they bring environmental behaviors to their homes", says Michaela Reitterer.

Michaela made herself aware of the importance of educating employees when she attended a congress in sustainability. She told me the story of a person from the public rising up and saying that boutique hotel Stadthalle was not as good as it was being reported. This gentleman from the audience said that when he stayed at the hotel once and asked a chamber maid about the points for the green certification Austria eco-label (the hotel has two eco-certifications: the Austrian eco-label and the European eco-label), the maid was unable to answer his question. "From this day on we changed everything and when somebody starts working with us, during the first two weeks, employees must read a green guide. They are also trained in environmental matters," affirms Michaela with a humble attitude.

In this way the hotel provides all of the team members with (1) a folder with overall information on environmental actions. (2) The hotel also gives out a sheet with the above-mentioned core values. (3) A detailed list of the points and policies of the Austrian Eco-label. (4) They also train the staff in how to separate waste -there is only one bin in every guest room and waste is separated and classified by room attendants into their housekeeping karts. This information is given in the mother tongue language of the employee -some foreign room attendants, for example, might have language barriers. And (5) every few months hotel employees must do a quizz in environmental-related aspects.

"Responsible Consumerism": Informing and Educating Guests

Employees should be able to answer guests' questions such as, "why has the hotel decided not to offer minibars in rooms?" Or, "why organic is good for the environment and your personal health, yet purchasing local should have priority over organic?" "What is fair-trade?" "Why does the hotel prefer to offer glass bottled mineral water instead of plastic containers?" Moreover, as in Scandic's case, "why do they prefer offering distilled and even sparkling tap water rather than mineral?" All these questions and many others are not easy to respond unless you have acquired the knowledge.

Companies at the forefront of sustainability like Scandic, Stonyfield Yogurt, Patagonia, Mark & Spencer, Whole Foods, Timberland, Seventh Generations, and many other role models, know that educational initiatives directed at their customers are a major part of their responsibilities. Scandic has developed "green corners" in every hotel and employees are trained to respond environmental issues. Whole Foods, Timberland and Mark & Spencer inform customers through their labels. Stonyfield is known for educating guests by posting messages on their yogurt lids. And all of them are very proactive giving information in Social Media channels and their Websites.

No company can reduce energy, water and waste beyond a point if customers are not involved too. This is called responsible consumerism. A hotel might have done a significant effort in reducing its energy consumption by changing to LED lights, installing light sensors and many other actions, but it will not be able to reduce its kWh of energy consumption if customers leave all lights and the air conditioning on while not being in their rooms. The same holds true if a property has implemented actions to reduce water consumption, yet guests leave their taps running while shaving or brushing their teeth, or take a 20-minute showers. The point is not to promote uncomfortable actions but encourage responsible behaviors.

The good thing about role models like hotel Stadthalle is that their credibility is an asset. It is even contagious! Maybe you are not an environmentally-conscious customer. However, you are prone to be paying more attention, and even changing your behavior if the hotel in which you are staying is not the usual "greenwasher".

The green points that Stadthalle placed in rooms are very smart and subtle. Strategically located, these small green stickers inform guests about the environmental actions the hotel is implementing. "Some guests are not involved or do not care about environmental aspects," says Michaela. "Maybe they just came to attend a concert -the music center is close by. But when they see the green points they say: 'Oops! This is something different."

The green points are located close to the sink, shower, TV, toilet, lights, desk and furniture. These green informational stickers are very simple, visual, and clear, giving messages to guests like: "Hot water by our solar panels", "35% water reduction by water-saving-bulbs", "No minibar in all hotel rooms saves 21.024 kg of CO2 per year (assorted drinks at the reception desk)", "Please use dual flush system to save water", "Cradle-to-Cradle fabrics", "1W for standby: saves energy", "LED start-up light 14W in total" or "we produce our own electricity with photovoltaic panels".

Green Guest Club and Green Promotions

A loyalty reward program called "Green Guest Club" is working quite well with repeated customers. Hotel guests have the possibility to accumulate green credits and enjoy different discounts as well as free nights. "The good thing about our loyalty program is that, first of all, it is very transparent and then very simple ", says Monika Haas. "The program sends information to regular guests once they have joined it. From there, it is very easy to see how many points you are gathering and get the benefit of green vouchers for your extras or your room payment".

Guests arriving by bicycle can benefit from a 10% discount in the room rate. This promotion only applies to direct bookings and has a tremendous success among bicycle riders. Many travellers from Austria or other parts of Europe arrive by train travelling with their bikes, so the promotion applies to them too. The hotel has also a bicycle shed.

Green Façade: Vertical Garden

The term "green oasis" is pretty accurate to define Boutique hotel Stadthalle. It is not only the interior patio and all the plants covering the building interior walls, or the lavender root-top garden;, a vertical garden can be seen in the entrance façade distinguishing the hotel from the rest of the surrounding buildings. This is a two-story vertical garden, with edibles such as strawberries, tomatoes and raspberries, bordering all the windows and covering one part of the hotel façade. The reason this vertical garden does not cover the whole façade yet is because the hotel is cooperating with Vienna´s Faculty of Agriculture in a project analyzing how insulation is working on the green side; see if temperatures differ widely from one façade to the other.

Upcycled rooms

Upcycling is the process of converting waste materials or useless products, otherwise going to garbage, into new material of better quality or better environmental value. This means reusing products with no further use in a creative way. Upcycling gives an item a better purpose.

Hotel Stadthalle has some rooms decorated with upcycled products. Michaela has worked together with an acquaintance of the Faculty of Arts in Vienna to bring this concept to her hotel. There is a great creativity in the process and customers can see night desks made out of books, or a wood classic tennis racquet used as an auxiliary mirror, and skies decorating the wall.

Social

Sustainability is not only about the environment; it is also about social aspects. The main consideration of the social dimension is how the hospitality operation can positively contribute to the lives of local people now and in the future, or even at a global scale.

All coffee served at hotel Stadthalle is organic and fair-trade. But what is fair trade? Farmers have traditionally not been paid adequately or been charged with high interest rates to borrow money to run their business. Much of the money a customer pays for coffee, ever or rarely reaches the farmer. The money stays in the hands of distributors or middlemen. Socially responsible companies like Starbucks, for example, source its coffee from thousands of farmers directly in almost 30 countries in a fair trade system in Collaboration with NGOs –in Starbucks case, they have their own system called C.A.F.E best practices together with Conservation International- to assist farmers and bring them support. Farmers get fair prices for their products so they can invest their money in their businesses and their communities such as in education and health. These best practices also try to prevent child labor.

Every year, the hotel decides and evaluates how many and which projects they will support with their donations. Boutique hotel Stadthalle attracts many student groups from schools and universities, and architects or other experts interested in their sustainable practices. Visits and tours are frequent and happen almost on a weekly basis. All visitors, are requested a 5€ donation. However, this is voluntary. Normally, the hotel collects 4.000 to 5.000€ every year, and all this money goes to support different social causes.

The hotel also cooperates with an Austrian organization that offers work to persons with disability who produce artcraft the hotel helps selling to its guests.

Conclusion

The Corporate Social Responsibility movement needs role models like Stadthalle. If CSR does not change how the company thinks, as Peter Senge pointed out, it becomes just a sort of a window dressing; a simple image for looking good, and maybe making some people feel better. It should not stop there.

John Mackey and Raj Sisodia think that CSR is based on the fallacy that the underlying structure of business is either tainted or at best ethically neutral. Instead, they propose a Conscious Business or Conscious Capitalism, in which creating value for all of their stakeholders is intrinsic to the success of businesses. Conscious companies in this way integrate into the day-to-day business process sustainable practices. Sustainability is part of the strategy. Environmental and social stewardship becomes part of the company ethos.

Boutique hotel Stadthalle goes beyond usual CSR practices normally applied in many hotel companies. It is a truly responsible company.

This is happening because sustainability is part of its DNA. It lies deep in the company´s culture. It means that environmental or social concerns are not a-one-man duty or an isolated department´s but a whole organizational commitment. The same holds true for continuous improvement, which means doing more than the obvious actions to reduce energy consumption or recycling. Role models like Stadthalle do not fall into the trap of complacency. As Peter Senge has stated "Building a responsible company takes forever". Instead of just reducing energy consumption like mainstream hotels, hotel Stadthalle is willing to accomplish the transition to a non-carbon energy situation. At the same time, they understand that sustainability is a never-ending journey.

In doing my interviews for this case study I have to stress the overall humbleness I noticed. This started at the top with Michaela, but is also present in Claudia, the hotel director. I believe that from there it spread throughout the rest of the team as a company value. Managers at the hotel are very aware that they still have much work to do and they recognize it. Although they surely have excellent figures in their environmental performance indicators, they did not establish a process to measure, benchmark and even improve them. Indicators such as: How many kg of unsorted waste per guest go to landfill? How many liters of water per guest night? Is there any kg of CO2 emission in a year basis? If so, how many kg of fossil emission per guest night? How many kWh per guest nigh in energy consumption?

That said, they are constantly striving to improve their operations and looking for ways to expand their environmental and social actions. Despite their success and media attention, their humbleness can also be seen in recognizing that their achievements are not a final destination but a continuous improvement journey.

The great psychologist Abraham Maslow, inspired by the humanistic psychologist Erich From, insisted in the need to study healthy people and role models. Before them, the psychological field was focusing on mental illnesses and pathologies only. We should also examine the "healthy" cases in our industry. Sustainability needs role models to prove to other tourism companies that it can be a source of competitive advantage. There are companies like boutique hotel Stadthalle that envision environmental stewardship as an opportunity to innovate and reposition the company. Hoteliers should take this case as an inspiration.

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Arturo Cuenllas

Founder of Conscious Hospitality: a Hospitality Educational Consultancy in Management, Leadership and Sustainability | MBA professor at BHMS –City University of Seattle- in Luzern, Switzerland | MBA associate professor at ESCP Europe Business School in Madrid, Spain | Experienced Hotel General Manager, 20 years overall international experience in the hotel industry; luxury and upscale city hotels and resorts.

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