With just weeks left in the 2016 calendar year, AETHOS Consulting Group in London, New York, Los Angeles and Melbourne have gathered their thoughts and will boldly share their predictions, concerns and issues for the coming year. And while AETHOS executives focus on issues relative to their respective parts of the globe, issues naturally transcend and impact our industry worldwide.

AETHOS Managing Directors Chris Mumford and Thomas Mielke, both based in London, share commentary regarding labour costs, branding, big data and the potential impact on hospitality in Europe, the Middle East and Africa (EMEA):

In EMEA, labour, talent management and compensation topics – driven by political shifts and policy making – will dominate the operators' agendas. Mumford believes that cross-border movement of labour will dominate the news in Europe with the future of the EU in question. Hospitality markets such as the UK, traditionally so reliant on an immigrant workforce, will face the challenge of where to find new sources for staffing. Mielke predicts that this will result in companies having to review their compensation best practices to attract more local talent or to make it worthwhile for foreigners to jump through the additional administrative hoops to secure work. Profit-participation schemes may be part of the solution. Mielke also believes that this "talent squeeze" will have hotel and restaurant companies seriously re-evaluating their talent management programs in 2017, keen to ensure that there is a sufficiently strong internal development pipeline to fill the gaps.

Digital transformation, AI (Artificial Intelligence) and "big data" will have the operators scratching their heads. Great strides have been made in the digital arena — social media has become an integral component of most firms' commercial strategies and virtual reality kits, for example, and even holograms have become commercially much more viable. However, Mielke believes that for the most part, hospitality organisations are not yet grasping the full extent of this digital revolution. And whilst they appreciate the risks associated with "big data," headlines during 2016 have shown hospitality firms ill-equipped to deal with data breaches or security threats. In 2017, executives will therefore need to firm-up their strategies in that regard — stay tuned for press releases announcing the recruitment of "big hitters" in this area.

Regional performance and investment activity will be a highly fragmented picture for the EMEA region. Mielke predicts that Spain in particular, where tourism has benefitted from turmoil and unrest elsewhere, will perform well in 2017 and attract heightened investment activity. B&B Hotel's acquisition of Sidorme and HI Partners' joint-venture with Starwood Capital are indicators of what is coming. The continent's economic powerhouse – Germany – will continue to be an "investor's darling" and a safe haven (despite the upcoming election). The rapid expansion and performance of the likes of Novum Hotels or the HR Group on the operator side, and Art-Invest or Invesco on the investment side, are testaments to that. Looking at the Middle East, Mumford believes that it will be a story of two markets: UAE and Qatar. Both will have to balance managing growth targets with the fluctuations in oil prices impacting regional travel. Expect the growth in mid-market and limited service product offerings to continue. Overall, he adds that Asian money will continue to drive transaction activity in Europe — albeit at a slower pace in Europe where Brexit-related uncertainty in the UK will make investors take pause.

The brand universe will continue to expand at both ends of the spectrum and generate new hybrid models. Mumford mentions Rosewood as the luxury brand that will be making the biggest splash in EMEA and Asia. Yotel will make the most noise globally in the affordable lifestyle segment, whilst everyone will be watching to see what the Chinese do next with HNA and Jin Jiang pulling the strings at NH, Carlson, Hilton, Louvre and Accor. Mielke adds that he foresees a continued "WeWork-ification" of the hotel industry — shared spaces that mix work and social aspects score highly amongst travelers. Companies similar in ilk to citizenM, 25hours, Hoxton, Zoku or — the latest addition — Lyf by Ascott/CapitaLand will make themselves heard in 2017. In the restaurant industry, Mielke sees new brands and entrepreneurs in the casual and fast-casual dining sector trumping the "big guns."

Extracting brand and system values will be top of mind. Mielke comments that during 2017, he sees operators, investors and shareholders concerned mostly with capitalizing on brand and system values: Accor is continuing to diversify its activities, creating an open platform business for others to join. Mielke is sure that others will follow swiftly. AirBnB, on the other hand, is diversifying in a different way by talking about becoming more of a service provider. An idea that is supposed to attract and retain customers whilst allowing for greater system efficiencies. Representation companies may also want to mull this over. Meanwhile, in the restaurant space, there is continued consolidation. In the UK, the Casual Dining Group has become one of the largest restaurant groups through the acquisition of brands such as Las Iguanas, whilst on the continent AmRest has just acquired Starbucks Germany — stay tuned for similar mergers and acquisitions (M&A) activity as we have seen this year in the hotel business in the restaurant world.

Companies will see the need to thoroughly review their corporate governance best practices in 2017. Mielke believes that given heighted cross-border investment activity, and the prevalence of a few key players who are looking to further diversify their global investment portfolio, the potential for conflicts of interest to arise will increase – whether it is a question of having "insiders" at the board level or the creation of potential monopolies. The very public shareholder dispute of NH Hotels with HNA will have served as a wake-up call for other organisations to "clean up their act" and be prepared for their board to pass the scrutiny of the strictest corporate governance best practices. On the subject of governance, Mumford adds that 2017 will see more women appear on company boards as the gender diversity agenda continues receiving a big push.

Thomas Mielke
Managing Director
+44 (0)74 11210650
AETHOS Consulting Group

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