Hotel group bookings represent a significant demand segment that remains grossly underserved by the technological advancements and business process improvements that have powered the growth of the internet, digital marketing and online distribution for hoteliers.

The fundamental problem was best described in a recent Kalibri Labs study:

Request for Proposal processes were structured years ago to help standardize contracting processes, but the large (estimated at 25%2 of total U.S. hotel occupancy) group travel sector remains largely dependent on manual intervention and non-interactive processes. The resulting inefficiency negatively impacts discovery, acquisition, booking, fulfillment and settlement of group-related guest rooms and related event space contracts.

There is significant benefit for hotel owners, intermediaries and hotel brands to understand the economics of group and event demand when studied from:

  • A small to large group perspective: 10 rooms to 100+ rooms as opposed to the reverse;
  • The perspective of owners’ return on investment versus hotel brand economics;
  • Intermediary capability to create a profitable marketplace; and
  • Attendee demand as a consumer behavioral segment, rather than room block or rate plan tracking.

Pairing a known technological adoption gap with a large addressable market makes the sector a prime prospect for disruption. Most simply, the group segment is primed to eliminate existing friction points to reduce cost, improve efficiency and grow profitability.

Today, the largest distribution channel for hotels remains offline/property direct (phone, sales office, walk-in, etc.).  Phocuswright projects that these forms of direct booking comprised 43% of gross hotel sales in the U.S. in 2018, but this offline direct share will shrink to 38% by 20223 (See figure). Unfortunately, the offline direct channel slide is deeper than the projected growth rate for online direct/supplier website sales, causing the combined total share for the aggregated direct booking channels to decline from 66% to 63%. Making up the difference will be the share growth of intermediary (OTA and travel agency/travel management company) channels that will rise from 34% to 37%4 over the same timeframe.

Group bookings represent a new front in the direct booking battle between hotel brands and OTAs. With meeting planners and travel advisors seeing lower compensation on direct bookings due to group commission reductions by several major brands over the past year, some group planners may seek more favorable economic terms by shifting room inventory sourcing from offline direct to online intermediaries.

Group business has traditionally offered three important benefits for hotel operators:

  1. Establishing a base of business, due to extended lead times
  2. Filling transient demand holes
  3. Ability to offer discounted rates to a closed group, protecting retail pricing structures

Considerable attention has been focused on groups exceeding 100 rooms due to the disproportionate share of total revenue generated by large meetings and conventions. However, given the fundamental inverse relationship between quantity and price, as group size increases, Average Daily Rate (ADR) typically declines.

One implication for hotel owners is that an ability to effectively contract smaller groups can generate higher net operating margin than larger groups due to potentially higher ADRs and lower distribution cost direct bookings. Small groups can produce incremental profit, and in many cases, not require discounted allocation of precious meeting space also desired by local banquet and catering clients.

The group travel landscape is highly fragmented, ranging from large citywide conventions, corporate and association meetings, to sports teams, weddings and ad-hoc groups of friends. Despite the large market size, fragmented supply, diffuse demand sources and low technical sophistication, even the largest travel industry players have not yet cracked the code to create an efficient group booking marketplace.

Out of the 760 million room nights Booking Holdings booked in 2018, none was formally associated with groups. Expedia outsources its group bookings to HotelPlanner. Meetings and events behemoth Cvent currently targets only enterprise and mid-size event sectors.

Many startups, existing players and larger groups deploying niche product offerings are encircling the group travel / meetings and events ecosystem, including Bizly, Groupize, EventPro, Groups360 and Duetto. In addition to group booking sites, the list includes such diverse groups as global distribution systems (GDS), hospitality technology providers, business intelligence, revenue management, sales and marketing and meeting space diagramming organizations.

With growth rates plateauing, OTAs, search engines, metasearch sites and social media platforms are under pressure from investors to grow traffic and revenues. The question is when they will recognize the opportunity to improve traffic monetization by serving small group demand through a marketplace model to capture an incremental share of hotel revenue.

Traditionally, one of the key differentiators between hotels and private lodging has been meeting and event space. Following the growth of Airbnb and WeWork in shared lodging and commercial real estate, PeerSpace, LiquidSpace, Pacific Workplaces, DaVinci and eVenues are mimicking the model for meeting and event spaces.

Hotel operators and brands must recognize that the increased risk of intermediation potentially reduces hotel owner returns, while simultaneously enhancing the relevance of tangential technology platforms and affinity groups for their respective user communities.

Group travelers do not self-identify into the traditional market segmentation applied by the industry – each trip simply reflects an attempt to accomplish a specific goal for a collective group of travelers. An individual traveler may be a representative at a company-paid conference, attending a personally funded enrichment program the following week, while squeezing in a wedding over the intervening weekend. The individual’s decision-making processes are distinctly independent across the three events.

One of the key differentiators is who foots the bill for the travel. Guest expectations are based on perceived value – impacted by many factors including brand expectations and personal cost. The perfect hotel for one itinerary often represents an unacceptable option for another.

The hypothetical traveler referenced above might have been mildly disappointed with the quality of room service at a company-paid Ritz-Carlton but delighted by the breakfast buffet at the Hyatt Place near the wedding venue or even the late night bar menu at the independent 4-star property snagged downtown on Hotwire for a personally budget-friendly $97 per night.

Every individual possesses their own, innately personal, set of preferences and prioritization criteria. Even the most advanced collaborative filtering and predictive behavioral modeling technologies may be challenged to identify reliable purchase signals for pending group travel needs.

In many cases, group travel is disguised as transient business on hotel P&L statements, and is often booked through an intermediary, considering the traveler is intentionally seeking an alternative to the group’s host hotel in order to save money from their own pocket. This allocation (in transient) by hotels makes it difficult to accurately measure an already fragmented marketplace.

To better understand group demand dynamics, a more holistic approach is necessary – targeting the improvement of financial returns to hotel owners and experience enhancement for attendees. The other dimensions of the industry, such as conference and event planner requirements, destination attributes, intermediary facilitation, distribution channels and technology platforms should also be considered from a value creation perspective in support of the ultimate goals for suppliers and consumers across the group demand spectrum.

Particularly in light of last year’s 30% commission reduction initiated by Marriott and quickly followed by Hilton, IHG and Hyatt, among others, it is important to understand the players and dynamics of the group travel sector.

The groups and meetings marketplace is diverse, complex, fragmented and – in many cases – unable to serve the group traveler with a seamless customer experience. Meanwhile, consumers of group travel are searching for more informative and easy-to-use ways to shop for, purchase, execute and savor a comprehensive travel experience.

Phocuswright is embarking on a new study to delve deeply into group and meetings traveler behavior within the destination, and better understand marketplace dynamics and opportunities. The study will answer such questions as:

  • How do meeting attendees behave outside of the main event? Where do they work, dine, shop and play?
  • How do meeting attendees decide where to stay? Use of room blocks, the role of loyalty, and the prevalence of alternative lodging such as Airbnb and VRBO will be explored.
  • How can meeting planners, lodging suppliers and intermediaries provide solutions that meet the needs of the group traveler?
  • What is the role of intermediaries and new market entrants?
  • What are the differences in attendee behavior based on size, place and type of meeting?

Capture and serve an increasing share of the group market to earn a higher share of guest spending.

Contact Phocuswright to get involved in this upcoming research to better understand the groups and meetings traveler (their motivations, preferences and spend patterns) and how lodging suppliers, intermediaries and travel arrangers can finally turn their business trip into an experience. Learn more about the project's research topics and deliverables here.

1“U.S. Groups & Meetings: The Economics and Complexity of Intermediation”, by Cindy Estis Green in collaboration with PricewaterhouseCoopers (PwC).
© 2018 Kalibri Labs, LLC. All Rights Reserved.

2 “Trends® in the Hotel Industry” CBRE, 2019

3 “U.S. Online Travel Overview” Phocuswright, 2019

4 Ibid.

© 2019 Phocuswright Inc. All Rights Reserved.