Hotels in Germany - crisis without end?

Hospitality industry - Hotels in Germany - crisis without end?

Michael Heinzler is normally a very optimistic person. But the hotel owner from Immenstaad on Lake Constance is worried about the coming year. The 51-year-old will be increasing the prices in his hotel by 16 to 18 percent. Inflation, increased operating costs and the return to a VAT rate of 19 percent instead of 7 percent in the hospitality industry will drive prices up.

He could not say how guests would react to the price increases from January 1. "The situation has never been like this before," says Heinzler, who wants to provide an offer for large and small budgets in his hotel with 34 rooms and suites on the lakeshore.

"Challenging times"

Many people in Germany are feeling the same way as the hotelier on Lake Constance. "These are challenging times," says Tobias Warnecke, Managing Director of the German Hotel Association. During the pandemic, the industry looked into the abyss. Things were slowly looking up, but then the war in Ukraine broke out. "We slipped from one crisis into the next."

After severe slumps in 2020 and 2021, the industry is still lagging behind pre-crisis levels in terms of turnover. According to the Federal Statistical Office, hotels and other accommodation providers recorded a price-adjusted decline of 6.7 percent in the first three quarters of the year compared to the pre-crisis period. In terms of overnight stays by guests, businesses are approaching pre-corona levels again this year. In May and September, the industry was even higher than in 2019. Profitability in the hotel industry has always been relatively low, says Warnecke. "There was never really much left over."

Stephanie Zarges-Vogel from the hotel consultancy Zarges von Freyberg says that it is certainly possible to be in the black. But you have to get used to the fact that, despite increased sales, the result is not necessarily much higher. The margin has shifted significantly downwards due to the significant increase in costs.

"Never before so difficult to plan"

The hotel industry is characterized by uncertainty and difficult planning, says Zarges-Vogel. "I don't think it has ever been so difficult to plan." Hotels without a clear concept and strong positioning will have a difficult time in the future. It will also be difficult for mid-range hotels. "Cheap and very expensive works, but the middle is difficult to present," says Zarges-Vogel.

The price-performance ratio has always been very good in Germany, says the managing director of the hotel association. It has always been difficult to achieve reasonable prices because Germans are very price-sensitive. He sees no scope for falling prices at the moment.

Consultant Zarges-Vogel argues: "A certain service simply has its price." Guests need to be made more aware that they "can't be on the junk market" if they expect a certain level of service. "In the consumer goods sector, this is a matter of course and I think we will have to get used to it when it comes to travel."

Price-sensitive guests

Guests' needs are increasing, and with higher prices, they are also becoming more sensitive, says the consultant. Individuality is therefore very important. This starts with the little things at the breakfast buffet, such as regional products. But also in the design or furnishings of the hotel, by thinking about things that guests won't find everywhere. Or in the service, for example with a personal atmosphere. "That's how you can create unique selling points that hotel chains will never have."

Hotelier Heinzler benefits from his location in the Lake Constance tourism and vacation region. The city and business hotel industry is suffering more from the effects of coronavirus than the vacation hotel industry, says association managing director Warnecke. Tourism demand has picked up again much more quickly.

Difficult search for successors

Another problem: according to Warnecke, many hotel owners are no longer the youngest and are unable to find a successor. Hotel chains are pushing into the resulting gap. When a vacancy arises, they squeeze out the private hotel industry. Hotelier Heinzler, on the other hand, hopes that his fourth-generation family business will be taken over by his own children.

What makes the search for a successor more difficult: according to Warnecke, hoteliers have to deal with a lot of tedious bureaucracy. Large hotel companies have corresponding structures or entire departments that regulate everything. On the other hand, small private hotels are faster and can react much better to new market conditions.

Heinzler, meanwhile, looks out over the gray waters of Lake Constance. His mood is not quite so gloomy. However, he and many of his colleagues are unsettled. The location gives him hope. "Lake Constance has developed really well in recent years," he says, looking at the number of overnight stays. He would be satisfied if he could maintain the level despite the price increases.

A forecast from the hotel association could give him hope: The association expects to reach the guest numbers and turnover of 2023 in the coming year.