Food Waste is on the Menu as the Hospitality Sector Rebuilds
The drastic disruption in tourism activity due to the pandemic offers an opportunity to consider food waste management as a way to improve operating margins and redirect the sector’s path towards a more sustainable future.
Three keys for supporting Caribbean tourism after natural disasters
Over a period of two weeks, the Caribbean was stricken by two devastating Category 5 hurricanes. Tidal surges ravaged pristine beaches, leaving only remnants of what had been homes, luxury hotels, and businesses. For the tourism sector, the second most important source of employment in the region, there will be a period of inactivity estimated to last between three to four months. This could reduce the sector’s revenue by as much as 50%, according to the World Travel and Tourism Council.
Tourism is one of the main economic drivers in the Caribbean. It represents almost 18% of the gross domestic product (GDP) in the region, and in countries like the Bahamas and Antigua and Barbuda, it accounts for as much as 29%. Unfortunately, it is an industry frequently affected by climate change. For example, in early September, Hurricane Irma generated losses amounting to 1.2 billion euros in islands like St. Barts, and affected 95% of the buildings in St. Maarten. Today, after Hurricane Maria, there are still no estimates of the total damages, but it is well known that the level of destruction has been enormous to islands, like Puerto Rico.
In response to these problems, Rogerio Basso, principal investment officer and head of Tourism at IDB Invest (formerly known as Inter-American Investment Corporation) highlights three keys for reactivating the sector after these natural disasters:
1. Sustainable infrastructure
When the El Niño flooding lashed northern Peru in March 2017, the country decided to take a new approach to rebuilding. The Caribbean now has a similar opportunity. Incorporating sustainable buildings will allow the sector to become more resilient and to be better adapted to the effects of climate change and natural disasters going forward.
“We have the opportunity to develop projects that feature more robust structures, to reevaluate hotel design practices and consider the appropriate placement of more vulnerable outdoor amenities such as pools, restaurants and bars, and assess the use of the right materials and finishes that best protect the hotel structure and make them safer,” says Basso.
This is nothing new. Many hotels in Miami are fitted with hurricane proof windows, since they are commonly affected by these natural disasters. Similarly, there were several hotel properties in the Dominican Republic that thanks to the strength of their construction experienced limited damage following the passage of Hurricanes Irma and Maria.
2. Resources for rebuilding and improving
For many Caribbean countries, the goal is to rebuild before the high season which starts at the end of the year and ends on the first quarter of 2018. Unfortunately, not all properties feature the appropriate insurance coverage or have plentiful capex reserves for reconstruction efforts. At last count, it is estimated that the impact of Hurricane Irma alone could generate losses between US$5 and US$15 billion, according to AIR Worldwide.
Those that have insurance for natural disasters could recover a large portion of their investment to renovate their facilities. Additionally, there are hotels that feature business interruption policies that would allow them to mitigate somewhat the impact of temporary closures due to renovations. For Basso, insurance proceeds could also allow hotel owners to rebuild with greater resilience, and further support sustainable development practices. The IDB Invest expert says that “this may be a great opportunity for hotels to address deferred maintenance issues, refurbish their facilities to higher standards and emerge with a more competitive lodging product, thereby enhancing the overall destination.”
3. Incentives from the public sector
Another ingredient for reactivating Caribbean tourism is to have public sector support to improve and rebuild necessary tourism infrastructure like highways, airports and signage that may have been affected or destroyed. In Chile, for example, the 2010 earthquake resulted in economic losses amounting to US$32 billion (approximately 15.1% of GDP), and 75% of the costs to rebuild were assumed by the government, making it possible to reduce somewhat the private sector’s financial burden.
Creating programs to temporarily reduce tariffs related to reconstruction efforts or providing some form of tax relief can support the Caribbean sector’s resurgence, states Basso. This has been done in areas affected by natural disasters, as in the United States following Hurricane Harvey, where the Internal Revenue Service (IRS) gave a tax relief to victims of some eligible parts of Texas.
Experts anticipate that climate change will continue to strike the Caribbean, but no one can predict the magnitude of the upcoming damages in the future, even though there are areas where tourism has been able to revive and even improve its income following natural disasters. For this reason, the only thing to do is to be prepared with resilient and sustainable buildings, and tools to support the resurgence of tourism in the region.
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Sahara Dust Storms in the Caribbean, a Hazard For Both Humans and Coral Reefs
Saharan dust plumes are ramping up over the Caribbean region, creating health hazards that are particularly dangerous for those with their health compromised by COVID-19 or other problems. This is clear evidence that the region is not isolated from the effects of climate change elsewhere.
All-inclusive hotels: A key for Latin America and the Caribbean’s growth
The traditional all-inclusive concept has significantly evolved in recent years to better adapt to changing consumer preferences, demographics and booking patterns. Guest behavior and expectations are being reshaped by a shift in consumers’ mindset towards travel and the disruptive impact of technology. Travelers are increasingly seeking personalization and authenticity in their vacation experiences, more involvement and connection with the local community, and a genuine engagement in environmentally responsible practices—all of this while maintaining full control of their choices and increasingly relying on mobile and electronic devices as a preferred booking method. A revamped all-inclusive 2.0 model is becoming more sensitive to these consumer needs and undergoing an exciting metamorphosis.
Early beginnings of the all-inclusive
The traditional all-inclusive (“AI”) business model was originally conceived around the idea of a static vacation package that included lodging, meals, and entertainment under one fixed price. In the 1980s and 90s, the concept expanded rapidly across sunbelt destinations in Mexico and the Caribbean and was highly popular amongst U.S., Canadian and European travelers seeking warm-weather vacations at affordable prices.
Despite tourism being historically an important, and in many cases the main, driver of local economic activity, several of these emerging destinations had limited tourism infrastructure, reduced air and ground connectivity, security concerns, and a general lack of complementary tourism offerings and amenities. As such, travelers many times felt captive of these large-scale all-inclusive resorts as the limited, and sometimes primitive, nature of attractions and amenities in the surrounding area made it unappealing for guests to venture outside the compound and explore the destination.
In the past two decades, many countries have benefited from the rapid growth in tourism and the ensuing development of infrastructure and tourism offerings, and a general maturation of the destination. In the Caribbean alone, visitation tripled from approximately 6.7 million to 20.1 million between 1980 and 2010, and is estimated to reach 26.5 million in 2018 and 39.0 million by 2028, according to the World Travel & Tourism Council. As such, many of these destinations that catered by default to a more traditional, compound-like all-inclusive model, now provide an ampler spectrum of services and amenities, and thus are more conducive to allowing for experiential travel to thrive. This has resulted in the evolution of the all-inclusive concept from a standardized large-box “cookie-cutter” resort experience to a more personalized and local vacation option where guests are more incentivized to venture out of the hotels. In addition, many resorts are revamping their plethora of complementary recreational activities to include quality experiences with local tourism providers such as off-site excursions that feature outdoor adventure activities and visits to historical and heritage sites, culinary experiences to learn about local foods, and walking tours to observe local artisans and crafts making. This, in turn, has led visitors to enjoy a more authentic vacation experience and develop a stronger connection with the destination.
Whereas a few decades ago the value proposition of the all-inclusive offering was that of a relatively inexpensive vacation—which unfortunately in many instances was paired with a bland food and beverage and entertainment experience—the new generation of resorts are in a frantic pursuit of offering the ultimate luxury amenities. Newer hotels are featuring unique accommodations configurations such as over-water villas and expansive suites, premium dining experiences (some totaling as many at ten F&B options), access to sophisticated productions and world-renowned performers, and signature spas.
Increased product differentiation
The evolution of the all-inclusive model reflects a change in the product offering and an increased focus on differentiation, resulting in the emergence of new brands targeting diverse market segments and price points. Following the traditional micro-segmentation of demand so keenly perfected by U.S. lodging operators (i.e., Marriott features 29 brands, Hilton has 13 brands, etc.), all-inclusive companies have begun launching new products to target specific market segments. A few examples include Philadelphia-based Apple Leisure Group with its portfolio of six brands including Sunscape, Now, Breathless, Dreams, Secrets and Zoetry; Mallorca-based Iberostar Hotels & Resorts, with its three resort brands Grand, Selection, and Iberostar; and Montego Bay-based Sandals Resort, with its four product lines Sandals, Beaches, Grand Pineapple Beach Resorts and Fowl Cay Resorts. All-Inclusive operators are increasingly adopting a multi-brand model to cater to a broader demand base, and are now becoming a real, stand-alone hospitality segment.
To further enhance product differentiation and attract new market segments, many all-inclusive operators have formed strategic partnerships with global consumer brands. For example, Playa Hotels & Resorts recently launched a new, all-inclusive resort brand with lifestyle company Panama Jack. Similarly, some all-inclusive operators have formed partnerships to brand an aspect of their operation. For example, Club Med partnered with Cirque du Soleil to launch Creative, an on-property experience featuring a Cirque du Soleil-inspired playground including over 30 recreational activities. Another case is Karisma Hotels and its arrangement with Nickelodeon to develop an experience focused on kids, and a separate partnership with Margaritaville to develop a collection of Jimmy Buffett-inspired resorts.
New players entering the market
In an effort to not fall behind and miss an important market trend, several traditional European Plan (“EP”) operators have made attempts to enter the all-inclusive space — with mixed success — either by selling all-inclusive packages at existing EP resorts (Marriott’s Inclusive Getaways at Marriott Los Sueños in Costa Rica and Marriott Casa Magna Cancun in Mexico), converting traditional EP properties to all-inclusive hotels (Hard Rock Cancun and Westin Conchal Costa Rica) or launching new all-inclusive brands (Ziva and Zilara from Hyatt Hotels). Other hotel companies like Hilton and Wyndham ventured into the all-inclusive space in the mid-2000s (experiments were made with Coral by Hilton and Viva by Wyndham) but were affected by the 2008 global financial crisis which halted development and significantly slowed down their growth plans into the sector.
Evidence of continued interest in the all-inclusive space is noted through the consolidation of traditional players and strong merger and acquisition activity. In June 2015, Barceló Hotel Group acquired Occidental Hotels & Resorts as part of its expansion in Latin America and the Caribbean and grew its regional portfolio by 13 resorts. More recently, in February 2018, Playa Hotels & Resorts agreed to buy five Jamaica resorts from Sagicor Group to further expand its inventory and brand options (Playa will retain the Jewel brand and operate a Hilton-branded hotel under an all-inclusive program).
The sector has further witnessed increasing investor appetite as seen by Terranum Group and Equity International’s investment in Colombia-based Decameron Hotels (2014), KKR and KSL Capital Partners’ bid for Apple Leisure Group (2016), and TPG’s Pace Corporation acquisition of Playa Hotels & Resorts and subsequent public listing (2017).
Strong demographic fundamentals in Latin America and the Caribbean are also garnering investor interest in the sector. For instance, socio-economic changes such as the growing number of affluent travelers and the rising middle class (which accounts for approximately 35% of the population in Latin America), increasing discretionary income spending, and the shifting travel habits of millennials, are making the region a fertile ground for the all-inclusive segment to thrive. In fact, according to a study by Expedia, millennials travel an average of 35 days per year, of which 55% of these days are used for vacation travel, and 83% of them choose to vacation at an all-inclusive resort. This further corroborates the heightened interest of major EP lodging operators to develop a sound all-inclusive strategy.
Nevertheless, EP operators may still be at a disadvantage in emulating the vertical integration that has been the mantra of all-inclusive companies. The more established AI operators have built or acquired strong distribution platforms (i.e., Apple Leisure Group features Apple Vacations, Travel Impressions, Cheap Caribbean, and recently acquired Mark Travel) and destination management services, which allow them to maintain closer contact with the customer for a prolonged period throughout the vacation experience.
At IDB Invest, the private sector division of the Inter-American Development Bank Group, we are committed to supporting the continued development of tourism in Latin America and the Caribbean, and in particular, supporting projects across all hospitality sectors that feature strong development impact and the ability to leverage the local value chain. We see that the all-inclusive segment is undergoing exhilarating changes and continues to garner strength and importance, which bodes well for the region. It will be exciting to see which major EP players jump on the all-inclusive bandwagon and what new brand concepts get created in the coming years.
If you are interested in further exploring sustainable tourism opportunities, please contact us.
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What does paternity leave have to do with a company’s success?
Companies in Latin America cannot find the human talent they’re looking for. An international survey of 41,000 companies found that more than 60% of employers in countries like Brazil and Peru have problems filling vacancies. In Costa Rica, more than 45% of the companies surveyed are dealing with this—they simply cannot find the right people.
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