HOTEL

INDUSTRY

INDUSTRY ANALYSIS
PORTER’S FIVE FORCES MODEL
Threat of New
Entrants - LOW
Factor Explanation Threat Level
The industry is also characterized by high
Capital Investment capital cost or investment due to the LOW
Needed construction of the hotel and procurement
of furniture and equipment
There is a high fixed cost to total cost ratio
Fixed Cost Ratio LOW
especially on the depreciation and rent
There is a considerable amount of
economies of scale for the industry in
Economies of Scale order to achieve the most cost-effective LOW
use of the resources invested
The growth of the industry on a regional to
national scale is limited due to the
Industry Growth MODERATE
availability of suitable and strategic
locations
Threat of New
Entrants - LOW
Factor Explanation Threat Level
Potential new entrants in the industry can
Differentiation differentiate by providing different MODERATE
experience to its customers
It may also be a marketing advantage to
Brand Identification belong to a “chain of hotels” to benefit LOW
from brand image or loyalty

CONCLUSION:

The industry exhibits low threats for new entrants (high entry barriers restricting
new entrants), particularly because of the combined factors of economies of scale
and high capital cost of entry, together with the limited supply of suitable
locations.
Threat of Substitute Products - LOW

Factor Explanation Threat Level

Availability of Close In the “lower” strategic groups for tourist
traffic, hostels, motels and staying with LOW
Substitutes relatives might replace cheaper hotels.
Price-Performance Substitutes available in the industry does
not come with the quality of service LOW
Ratio provided by the hotel industry
There is a high switching cost for users due
User’s Switching to the convenient and strategic location of LOW
Cost hotels

CONCLUSION:

Substitute products are not a major present or likely threat to the hotel industry as
a whole except in times of economic recession where there is a decrease in the
number of travel and tourism needs
Bargaining Power of
Suppliers - MODERATE
Factor Explanation Threat Level
Suppliers include property owners,
Number of developers and construction companies, HIGH
Important Suppliers management and training service
providers, ICT manufacturers
Construction companies and developers
are often smaller companies than hotels
Supplier Size which reduces their power over financial MODERATE
aspects and ability to negotiate more
favorable contracts
There are few considered substitute for
Substitute for supplier product and services due to its HIGH
Supplier’s Products specialized nature
Industry Threat of Hotel operators can have backward
Backward integration strategies and have their own LOW
Integration developers and contractors
Bargaining Power of
Suppliers - MODERATE
Factor Explanation Threat Level
Supplier Staff costs are significant as success in the
Contribution to hotel industry is strongly influenced by the HIGH
Quality quality of the service provided

CONCLUSION:

In relation to other industries, hotels are not significantly subject to the bargaining
power of their suppliers and suffer low levels of indirect pressure from them.
Supplier power is assessed as moderate overall.
Bargaining Power of
Buyers - MODERATE
Factor Explanation Threat Level
Certain buyer groups exercise bargaining
Number of power as a result of their concentration or MODERATE
Important Buyers bulk purchases of hotel rooms (travel
groups)
Differentiation is a significant factor for
Differentiation business travelers and some independent MODERATE
leisure travelers
Users of hotels are not likely to buy them,
Buyer’s Threat of with the possible exception of airlines,
Backward because of the high level of investment LOW
Integration required
Availability of There are few substitute products in the LOW
Substitute Products hotel industry
Bargaining Power of
Buyers - MODERATE
Factor Explanation Threat Level
For tour groups or any large-scale buyers,
Buyer’s Profitability prevalence of low profit margin will tend to MODERATE
increase their price-sensitivity and will
tend to shop around for special rates

CONCLUSION:

The bargaining power of buyers varies significantly within the industry, depending
upon a hotel’s target buyer group, but this factor becomes acute in a situation of
oversupply or where buyers of hotel rooms are concentrated
Rivalry Among Existing
Firms - HIGH
Factor Explanation Threat Level
Concentration and There are a number of competitors in the
Balance of industry, at different industry niches and HIGH
Competitors categories.
Except for value-added services and more
Product complex package, product differentiation MODERATE
Differentiation for the industry is low
Revenue is expected to show an annual
growth rate (CAGR 2019-2023) of 12.5%.
Industry Growth However, business growth sought is MODERATE
greater than rate of growth of the industry
Increase in hotel capacity can disrupt the
Intermittent demand and supply balance of the HIGH
Increase in Capacity industry leading to more intense
competition
Rivalry Among Existing
Firms - HIGH
Factor Explanation Threat Level
Exit barriers happen due to strategic and
Exit Barriers economic factors which retain competitors HIGH
in the industry

CONCLUSION:

There is an intense rivalry among existing firms due to low product differentiation
and low switching cost. There is also an overlap in the target customers and
different number of industry segments and niches.