The capital outlay needed for starting up the operation in this industry is huge ($60 – $70 million), since the leasing expenses and the taxes are high. The capital includes land and building, infrastructure etc. Labor: In this industry the retention rate is high when compared to the others because of the demand for the experienced chefs in the industry. Finding and Retaining skilled labor is a major issue for a new entrant. Tax Structure: Hoteliers have to bear huge taxes levied on them by the government for property, water, electricity etc.
Beside the high entry barriers, new entrants in this industry are high in recent days.
Threat of substitutes:
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• The growth of Home business restricts travel to a certain extent. So people consider their homes as substitutes for hotels.
• There is a fierce price war going between existing players.
• The growing popularity of resorts can be a huge challenge to Hoteliers and other players in the hospitality industry. Bargaining Power of Suppliers The bargaining power of suppliers can be crucial. The suppliers are whole sale dealers of grocery and the like.
The suppliers have undergone a drastic change over the years and with it their bargaining power also has increased. The following diagram shows the transition in the grocery market from 2000 to present. In 2000, there were a number of players in the field, subsequently, it got narrowed down and a consolidation is seen in this market. This increases the bargaining power of the suppliers. Here the customer is the hospitality enterprises. The bargaining power of customers has grown drastically in this internet era. The customer is well informed in all aspects including price, service etc.
and their decision making is very rational. A lot of online services provide a comparison of hotels and customers can bargain more considering these aspects. The customers include Corporate, Individual households etc. As suggested by Michael Porter, stronger the forces, difficult it is to enter and survive in the industry. For Hospitality industry, all forces are very strong indicating the level of competition and fierceness of the industry. To combat these challenges, the following strategies are adopted by the hospitality enterprise. Read also introduction for online reservation system
Technology Focus Strategy: Hospitality Sector Internet Strategies
In 2008 approximately 40% of all hotel bookings will be generated from the Internet (one-third in 2007, 29% in 2006). At least another third of all hotel bookings will be influenced by the Internet, but done offline (call center, walk-ins, group bookings, etc). By the end of 2010, over 45% of all hotel bookings will be completed online (Merrill Lynch). Now, more than 13 years after the first online hotel booking, hoteliers taking full advantage of this dramatic channel shift from offline to online. Thus technology acts as a key success factor for attaining competitive advantage. This has increased customer loyalty in this environment .
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