THE HOSPITALITY WELLBEING BAROMETER

This newsletter is divided into two parts: (1) Macro outlook, outlining and assessing the impact of economic, geopolitical, societal, environmental and technological changes on the industry; (2) Micro insights supported by concrete examples of trends and changes occurring within the industry. We think that the combination of the two will allow you to transform risks into business and investable opportunities. The convergence of hospitality and wellbeing priorities is shaping disruption and innovation alike. The hospitality industry encompasses all businesses that provide specific and non-essential services to customers. It is broader than the travel and tourism industry stricto sensu and includes businesses such as restaurants, beauty clinics and theme parks, to name a few.

MACRO OUTLOOK

Our macro outlook analyses the leading global trends and their potential impact on the industry.

PERSPECTIVE

Interdependence is the defining feature of the 21st century. In practical business terms, this means that, more than ever, a company’s financial performance is affected by a vast array of macro risks. For analytical purposes and ease of reading, we articulate these macro risks around five categories (economic, geopolitical, societal, environmental and technological). However, they all intersect through an extremely complex web of causal links, creating both negative shocks and opportunities in the process. The fundamental point is this: as a result of interdependence it’s no longer enough to use economics and financial tools alone to anticipate where businesses are heading. The geopolitical landscape, the societal and environmental issues, and the role of technology are equally important. In today’s world, “business as usual” is a thing of the past. Entrepreneurs, investors and business executives must learn to live with continuous change and constant surprises.

ECONOMICS

For a variety of structural reasons (global ageing, technological innovation, rising inequalities, etc.), we are destined to live in a world with lower global growth than in the past (2-3% per year, 40% lower than the rate of the past 50 years). However, the travel and tourism industry (T&T), and particularly its component associated with wellness and wellbeing, will buck the trend of slow or declining growth. T&T has expanded dramatically over the past decades (from 25 million international arrivals in 1950 to 1.2 billion in 2015: a 4,700% growth) and is expected to grow even further to 1.8 billion by 2030 (if the trend remains constant… which it never does!). We predict that the wellness/ wellbeing theme will grow even faster than T&T itself. A newly published report (“Future Traveller Tribes 2030 – Understanding Tomorrow’s Traveller”) suggests that consumer-oriented travel (such as the one currently favoured by the very fast growing Chinese segment) will evolve towards less materialistic, and more “wellness-centred” forms of travel.

Global gross debt has increased from 200% of the world’s GDP 15 years ago to 225% today (it now amounts to USD 152 trillion, two thirds of which is held by the private sector). This potential tinderbox for a future financial crises and the headwind it constitutes against a robust global economic recovery supports the expansion of wellbeing themes. How? Over the coming years, governments around the world will do their utmost to rein in any costs more easily brought under control than others. Health is the most obvious one. In the Western world, governments spend hundreds of billions to treat illnesses many of which are behaviour-dependent and as such can be controlled, and sometimes treated, with simple lifestyle choices like exercise and healthy eating. For physical health two simple examples prove this point: US obesity rates impose a financial burden of about USD210bn per year in healthcare costs, while there are now almost 30 million Americans with type II diabetes, up from only 2.2 million in the early 1980s and 4.5 million ten years ago. Mental health is also an enormous burden. The decline in Western productivity has been evident for several years. The documented reasoning is not clear but it is difficult to imagine that the growing prevalence of mental health issues, from early onset dementia to Post Traumatic Stress Disorder diagnosis, anxiety and depression has not played a contributory factor to the downward curve of productivity. The cost of mental illness in the UK is estimated at £105.2 billion (Department of Health) and in the US, in excess of $300 billion (National Institute of Mental Health). The point is this: “lifestyle” diseases have reached such proportions, not only in the US, but also in many countries around the world, that a public regulatory and legislative backlash to contain them and the costs they entail will inevitably come soon.

Exchange rate movements are normally a good predictor of travel and tourism trends – a currency depreciation leads to an increase of inbound tourism combined with a decrease of outbound tourism, and vice versa. This time, this hasn’t happened in the UK, or less than expected. Much to everybody’s surprise, an increase in tourism did not follow the depreciation of the GBP caused by Brexit. According to the British Hospitality Association, visits to Britain rose during the first three quarters of last year, but only from business travel (+3.8%) and visiting friends or relatives (+8.2%). As yet nobody has a definitive explanation for this seemingly counter-intuitive reaction (which may also change). VisitBritain forecasts that there’ll be 38.1million visits in 2017 (an increase of 4% compared to 2016) and GBP 24.1 billion in visitor spending (a 8.1 % increase compared to the year before). As a reference, visits grew by 5% per year during the period 2013-2015. Might the reported rise in xenophobia have something to do with it? Watch this space!

GEOPOLITICS

In those regions and countries afflicted by high geopolitical and stability risks, the downside for the travel and wellness industry is and will probably remain considerable. In Turkey, for example, the number of foreign visitors has dropped by roughly 30% (Y-o-Y), the worst performance since 1999. In Egypt, the situation is even worse: its tourism sector has been decimated, with arrivals in 2016 down by 50%+ compared to the year before (from an already depressed level). So far, Southern Europe seems to be the main beneficiary of the tourism crisis engulfing northern Africa and Turkey. Last year, the number of tourist arrivals in Spain, Bulgaria and Greece rose by at least 10% compared to the year before. Thanks to the relative stability of European institutions and the perception that its geopolitical risks are considerably lower than in Turkey and northern Africa, this “European premium” for wellness is likely to endure. Going further and as the world becomes “messier”, those countries that benefit from the perception of a security / stability premium may outperform in terms of T&T and wellbeing activities.

SOCIETY

Public health and obesity have never been higher on the agendas of governments, the media and NGOs. As a result, there is a growing awareness among food and beverage companies that “things must change”. It is worth noting what Coca Cola said in its 2015 annual report: “Obesity concerns may reduce demand for some of our products… Possible new or increased taxes on sugar-sweetened beverages by government entities to reduce consumption or raise revenue could adversely affect our profitability.” Already, some health organizations and medical centres (30 so far in the US) are banning sugary drinks from their own workplaces. Might this happen soon in the hospitality business as well? It seems obvious that concerns, not only with sugar, but with salt as well (and more generally with the quality of what we eat) will become ever more prominent in terms of consumer choices and preferences. Hospitality industry: take note! Sooner than we may realize, an increasing number of ever more discerning and demanding consumers will discriminate on the basis of health and wellbeing concerns.

Some companies and clinics (like the Wellness Institute at the Cleveland Clinic) now offer nutritional genetic testing to individuals willing to better manage chronic diseases and / or to receive tailor-made nutritional advice. This is potentially a great development, but it is expensive (although the price is likely to decrease in the future), and is not covered by insurance. At the moment, it’s hard to tell whether the hospitality industry should embrace the trend of “personalized nutrition” (or nutrigenomics) because nobody knows yet whether it will really take-off. A meta- analysis conducted last year concluded that there is no reliable data to support the claims made by nutrigenomic companies.

Some anecdotal evidence suggests that workplace wellness programmes are becoming a strategic priority in different countries around the world. In the US in particular, a recent survey reports that 35% of employers have now come to the conclusion that such programmes are effective at controlling costs, compared with 22% who believe that is the case for disease management and 20% for consumer-driven health plan design. Nestlé, observing that absence caused by ill health costs 2.5% of the company’s total payroll, and Unilever, claiming that it recoups €6 for every € invested in health programmes, are two among the many global companies now arguing that it is not only their duty to help people stay healthy and to promote healthier living – but also in their own economic interest to do so. The benefits are indeed manifold: (1) It improves productivity, (2) it decreases the cost of absenteeism and presenteeism, (3) it leads to higher staff retention, and (4) may even improve investor confidence and stock market performance (according to some studies). The trend among employers is now to take a more holistic approach to their employees’ wellbeing. Holistic means that wellness programmes combine physical wellbeing, emotional wellbeing, mental wellbeing, financial wellbeing and even social wellbeing, with a strong emphasis on mindfulness.

ENVIRONMENT

Air pollution is becoming such a significant ticking time bomb that sooner than most executives realise it will impact decisions to travel and where to vacation. It is climbing at an alarming rate, having risen by 8% globally over the past five years. According to the WHO (World Health Organisation), 90% of the world’s population breathe air that fails to meet its own safety guidelines, causing the premature death of 6.5 million people each year (3 million of which are caused by coalfired power plants, cars and factories). Meanwhile, a new study published by the World Bank estimates that outdoor and indoor pollution cost the global economy $5.1tr in welfare losses and $225bn in lost labour income (in 2013). An interactive map made available by the WHO shows that the risk is global (with, however, huge disparities) and rising. This has prompted the organisation to qualify air pollution as a “public health emergency”. In light of this body of growing evidence backed by research, it is likely that concerns about air pollution will start to have an increasing impact on how people make wellbeing related decisions. Business travel will make some “polluted” destinations unavoidable, but travel for leisure and wellbeing in cities and countries with high levels of pollution will become less and less desirable. The recent “polar scare” (Artic temperatures were 20 degrees higher than normal) is one more sign that the climate system is changing much faster than anticipated, radically and unpredictably. This “off the chart” occurrence might be a tipping point – the threshold beyond which non-linear, complex systems start behaving erratically, with major implications globally. The intensity and severity of extreme weather events is bound to increase (with waterfront real estate particularly at risk). The same is true of inconsistent weather patterns, now affecting the tourism industry in a major way, and even in some countries slowly abolishing the separation between spring, fall, winter and summer. AI (Artificial Intelligence) is coming to the rescue, with tools helping business to better predict how weather changes affect demand. New research (and in particular an article recently published in the journal Science) shows that Africa is particularly vulnerable to environmental risks. Sea levels around the world are expected to rise by more than two and-a-half feet by the end of the century. However, in West Africa they are expected to rise faster than the global average, with potentially catastrophic consequences: 31% of the population lives along the coastline, generating 56% of total GDP. Low-lying coastal resorts and capital cities such as Lagos, Nouakchott and Accra are already grappling with much more frequent and severe flooding than in the past. It will be interesting to see whether agroecology (the application of ecological science to agriculture) will gain traction in the years to come and whether it will become a common feature of wellness resorts that rely on local production of food. Agro-ecology encompasses a wide- variety of practices that are coherent with environment preservation, social fairness, and economic viability: it increases yields in a sustainable way through plant diversification, intercropping, application of mulch, manure or compost for soil fertility, and it minimizes the use of toxics by privileging endogenous solutions to manage pests and disease. Across Africa, there have been many success stories with this approach that upholds and secures farmers’ livelihoods. It therefore resonates particularly well with wellbeing!

TECHNOLOGY

A major issue to watch is how big data and AI (Artificial Intelligence is the transformative technology of the 21st century) will impact hospitality, health and wellbeing. Deep- learning, and the continued improvements in computing power and fall in storage costs mean that biotech, pharmaceutical and wellness companies can now not only detect, but also understand hidden patterns dissimulated in huge data sets. There are already examples of AI helping to fine tune research and clinical trials, as well as providing new measurement capabilities for doctors, insurers, regulators and even patients themselves. To name just one, Imperial College in London is making use of Formula 1 sensor technology to detect neurological dysfunction. In addition, the fast evolving transformative technology sector (TransTech: science based technology that has an impact on wellbeing / wellness) is now increasingly benefiting from the rapid progress in AI and machine learning. Some of the best-known companies in that space are: Fitbit, Lumosity, Happify, Beyond Verbal, Thalmic Labs, Thync, Alkili, Ginger.io, Headspace, Muse – Interaxon. There are many others of course. This is creating huge excitement, but also raising serious privacy and security issues. In hotels, AI advantages are mostly behind the scenes with a few exceptions. One example is the Henn–na Hotel in Japan; their positioning is striving to achieve the ‘ultimate in efficiency’. The hotel has robots at its front desk and their goal in the near future is to have 90% of all hotel tasks performed robotically. The technology behind facial recognition is progressing so rapidly that we can now foresee a world in which, 20 years ahead, machines will monitor our emotions, and the workplace will be optimized for productivity and mental wellbeing. There will be other applications as well, focused in particular on consumers’ feedback. How distant is the future in which the hospitality and wellbeing industry (hotels, retailers, etc.) track faces to assess what their customers think? Considering the convergence of hospitality and wellbeing AI offers potential in making access to better health a part of the hospitality fabric that could (and likely will) give hotels a more intrinsic wellbeing culture. The AI health options available will be able, amidst a multi faceted approach, to change the declining health trends of millions of people. Given the ecosystems and acquisitions we’re seeing (discussed in more detail later) consideration may be given to this approach to optimize the wellbeing of employees and guests alike.

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