Last brands standing

The world is shifting fast, how and where each of us choose to buy is impacting communities.

When I walk down the strip of local shops in my old neighbourhood of Balmain in Sydney, I notice that every third storefront or so is empty. Closed for business. The small business owners and local stores that were once a landmark in the local community are slowly being driven out of business by the big international super stores and online brands who offer better prices, faster delivery and maximum convenience.

In my industry - the world of online retail - things have never been more competitive. And when I consider the realm of ‘experiences’ we’re not only competing with businesses offering physical gifts, but also giant global players who are swallowing up local providers and taking profits, jobs and tax dollars offshore. This is particularly the case when we look at online travel agencies (OTAs) like Expedia and Booking.com. We know that people are opting more and more for experiences over ‘stuff’, but how, in the midst of this shift to the ‘experience economy’ can we support local business and suppliers to not only survive, but thrive?

Perhaps it’s a case of safety in numbers…. Using the example of OTAs and how they relate to the experiences industry, ‘Can Australian operators join forces to compete against the foreign owned online travel agencies?’ With largely US-owned hotel and activity booking behemoths like Expedia* and Booking Holdings^ now part of the very fabric of the travel industry, Australian operators need to be clever to stay competitive.

OTAs have become pervasive in recent years, and this shift is having a material impact on the commercial success of local hotel owners. These global operators have become the default go-to brands; they’re now mainstream and have massive marketing spends that are no doubt beyond the reach of local players..

A recent survey of independent accommodation providers carried out by the Accommodation Association of Australia (AAoA) found that global online travel agencies are doing material damage to accommodation businesses in Australia - largely small businesses who are major employers in local communities.

According to The Association’s chief executive officer, Richard Munro, “This distinctly contrasts with the likes of offshore giants Booking.com [owned by Booking Holdings] and Expedia, which are making millions of dollars each year… yet they employ very few staff in Australia. What’s more, most – if not all – of the profits these global giants are making flow straight overseas and they pay little or no tax in Australia, unlike local accommodation businesses.”

All online hotel aggregators are now owned by international players, even Australian-owned Wotif was acquired by Expedia in 2014. Australian owned businesses are few and far between, and struggle to compete with the big global players. Unless they have found a unique ‘boutique’ and compelling offer it is very hard to be a ‘me-too player’.

Only five years ago the Australian travel market was dominated by individual suppliers, with 82 percent of online bookings made direct. At the time it was predicted OTAs would outpace supplier websites by 2015. This has more than come to fruition, with Expedia and Booking Holdings (formerly the Priceline Group) a virtual duopoly, with their stable of brands controlling around 80 percent of the online travel agency market right here in Australia today.

These businesses are US-based, meaning money that once stayed in the country is now going offshore. According to the The AAoA, “Based on [OTAs] commanding roughly $5 billion p.a. in gross spending here, at an average 15 per cent commission, that’s $750 million. The vast bulk of which is funnelled overseas so it doesn’t register as Australian income.”

Dick Smith recently publicised his anger at the situation, arguing local hotels and providers are being forced to sign up to these international sites as they simply cannot compete for bookings, and likening the situation to “extortion”. Smaller operators simply cannot compete on things like SEO when aggregators are bidding on terms - to the point that when a consumer searches for a specific hotel or accommodation in a certain area they will first be served options from an OTA like Booking.com or Trivago, as opposed to a hotel directly.

Recently the ACCC confirmed it would investigate whether to take action in the industry, with persistent concerns that independent hotel and motel operators are being “ripped off” by OTAs.

This reality is now beginning to hit the experiences and ‘things to do’ market. Just last month the US privately-held booking engine AirBNB launched its experiences product. Viator (owned by TripAdvisor) are already a huge player in the experiences market - this is nothing new, but it is gaining momentum as we stare down the barrel of the ‘experience economy’. It’s already beyond difficult for Australian travel operators to compete for share of market in the hotel vertical against these global booking engines. And now a similar industry headwind is facing the ‘things to do’ market.

So how do local operators regain share and, in the case of experience suppliers, stay competitive in the face of such aggressive global players?

The Big Red Group (BRG) is committed to Australian businesses and our intention is to grow while maintaining Australian ownership. We see our competition coming increasingly out of the US - Australian ‘things to do’ or experience sites all have a common ‘foe’. All industry is changing, disruption is happening everywhere, but a certain critical mass is needed to be able to compete; in technology, marketing, and in terms of brand presence.

Australian owned and operated is becoming increasingly rare as a marketing catch cry. I suspect we are not alone in this; it is affecting other countries and industries. Being a small business and staying competitive is hard. Brand awareness is not enough - scale is needed to have the bandwidth required to do the job at hand, and in order to achieve this we must support each other.

* Expedia owns the websites Expedia.com, Hotels.com, Hotwire.com, CarRentals.com, CheapTickets, trivago, Venere.com, Travelocity, Orbitz, and HomeAway.

^ Booking Holdings owns Booking.com, Priceline.com, Agoda.com, Kayak.com, Cheapflights, Rentalcars.com, Momondo, and OpenTable.

Picture: New wooden boat experience Sydney Harbour Water Tours - High Tea at sea, Cocktails at Sunset, Whisky Tastings or boat charter

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Naomi Simson is the founder of RedBalloon and co-founder of The Big Red Group (BRG). She has been blogging for a decade at NaomiSimson.com, is a professional speaker, author of Live What You Love & Ready To Soar, and a “Shark” on business reality show Shark Tank Australia.

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