State of Hospitality: This Is What Accelerating Change in the Hospitality Industry Looks Like

In this series, professionals debate the state – and future – of their industry. Read all the posts here and write your own (use #MyIndustry in the body of your post).

Delaware North is a private company. We are a sports, entertainment, and service business, with operations across the globe. It has been owned by my family for three generations, and is now in its 100th year. Our annual revenues are approaching $3 billion and last year we processed more than 50,000 W-2s.

The state of our business and the industries in which we operate can be significantly impacted in the near term by the state of disposable income.

With gas prices hovering around $3 per gallon, our immediate prospects look good. However, as I gaze ahead I cannot help but feel I am peering out at a turbulent horizon, where labor, technology and customer preferences swirl in a rising storm.

As is clear by the sheer number of W-2s we process every year, labor is a key resource in the service and entertainment industries. Labor is also a key to winning elections. In a country where the middle class is struggling and the disparity of income between the wealthy and poor continues to grow, labor-friendly policies can win elections. Hence, over the past few years we have seen changes in legislation that benefit labor at the expense of employers. Federal, State and local legislation including Obamacare, increases in minimum wages for hourly and tipped employees, and living wage ordinances have all added to the costs of labor.

Large hourly employers, such as Wal-Mart and McDonald’s, have become the target of employee protests demanding an increase in the federal minimum wage from $7.25 to $15 per hour, more than a 100 percent increase. Human resource executives cringe at the cascading potential impact such increases will have throughout their pay scale structure. Naturally, managers in industries that employ large numbers of hourly employees are concerned with this groundswell and are seeking strategies to manage what is bound to be a fast-rising element of their cost structure.

And while the increases in costs of employing people show no signs of slowing, technology continues to become more and more affordable. Today, the payback time for replacing a cashier with an automated self-serve kiosk is close to six months. I once heard a manager remark that kiosks show up on time, always add on and sell up, and don’t touch each other. There is an element of truth to the joke. Over 80 percent of our outside counsel is hired to handle matters arising from human resources. When one thinks about companies like McDonald’s, it is easy to imagine a day when the stores are almost entirely automated. Yet the products McDonald’s sells are largely consumed by hourly laborers and their families. While academically fascinating, the reality is both troubling and perplexing.

Adding to this rising maelstrom of the escalating costs of labor and the falling costs of technology are customer preferences. I remember the first time I went to the airport and saw automated kiosks. I thought the last thing I wanted was to deal with a machine. Today, the last thing many people want to do is talk to the person behind the ticket counter. In the hospitality business, we still cling to the notion that the customer wants human interaction. We believe it is the only way to ensure customers are handled properly and with individual attention.

However, the force of technology seems overwhelming. In its May 11 issue, Nations Restaurant News reported on the untapped opportunity of the tech boom. The article pointed to alarming statistics showing the sheer speed of change. In 2014, for example, restaurant industry mobile payments totaled $3.5 billion. By 2016 that number is expected to increase to $27.5 billion. When exploring the impact of technology on the restaurant experience, 80 percent of the people polled said they were likely to use delivery from a limited service restaurant. When asked what technology improves in their service experience customers said convenience (79%), order accuracy (70%), and speed (70%). Any shift in customer service will be led by customer preferences, and the trend is clearly leaning toward technology.

Still, we do not have a clear picture of the state of our industry. The greatest challenge to understanding the state of our industries does not lie in deciphering the rapid evolution of the interaction between labor, technology, and customer preferences. Rather it lies in remaining agile enough to respond when the unpredicted occurs.

And it will occur. Take, for example, professional sports. The price of franchises, player contracts, tickets and hot dogs continue to rise past previously unthinkable levels. The business model seems great. However, technology isn’t just changing the way we do things. It’s changing what we want to do. Close to 30 years ago, the sport that drew the largest spectator crowd was horse racing. In October 2013 the Staples Center in LA sold out for the season finals for the League of Legends, a global video game tournament. This year the same event sold 40,000 tickets and was held at the Seoul World Cup Stadium.

It seems that the state of our industry is in flux. The future of sports and entertainment could turn out to be the celebrity gamer or some form of virtual athlete, performing at sold-out venues where spectators are served by an entirely robotic staff. It’s time to stay on our toes… way, way up on our toes.