The Philippines is an extraordinary market. For so long it was almost the forgotten country among the emerging tourism powerhouses in Asia. Its economy flagged and its politics never seemed to be in the news for the right reasons.
How times have changed. According to the World Bank, the Philippines is now “one of the most dynamic economies in the East Asia region, with sound economic fundamentals and a globally recognized competitive workforce”.
Annual growth has averaged above five per cent in the past decade, significantly higher than in the previous decades. It has reached ever higher plains of growth, peaking above six per cent in 2015, before dropping off slightly – but still one of only two countries in East Asia along with Vietnam to accelerate its quarterly growth from Q1 to Q2.
The World Bank expects further great things this year claiming a possible growth rate of 6.4% in 2016, continuing its impressive growth and outperforming most of the traditional economic achievers of Asia.
Global financial bellwether Bloomberg predicts the Philippines will outstrip China in 2016 in terms of growth trajectory. Who would have foreseen all of this 10 years ago?
The impact of long and sustained economic growth and political stability has resulted in a huge lift for the middle class in the Philippines, a fact not lost on the international mid-market brands that have been queuing up to enter the market and prosper from increased spending.
Nielsen Philippines has been particularly bullish calling Filipinos the most “optimistic spenders” in Asia, fuelled by data that FMCG (fast moving consumer goods) sales were up by 10% last year.
But it is in the middle class, in the millennial generation, that change is sweeping the country like no other sector of the economy. Domestic travel is soaring, growing by 20% in 2015 to 56 million travellers, up from the 44 million who sought domestic holidays in 2014, according to the Philippines’ Department of Tourism.
And the evidence keeps stacking up. Starbucks now has over 200 stores in the Philippines earning USD140 million in revenue last year and another personal market favourite – and ice-cream index – with Magnum ice cream successfully entering the market charging more than double close competitor Cornetto (P55 Vs P20).
Maybank, ASEAN’s fourth largest bank by assets claims Filipinos averaging just 23 years old will be the new drivers of the economy given their spending power and professional and leisure aspirations.
International youth brands Forever 21, Zara, H&M, Gap, Uniqlo have all entered the market – and with such options for this mid-tier market on the move, where does this leave hotels and resorts? Where can Filipino millennials stay where they feel comfortable and respected? Where they have their needs met and exceeded? And where they can feel they are staying in a smart choice, rather than a cheap one?
This is a major question for the hospitality industry as this new group increasingly defines travel in the Philippines. In fairness, this is the case in a number of Southeast Asian markets including Vietnam, Malaysia, Indonesia and Thailand – but given the dynamics of the economy it has exacerbated the situation, the potential and the opportunity for hoteliers and investors.
Establishing a new model
In my view, it is a case of establishing a new model, an “affordable hospitality” model that caters to the needs and aspirations of millennials, one which can grow with them as they grow in their lives, and embrace the hopes and dreams of millions of people.
The millennial generation is fast moving, dynamic, tech focused, highly entrepreneurial and aspires to achieve for themselves and their families, to grow legacies that compliment their parents’ values while adapting to the new market and opportunities – and carving out their own futures.
Excited, enthusiastic and energised they look for new choices – but in the hotel market they often draw only budget or frankly a little run down mid tier family run hotel.
In the hospitality industry this market remains underserved, undervalued and the customers are not treated with the respect that their life goals deserve. I feel that this needs to be addressed and changed – and therein lies a great opportunity for investors and developers. This is not a short term trend but it is an area that requires quick action – pioneering a method of building, branding and communicating that can be done at the speed of change – to keep ahead of the curve and at the edge of innovation.
What is required is a model of “affordable hospitality” which speaks to guests’ aspirations, over delivers on expectations and creates loyalty. Hoteliers need to speak to where their customers and this generation is going, not where they have been, and become colleagues, friends and partners on the journey that they are on.
Guests should be able to feel good about a USD40 purchase, that it was a smart decision, not a cheap one, and they will feel emotionally rewarded by a high quality experience. We need to create a pride of purchase of “affordable” mid-tier hotels – a pride that already exists among many Filipinos for their country and economy, but one that currently falls down in the mid tier hospitality market. Now is a good time to change this.
Bruce Musick is Group CEO of Vanguard Hotels Pte which designs, builds and operates affordable hotels in Southeast Asia. Based in Singapore it has its regional operating headquarters in Manila, Philippines.