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Hospitality Sector Adjusts to Stay Ahead of Possible Changes

In 2016, San Diego County’s hospitality industry — including operators of 7,000 restaurants and hundreds of hotels — will be looking for a continuation of what has generally been a strong-performing local economy during the past three years.

Observers note that the industry will need to continue adjusting to some emerging game-changers, including sharing-economy technologies that have already disrupted the transportation and lodging industries.

There is also the continued push to raise worker wages in order to meet rising living costs in the San Diego region; and more changes could arise from consolidation in the hotel industry, including Marriott International Inc.’s recent move to acquire competitor Starwood Hotels and Resorts Worldwide.

After moving in 2015 to collect hotel taxes owed by owners who rent out rooms for short-term stays through sites such as Airbnb, the city of San Diego this year will continue its discussion of how to deal with neighborhood complaints spurred by the behaviors of those short-term visitors. Like those in many other U.S. cities, local officials are increasingly being called on to address noise, trash and other nuisance issues.

Minimum Wage Vote

San Diego city voters themselves will decide, in June 2016, on a phased-in increase in the minimum wage. A ballot measure calls for the hourly wage to rise from its current $9 to $11.50 by 2017.

Supporters of the wage hike contend it is needed to help families keep up with rising rents, food costs and other expenses that are generally higher in Southern California than in other U.S. regions.

Opponents, including the California Restaurant Association and San Diego Regional Chamber of Commerce, say raising wages will place additional financial burdens on small companies that are already dealing with relatively high costs of doing business in San Diego and California.

At a recent commercial real estate forum in Carmel Valley, David Cohn, founder and president of San Diego’s Cohn Restaurant Group, said raising wages will add to expenses that are already pressing on profit margins in the local restaurant industry. Those include rising food and utility costs, expenses related to providing health care and other worker benefits, and city fees and related regulations governing the development and operation of restaurants in the city.

According to San Diego-based hotel consultant Robert Rauch, the hospitality industry will be pressed to keep pace with technological changes, especially those favored by 35-and-under millennial consumers, who have high expectations for convenience and personalized customer service.

Competing With Airbnb

With their customers using Uber to hail rides and Airbnb to book non-hotel rooms, Rauch said hoteliers will need to employ their own technologies to keep customers happy, including using social media to engage them and obtain useful feedback, and deploying mobile and digital check-in and check-out capabilities.

Technology helps hospitality businesses analyze customer data and operate more efficiently, and the drive for efficiencies is also bringing consolidation to the hotel industry, after already happening in numerous other sectors. Rauch said nationwide hospitality industry consolidation is only just beginning, among hotels and online trip-booking sites.

If regulators approve, the $12.2 billion Marriott-Starwood deal would create the world’s largest hotel company, but in the long run it could also mean staffing and other cutbacks as the companies aim to reduce operational duplication. Both companies own, operate or franchise numerous hotels in the San Diego region.

“While it is too soon to determine what other brands or companies will decide to come together, it is clear that we are entering the age of consolidation as the economy enters the mature stage,” said Rauch, president of R.A. Rauch and Associates Inc., in his annual report on hotel trends for the coming year.

“The impact on guests and hoteliers will only be determined as this wave of consolidations plays out, but for the immediate future, bigger is better,” Rauch said.

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