External Analysis (Opportunities and Threats)

3.1. External Analysis (Opportunities and Threats)

Although it is a Boutique hotel a relatively new concept in El Salvador, Casa de Piedra will be competing in a growing hospitality industry that includes hostels, bed and breakfast, Air B&B, hostels, Chain hotels, and boutique hotels. The target segments are explained in the Marketing Plan (see Target Segment). The lodging industry in El Salvador is not new, however in recent years is has been growing considerably. Smaller and charismatic hotels have emerged and are taking market share from chain hotels. Boutique hotels can be considered a new concept, there are only a few in the city and many have only been in the market a few years.

3.1.1. Porter’s Five Forces Analysis

Figure 19. Porter’s Five Forces Analysis Rivalry

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3.1.1.1. Risk of Entry by Potential Competitors

The hospitality industry is a highly competitive industry, mainly because there are no entry barriers regarding economies of scope and scale. As mentioned before, the hospitality industry has shown a steady growth as the demand increases with the increase of coming tourist to the country every year. In recent years, the government is trying to boost and strongly support small and medium enterprises. Many of these SMEs are service oriented. With the government support, the time and cost of entry is relatively low.

However, customers for the hospitality industry are very demanding because they have a wide range of choices. This makes it quite difficult for newcomers to remain open after the first year or two. In addition, when business in the hotel industry realize new competitors will be entering the market that might threaten their market share, they are likely to respond in order to not to lose current costumers and in the process win some the other competitor’s clients.

3.1.1.2. Rivalry among Establish Business

The hotel industry in El Salvador is somewhat consolidated with less than a dozen big chain hotels in the market. However, some of these chain hotels have been in the city for over 50 years. These hotels have the majority of the market share and rely on heavy advertisement.

Nevertheless, chain hotels have been losing market share in recent years to smaller hotels in the area who offer better rates, quality in service, unique amenities, and similarities in services offered. When dealing directly with smaller competitors it goes down to key factors such as price, value, location, safety, and customer rewards program. In some instances, there have been price wars between big chains and smaller hotels. However, this is often common only in similar companies. So there have been price wars among chain hotels and price wars among

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independent operators, in the end, entering the price war is not convenient for any of the parties involved because it is a raise to the bottom, therefore companies focus in other factors other than price to keep current customers and attract competitor’s clientele.

3.1.1.3. Bargaining power of buyers

Customers in the hospitality industry have a high bargaining power. This also applies in El Salvador with the increase in options available in the market. Brand Loyalty plays a key part in customers’ hotel preferences. Therefore, most of the hotels have rewards programs to attract and maintain their customers. Some even offer additional benefits and focus of customer service and value for money to avoid losing market share. Since customer’s switching cost are non-existing, customers preference will be based on value added and benefits that the hotels offer.

Frequent customers, mostly in the corporate world, know the power they have in the industry so they find ways to get better deals and packages because if not they will go a other hotel that will offer them what they want.

3.1.1.4. Bargaining Power of Suppliers

Suppliers have low bargaining power in the hospitality industry. Hotels will choose the best option available in terms of price, location, and additional benefits. Some suppliers agree to annual contracts in order to maintain their clients. Hotels usually benefit from these contracts because they ensure steady prices all year round. Suppliers know there is a high competition and therefore offer additional benefits to companies willing to sign contracts and offer special deals to new companies in order to win competitors clientele.

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3.1.1.5. Substitute of Products

There is a low to middle threat of customers switching to substitute products, the switching will depend on the customer’s preference, circumstance and way of living. Due to the increase in demand of lodging facilities, options such as room rents, motel, and apartments (with short lease) have increased and are available to the customer. However, most business travelers are looking for and services that can’t be offered in these facilities. As a result, clients are resistant to switching from a hotel to a room rental. Nonetheless, chain hotels can substitute for Boutiques and vice versa.

3.1.2. Industry Life Cycle Analysis

The hospitality industry as a whole in El Salvador, even though is still growing, is reaching the shakeout stage, mostly when talking about big chain hotels. However, referring to boutique hotels in El Salvador, this is a fairly new concept and it can be identified in the growing stage.

More lodging facilities are adapting the “boutique hotel” concept. Even though there are main players that will join later on to the market, Casa de Piedra once it enters will take advantage of their modern and colonial concept and will keep a high customer service and price over value so that when new members enter, it will not lose customers. Casa de Piedra is still an early mover in this sector and has an opportunity to set standards for the industry.

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Figure 20. Hospitality Industry in El Salvador

3.1.3. Macro Environment

 Macroeconomic forces. One of the industries with constant economic growth in El Salvador is the service industry with a GDP of 14.8% in 2015 with an average growth rate of .87%

(CORSATUR, 2015). Among the services industry, one sector that has a constant growth is the Tourism industry with a GDP of 4.4% at a growth rate of 1%. Tourism industry alone represent a 7.7% of new employees in the country in 2015 with a growth of .7% compared to 2014 (CORSATUR, 2015). Since 2001 the local currency in the country is the US Dollar which attracts investors to the country. The average inflation rate over the last five years is 2.16% (CORSATUR, 2015).

 Demographic forces. The population growth rate by 2014 was .27% per year, with 58% of the population between 15 and 54 years old (World Bank, 2016).

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 Social Forces. As it occurs in many developing countries, trends developed in developed country take a while to boom, even though due to technology the time gap has decreased considerably. In the last five years there has been an increase in how much companies and people are willing to invest in their events. It is a projection of wealth, stability, and profitability. Companies like to impress their foreign clients or coworkers by hosting them in nice and modern hotels. Middle and upper class in El Salvador like to project their status and uses social media as a way to express themselves.

 Political and Legal Forces. Over the last six years El Salvador faced a change of government from democrat to socialist. This created uncertainty for many local and foreign companies as well as investors. However, the current government has made emphasis that existing companies and new investors are more than welcome and will facilitate regulations for these companies. Moreover, the government is interested in boosting local businesses and has created an easier and economical path for new entrepreneurs to start their business.