CitizenM is a Dutch hotel company with thirteen properties across three continents. A majority of the company’s hotels are in European capital cities and the brand targets the affordable luxury segment. In January 2017, the World Trade Organization indicated that 2016 marked the seventh consecutive year of sustained global tourism growth following the 2009 global economic and financial crisis, resulting in 300 million more international tourists traveling in 2016 as compared to the pre-crisis record in 2008. Growing international tourism due to economic growth since the financial crisis matched with scarce hotel supply in parts of the world such as Europe has led to increased revenue metrics for hotels and an encouraging rate outlook for new entrants. These dynamics mean that hotel developers and operators such as CitizenM must increasingly solve for a quick go-to-market strategy in an industry that is typically characterized by construction delays and limited availability of high-potential development sites. To address this challenge, CitizenM leverages the digitalization of its supply chain via modular construction to create competitive advantages for its operation.
Digitalization of the supply chain should be of concern to the management of the CitizenM group because of the ability of digitalization to (1) reduce the go-to-market time of the group’s product offering; (2) mitigate uncertainty around quality and product performance; and (3) provide greater clarity on costs. Specifically, digitalization of the supply chain refers to off-site modular construction or “smart construction” that employs data-driven sequence of operations, robotic manufacturing, and advanced logistics. This digitization allows for more “integrated planning and execution, logistics visibility, and efficient spare parts management” in a real estate context. Moreover, a 2016 report on smart construction by KPMG found that offsite modular construction led to less on-site inspections and maintenance, shorter development borrowing periods, and earlier revenue streams. This fact is particularly key for a company such as CitizenM because it enhances its ability to match supply with demand. For CitizenM, similar outcomes proved to be true in its project in the Lower East Side neighborhood of Manhattan: “modular construction enable[d] the company to accelerate the construction completion by two to five months and significantly reduce ancillary costs related to construction, such as truck delivery of raw materials.” A compression of the construction cycle in any real estate project has meaningful impacts on the overall project return and financing costs.
To address this opportunity, CitizenM has designed a business model that leverages advances in off-site construction to launch innovative hotels in desirable global cities. Applying lean manufacturing principles to the hospitality business, CitizenM is able to deliver its product with less waste and maintain low costs of production through a process called ‘Industrial Flexible Demountable.’ Moreover, the hotel rooms are pre-made in an off-site factory that ensures that the end product is of a comparable quality to a luxury yacht or private jet. The company’s first hotel was constructed in twelve months and serves the Schiphol airport in the Netherlands. The construction method also allows for timely customization and rapid integration of value-add technologies such as in-room electronic moodpads that enable guests to control the entire room’s experience.
Going forward, CitizenM can continue to leverage digital advancements in construction to grow its footprint in additional markets and expand to different segments across the hospitality value chain. As modular construction becomes more ubiquitous in both the residential housing and hospitality sector, key participants will need to ensure the lowest cost of production to remain competitive. In the short term, this can take the form of driving scale in the markets it enters and targeting geographies where production can be optimized to serve multiple opportunity sets with one production hub. Currently, the company’s main production facility is in Poland, which begs the question: can one facility efficiently serve global expansion? Will the brand be able to differentiate itself going forward on a product that prides itself in uniformity?
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