The hospitality sector consumes 5% of global water use, emits 1% of global GHG emissions and accounts for 20% of the tourism industry total carbon emissions. Hospitality private actors overwhelmingly focus on growth-centric business models, paying scant attention to impact of their activity on destinations’ natural and social carrying capacity. The Circular Economy concept is gaining momentum in corporate and policy makers’ circles across the world. However, the relevance of the Circular Economy and its applicability to service-dominated industries, such as hospitality, is barely considered and poorly researched.
It’s increasingly obvious to the travel trade actors and end-consumers that the tourism industry’s growth-centric model is unsustainable. These demands, along with the pressure from the supply chains, are pushing the stakeholders of private and public tourism to address the weight of the industry and evaluate its economic, social, and environmental impacts.
So, if the current Tourism and Hospitality system is so poorly designed that it’s not economically and environmentally viable, could we imagine and design an alternative future for tourism and hospitality under a Circular Economy approach?
A research focused on Scandinavian hotel chain operators
In 2019, Fabrice Sorin, alongside professor Uthayasankar Sivarajah from Bradford University School of Management, conducted a research project to evaluate if and how hotel operators understood the Circular Economy: would they feel like the concept could offer financial, social, environmental value? And if they did, could it provide them with a competitive advantage against those who didn’t follow it? The research focused on Scandinavian hotel chain operators covering Denmark, Finland, Norway, and Sweden, since that would allow for a good coverage (approx. 50%) of the total Scandinavian hotel market. Scandinavian operators were chosen because of the relative superior public and corporate awareness of sustainability issues compared to the rest of Europe. Denmark, Finland, Sweden and Norway, with their countrywide Circular Economy deployment strategies, also provided favorable political, regulatory and corporate contexts in which to explore, and implement a Circular Economy.
Hotel operators costs and value drivers
The modern hotel operator business model is dominated by the asset-light approach. Under this business archetype, the real estate assets’ ownership is separated from the business operations’ ownership. With this model, and its leasing, franchising variations, hotel operators are responsible for operating the real estate assets, paying the asset owner a set fee for a given time period. This way, the hotel operators won’t need to have any large capital investment to operate a large and diversified portfolio of property assets, enabling fast scale-up operations and business volume growth. The flip side to this profitable setup is that it can be a strong deterrent for long-term, capital intensive investments in real estate assets that will have a large positive environmental impact such as insulation, energy efficiency, waste treatment plants, etc.
Hotel operators’ core production and operational costs can be split between labor, utilities, waste management, food procurement, property upkeep, renovation, and maintenance costs. Each of these costs weigh differently according to the hotel product, market segment, location, climate, local infrastructure, and regulatory environment. Reducing core production and operational costs while mitigating the negative externalities of their operations is, theoretically, an alluring prospect for hotel operators facing intense competitive pressure and dealing with high returns expectations from the shareholders. The Circular Economy framework potentially offers an elegant and effective solution to simultaneously reduce the negative impact caused by the operators while reinforcing their competitive advantage.
Is Circular Economy applicable to hotels operators?
Assuming the above statement to be true, we should ask if the Circular Economy is applicable to hotel operators. Do hotel operators understand it? Does the Circular Economy offer them valid creation opportunities?
To answer these questions, the research created a conceptual framework to test and evaluate the operators’ understanding of the Circular Economy and its deployment within their operations. Six hotels chains (all in senior executive positions) participated in the research through telephone interviews. The research also benefited from the input of the largest private hotel sustainability certification organization in the area. The combined market weight of the participants represented more than 50% of the area’s total bed capacity, allowing the research substantial empirical weight.
The study led to the following Circular Economy definition: a system-level production and consumption economic model, operating within the planetary boundaries and aiming at regenerating natural and social capital.
The research project suggested that, conditional to specific enablers, barriers and drivers, a Circular Economy is deployable within these operations and can create value for hotel operators.
These drivers, enablers, barriers and value creation opportunities can be summarized as follow.
waste management costs
water and energy consumption costs
innovative business models and supply chain innovations
favorable environmental, fiscal, and labor regulatory conditions
employee awareness and understanding of the framework
understanding of circular value creation opportunities in the hotel’s own operations and supply chain.
waste management regulations.
unfavorable labor, fiscal and environmental regulatory landscapes.
Value creation opportunities / Downstream supply chain:
natural capital restoration through food waste reduction and re-circulation as input
operational costs reduction through energy consumption reduction and waste management costs mitigation
circular / sustainability market positioning allowing for market differentiation and premium pricing
Value creation opportunities / Upstream supply chain:
multiple revenue streams’ generation (mutualization of hotel assets with low utilization ratios).
servitization of procurement through product-service system (PSS) agreements with suppliers, based on usage versus products ownership.
social capital restoration (developing local sourcing with upstream supply chain suppliers).
natural capital restoration (implementing local food sourcing, reducing food and beverages transport, waste and GHG emissions).
The research showed that hotel operators understand the Circular Economy under a silo approach limiting the model’s value creation opportunities to departmental and functional efficiency improvements in procurement, waste, and utilities consumption reduction.
The Circular Economy concept was primarily understood as a waste management framework by hotel operators. The concept’s system-level dimension, along with its focus on regenerating social and natural capital, was not considered as a key objective by any of the participants. Nevertheless, the research confirmed the applicability of the Circular Economy framework to hotel operators and its value creation potential, through OPEX reduction in procurement, competitive advantage gains with customers and end-consumers through circular or sustainability market positioning. The results also highlight the importance of a collaborative, cooperative value co-creation approach within operators’ supply chain, especially on the upstream part.
Key recommendations were provided to hotel operators based on the study, focusing on how to implement the Circular Economy framework in their operations:
- Develop deeper supply chain cooperation aiming for value co-creation within the extended local hospitality network.
- Identify circular value creation opportunities and deployment pathways through supply chain and value chain mapping.
- Deploy servitization of high / mid-value asset expenditures, such as bedding, furniture, F&B equipment through Product Service System agreements, moving from an ownership to a usage based procurement strategy.
- Consider the mutualization of resources, materials, assets (asset re-circulation, sharing platforms, etc.).
- Focus on marketing positioning and marketing communications through a coherent Circular Economy hotel storytelling and brand message.
- Deploy environmental impact and Circular Economy action monitoring tools to measure the ‘resource productivity’ of assets i.e. the ‘asset material productivity’.
- Implement Environmental Management Systems (EMS) to monitor energy consumption, resource use, emissions, food waste and associated operational cost savings opportunities.
- Increase cooperation with sustainability certification organizations and government issued regulatory bodies.
- Use the United Nations SDG framework as a dashboard, monitoring and marketing communication tool.
- Explore the framework value co-creation opportunities with real estate asset owners and construction industry stakeholders through innovative business models such as building as materials bank (BAMB) and building as a service (BAAS) models.
- Use Circular Economy specialist third party expertise to provide staff with training on CE opportunities and practices.
-Invest in education on Circular Economy opportunities at all levels of the organization.
Training on the Circular Economy
The study’s most important highlight is the focus on a need for education on the Circular Economy concept. Strikingly, the lack of understanding or the reductive interpretation of Circular Economy as a waste management framework under the sustainability umbrella concept is missing the whole systemic and system re-design potential of the model. In order to implement a Circular Economy action plan, hotel operators will need to understand in details all the possibilities for action through a Circular Economy lens. Training hotel staff at all levels (from management executives, housekeeping clerks, business developers, maintenance engineers, chefs and front desk) on Circular Economy and Circular design can have a powerful multiplying effect within the organizations.
Going from theory to practice and in order to redesign their operations under Circular Economy principles, the operators have 2 main options.
On specific projects, such as building a Circular transformation roadmap, they can request external expertise to address their organization and supply chain partners’ expertise gap.
The second option is to master efficient and accessible tools to try and re-design their business model on their own. The circular design method and toolkit developed by Circulab can provide operators with the knowledge and tools to do just that and to kickstart their Circular Economy business re-design.
If we are to re-design resilient, resource efficient and regenerative hospitality business models and value chains, we have to start with education and train hotel operators staff, suppliers, key stakeholders on Circular design. We have designed the current business models, value chains and their social, economic, environmental impacts. We now have to re-design these models, interactions and systems. The good news is that there are more and more knowledge and tools available to do so. The moment has arrived to stop wasting time and start getting into Circular design today.
Image: Patrick Robert Doyle (Unsplash)