How We Make More Money by Questioning Everything - Alastair Thomann, Generator and Freehand

Josiah: For people who haven't yet experienced some of your properties, I wonder if you could describe for us both the Generator business and also the Freehand brand and what these are.

Alastair: Okay, for sure. So I'm sure everyone's already experienced them. But nevertheless, just in case there's someone who hasn't stayed with us before, what we do with Generator, it's essentially a youth hostel offering. But at the same time, we offer all sorts of room types. So we offer entry you can stay with us by the bed you can stay in a suite for over a thousand dollars you stay in a normal private room in a twin room we have apartments so we offer a bit of everything but the majority of the rooms are shared accommodation so we're targeting guests sort of between 17 and 25, who come for the experience. You know, this generation, they prefer to save on the part where they're sleeping in a hotel, and they prefer to spend their money on experiences, on meeting other people in our public areas, our bars, our nightclubs. So it's all about the social experience with Generator and sort of the age demographic, Gen Zs, millennials, 18 to 25-year-olds. And then freehand is sort of what Generator would like to be when it grows up. So you're looking at guests that are probably around 10 years old on average. It's a more elevated experience. The room mix changes from sort of a generator, probably 70% shared accommodation and 30% private. So it's almost the other way around with freehand. So it's about 70% private accommodation, 30% shared accommodation. It's a true four-star lifestyle concept with the real differentiator being true top-tier food and beverage outlets, whether these are nightclubs like Georgia Room in New York, really cool cafes, bars, and then, of course, Broken Shaker on our rooftops and in Miami outside, and Broken Shaker, which is a super exciting brand, which is almost better known than Freehand at the moment over in the US.

Josiah: That's great. Tell me a little bit more about the role of food and beverage in creating the guest experience, because Broken Shaker has received numerous accolades, right? And it feels like a distinctive offering and part of the guest experience. Tell us a little bit more about kind of how you look at F&B within this concept.

Alastair: Absolutely. So for both brands, F&B is kind of the key differentiator. You know, this is what guests come and stay with us for. This is the experience they have. This group of people that meet every night, that have fun together. And for us as a business in the background, of course, all of our food and beverage outlets are really focusing on beverage, which is very profitable. So these F&B brands that we operate, Broken Shaker probably being the best known one, they achieve what a lot of hotel brands try and achieve, which is truly to get the neighborhood in, to become destinations in themselves, to not have that hurdle of the reception when you go into it. And no one really likes to go into food and beverage venues or hotels, usually. We make that very easy. We have about 90% out-of-house guests. Just to give you a feeling on numbers, we have properties like in Miami, where we only make about $3 million with room revenues, but we sell $7 million worth of cocktails. So it's truly, from an investor standpoint, a true differentiator, and it drives value to an asset. If you can monetize your public areas in this kind of way. So for us, it's super important for the guest experience, but also from a financial aspect and from a business sense, it's key to our offering.

Josiah: So those numbers are incredible. Seven million in non-room revenue versus 3 million in room revenue. 90% of guests being off-property, people from the community. Every hospitality provider I feel talks about this and wants to do this. What do you feel you are doing differently that's delivering these results? Because the numbers speak for themselves.

Alastair: I think the difference is that we're not doing anything. I think the difference really is that as hotel guys, we've realized that we're actually not very good at food and beverage. So all these amazing numbers I'm talking about, this is not because of me or because of what we do as a hotel team. It's really we have exceptional partners who operate these bars. And I think that's something I've really learned in recent years, that there are real food and beverage experts that just do things so much better than us as hotel guys. And if we give them some of our spaces, let them run them, they actually do it a lot better than us. So all of our best F&B outlets are operated by third-party partners who we work with very closely. Most of them run multiple food and beverage outlets across Europe and America. And that's been really key to our success in food and beverage.

Josiah: So I want to talk a little bit more about the opportunity that you saw because you have an amazing career that included stints at Four Seasons, Penta Hotels, now part of Rosewood, Radisson, and you joined Generator as CEO in 2017 after an investment into Generator. And Generator, of course, was a brand that many knew and loved for some time. But there was a moment where you stepped out of kind of the work that you were doing and took this role as CEO of Generator, what was the opportunity that you saw in that moment?

Alastair: You know, I really, to be brutally honest, at the time, Generator, Generator Hostels, you know, at the moment, recruiters approach me on that job. It's not really something we traditional hotel guys want to do, right? Go into the hostel segment.

Josiah: So… Why is that? What were some of the hesitations you had?

Alastair: Hostels aren't really hotels, right? I think there are all sorts of things you associate with hostels that you don't necessarily want to get into. And, you know, everyone's ambition is to be more in the luxury end of the business. But for me, my background is all around asset management and the financial side as well. And one of the recruiters sent me some of the P&Ls for these hostels to have a look at so I understand the model. And I couldn't believe it. It was so profitable. And I never really understood the concept properly. And Josh Wyatt and the guys at Patreon did an amazing job establishing a fantastic business model. And when I looked at this model, I really saw an opportunity, a segment, which could really deliver the highest possible return per square meter, in certain high-demand destinations across the world. So, I saw a fantastic concept. It was far too small for what it did. And I also saw an opportunity for a business that, a part of the industry still needed a lot of help and a lot of development because there were no systems that could manage selling by the bed and selling by the room at the same time. For private and shared accommodation, you need a revenue management system, you need a PMS that can do that, and they need to interface. There were a lot of technological challenges which I found very interesting, and I was very lucky at the time. This was when I was with Penta that I was surrounded by a really, really fantastic team. And a lot of the team were really interested in doing that. And I was able to move as part of that team. That just was a super exciting challenge for me. We saw something we could, A, turn around, make even better, more professional, and really transform the bottom line. But at the same time, we also saw a real opportunity to expand this concept into a lot of other locations because it's such an ingenious concept.

Josiah: I wonder if you could speak a bit more about the changes that you made early there because you've spoken before about your goal being to make the most money per hour for every square meter. And that's easy to say, it's hard to do. You alluded to the technological change. So everything from how you're merchandising these needs to change. Were there other factors that you went through to navigate this change to get you to where you are today?

Alastair: Absolutely I mean technology over the last couple years, of course, has helped us you know there are a lot of fantastic new systems that came out with open interfaces that were able to connect that we were able to adapt very easily i have a fantastic team here around me that really managed to adapt all the systems to make the whole process here a lot less manual thereby of course saving a lot of labor costs, but also making things a lot quicker and more convenient for our guests. So that was part one. Then, part two is really developing a concept, sort of a cookie-cutter concept, that we could take from property to property. And the moment we take on a property and what we call, we want to turn it around in terms of numbers, it's the same concept, it's the same systems, it's plug and play. We can take over a hotel like the Paramount on Times Square, with 600 bedrooms. And we can do that in eight weeks, and we're ready with systems and operating models, etc. That's really what we've built. We built something that's ready to grow. And now, as a next step, naturally, we're now moving into third-party management. We're also offering these services to third-party owners as well. And that's the next exciting part of this journey.

Josiah: Well, the results are speaking for themselves because if we look at the performance for the first half of this year, your last kind of look at numbers, profits were up dramatically in a world where so many other hospitality providers are really struggling with profits. So it seems that this playbook that you're running here is delivering results. I think you've you've talked about building a business where you're able to generate four-star rates with kind of a one star operating model. How do you balance that And I guess, like, what are the factors that are unique to Generator and to Freehand that allow you to deliver that? Because everybody wants it. Very few people can get delivery.

Alastair: No, I think it's a little bit easier for us because the demographic we're dealing with, Gen Z millennials, they're all about the experience. So we don't need to clean the shoes at night in the corridors and all that kind of stuff. We can really focus on the essentials, which is that you have your bed, your private room, your suite, your apartment, etc. But really, it's all about the experience. We get fantastic third-party operators in who create really exciting food and beverage concepts. The rest of it is simple because we don't have a lot of expensive items. We don't have any spas. We don't have any gyms, really. So when it comes to inflationary pressures and all these kinds of things, it doesn't really impact us as much. Also, our model is, of course, a lot less labor intensive than any traditional hotel, which also helps in times when it gets more and more difficult to find people to work behind reception and in bars and in spas and hotels. They even just come to work because a lot of the generation that worked for us would much prefer to work from home rather than come out and work at their workplace. So I think the concept, we're just very lucky. I think coming out of the pandemic, everyone in our industry is having really good times. But we're very lucky that our cost basis is very low and is not really impacted by inflation as much.

Josiah: How do you decide what to offer and what to not offer? Because I imagine that's a tricky balance, right? Everyone's saying it's hard to hire, things like that. Where do you decide on the offer? You mentioned food and beverage is a key piece of it. Are there other things that you've decided to either do or not do that help you get to where you are?

Alastair: We listen to our guests. We try out things. So we have We retrofitted TVs to the hotel a couple of years ago and then noticed that less than 1% of our guests actually use them. And so we do do a little bit of trial and error. We listen to our customers. But the product offering we have is very simple. We have very different discussions to traditional hotel guys. The kind of discussions we have are: Should we offer the guest a maid bed or a bed? Or do we get them to make the bed themselves, for example, when they stay in bed? So it's very bizarre, very bizarre discussions we have around cost management, compared to traditional hotels. But we have these discussions, and each one of these discussions can return really fantastic ROIs. If, for example, you implement a slightly higher charge for hiring a towel for the guests who are staying by bed. You know, the extra euro, that'll be a million extra dollars on your bottom line, right? So it's a simple business. I think the team here that I'm really lucky to be working with has really fine-tuned that very nicely to be very profitable. And as consumer trends change and as consumer expectations change around Wi-Fi, it needs to be faster and faster. It needs to be free. We need to charge for it. So we continuously tweak our model. to try and make it better. I know the moment is going really well, but you never know. Let's see what the next couple of generations think of this. I'm sure we're going to have to adapt further.

Josiah: If you think about a question like, what if we didn't make the beds? Most people in hospitality would not feel the ability to ask those sort of questions. As CEO, what do you do in the organization to enable your teams to ask these kinds of crazy questions?

Alastair: I think it's always the other way around. I get all these crazy suggestions all the time, and there are a lot of brilliant suggestions, and then we try it, and we run it as a team. It's a lot of fun to do these things. It's fantastic to see some of the results we achieve from that. Sometimes it's a little bit embarrassing when things go terribly wrong, but overall, it just makes us better. We have such a fantastic bunch of general managers, and a lot of them have been with us for a really long time. A lot of them have been with me in previous companies, and they do this so well. They come with amazing suggestions every single day. And then we try the ones we find exciting as a team.

Josiah: How do you go through that process? Because I imagine suggestions could come from anywhere. It sounds like you're doing a lot of testing. Is it ideas that happen and are tested locally, or is there some process to funnel it up to the corporate level? How do you think about that? It's both ways.

Alastair: So from a corporate level, of course, we're looking mainly at a P&L, we're looking at all the other statistics we get and we see how can we do things better, how can we win more market share with our rates, how do we need to adapt our pricing, our systems, all that kind of stuff. And then when it comes to all the operational ideas, they really get driven by the hotels because they know what we don't know. They're closer to the guests. They see what's happening. They get direct feedback from the guests. So that's super important for us. So at HQ, we can sit here and we can make some of the higher level strategic decisions, and we've got a good overview. But the real value comes from the floor, from the guys who see what's happening every day, who are also a lot younger than some of us at head office, who are much more in tune with our guest segment. And that helps a lot.

Josiah: I feel like you have a number of sort of contrarian takes, and I'm always interested where people have different takes than the consensus, the norms of hospitality. I think one of those is, as we talk about pleasure or digital nomads, everybody's talking about, okay, you can come, stay, work at our places. I've heard you speak before about actually not wanting that and not wanting everyone to just sit in the lobby with their laptops open. Can you speak a little bit more to that and why that is?

Alastair: 100%. For us, just taking a step back, we're operating real estate. Our industry is all about maximizing the return on a piece of real estate, maximizing the return per square meter. During the pandemic, I get it. We had a lot of long-stay guests and they needed to do their work and we weren't full anyway. But in a normal day, our portfolio runs around about 90% occupancy year-round. Our bars are super full. And for us, it's about how much do we turn over per hour, per seat? So if someone comes in and spends their workday, their eight or nine hours with us, and there's two coffees, that doesn't really work for us. That ruins a lot of money. That doesn't drive profitability. So there's a fine line. There's certain hours where we're not as busy, where we don't mind as much, but we have become pretty good at managing sort of moving people from seats and moving them on and getting them to consume more. And I think that's really important because we are trying to maximize every square meter, every hour, every day across all of our assets. It's just this is what we need to do for our investors. So the digital nomad as such, and there's digital nomads and digital nomads, the ones that come in and they set up their screen and their podcast studio and all that kind of stuff in our lobbies and our public areas, we can get a better return from other guests.

Josiah: To that point of getting a better return, I'm interested in this notion of gamification of space. It really builds on what you've described of getting the most return, but also creating a good guest experience. What does that sort of gamification concept mean to you?

Alastair: So gamification for us is it keeps people in our properties. At different times of the day, we have different customer segments spending time on the game. So it could be corporate retreats during the daytime. In the evening, it'll be families with younger kids. And at nighttimes, many of these games turn into places where people drink and play games together and get to know each other. So games are really important for us. Anything from arcade games, we have a lot of shuttle boards, pool tables, and table tennis tables. Foosball tables, you name it. It just really helps for people to start conversations with each other, get to know each other, and have a friendly competition. And the gaming areas, if you go across our estate, really, they're being used from morning till night. And I really think it's something that brings guests together. And of course, really important for us on the other side is something we can monetize really well because, you know, If you can get a return on shuffleboard in about four months, and it's quite a hefty investment, you can imagine the kind of profits. Once again, each shuffleboard dries per annum, which is why some of our assets now have 15, 16 shuffleboards in them, because they've become a major, major profit center for us.

Josiah: You've talked about very different customer segments, and I feel traditional marketing or brand building or strategy is typically focused on just one segment and you build the brand or the experience around that. But you've also talked about charging as much as $1,000 plus per night for some guests. That is not when most people think of a hostel or some of the origins of Generator. That's probably not what jumps to mind for them. How do you balance that? How do you create something that is interesting across these segments and able to charge such a range of prices across segments?

Alastair: I think what brings everyone together really is A, of course, we're very lucky. We've got properties in really good locations, so a lot of people want to go to those locations. But then you're looking at some really world-class food and beverage concepts that people really want to go to. But then if you look at the people that want to stay there because they want to go to these clubs and Broken Shaker and the bars, some of them, it's really aspirational and they love the fact that they can get into Broken Shaker and they just need to buy a bed for $25 for the night. But then there's a different guest who may be a couple years older who wants to spend $1,500 on the suite. And I think that's really special about our concept. In a time when everything's getting so specialized, long-stay hotels, apart hotels, and everyone is moving into these segments and building those out, really, we can really adapt our concept. And we really offer something that we have the long-stay apartments, we have the suites, we have a lot of private rooms, but we also have the beds, the shared accommodation for females only, mixed-use, and so on. So we can be super flexible in terms of time of year, which segment may be the best one for us, where we can get the highest rate and the most demand. So we have a very, very flexible concept. Remember, all of our rooms, even the private rooms, we can also sell those by the bed as well. So we go through something every year, which is called room type optimization, where we look over the last 12 months. In which month did which room type perform how well? And then every year we sort of reimagine our properties and there's more, there may be more shared accommodation, there may be more family rooms, and we just sort of, we measure how each of our room types have performed, and then we adapt our model to that. And then of course, what I really like is when we come up or when the team comes up with really clever ideas, like, you know, for us optimizing asset is when we move into pods, you know, we installed pods into our sellers and some of our properties sort of monetizing nonprofit making storage space, and then developing, you know, we use our bunk beds across all our properties. Now we've developed a triple bunk bed that can fit into really low ceiling height. So all of a sudden, we can fit a lot more guests into each room, which again, transforms our bottom line and really maximizes investor return.

Josiah: You've been CEO since 2017 of Generator. So much has happened in the world. You operate in so many cities, so many continents. You see a lot in hospitality. I'm curious, as you look into the years ahead, what are you thinking about or most excited about in hospitality right now?

Alastair: I think there's a lot of really, really cool brands opening up at the moment. I think people are being super creative. There's a lot of amazing stuff we can learn from and copy and implement across our venues. There's so much talent in food and beverage and so many interesting concepts and everything's becoming so international. I love all of that. And then I'm, of course, super excited to see where hospitality is now after these really tough times during the pandemic. Especially in our segment where everyone said shared accommodation is dead, nobody's ever going to want to share a room with strangers again. And to see that we've rebounded so strongly and beyond anyone's wildest expectations. And to see that this is continuing for the next one or two years, we're now, you know, we're taking our big group bookings for 2025 already now. I mean, the excitement for me is where we can take this. Because I think travel, the way people look at travel because of the pandemic has really changed. It's become a lot more valuable. And whereas at first, I was a little bit afraid this may only be the case for a year or so, and everyone does their one or two journeys, and then they've got the travel out of their system, but we're speaking to our guests, it really seems to have changed. And I think people place a lot of value in being able to travel, on being able to meet other people on that social experience. So I think we're in a great place for that. And I'm just really excited to see how much further we can go with this concept.

Josiah: That's great. And I love what you mentioned about there's so much happening in hospitality and we can take ideas from anywhere. I'm curious for you personally, you know, kind of, how do you stay creative and stay energized? Is there kind of a place that you've, you found especially useful and kind of coming across new ideas and stuff?

Alastair: For me, this is all, you know, it's the crew that I'm really proud to be able to work with, right? It's the creativity, the new ideas, you know, This is me at myself, right? This is from the team. These are the guys I'm really lucky to be working with. These ideas, I think, you know… You know, we have about 900 employees across the company and they all travel around the world and they all come back with such creative ideas and stuff they found, and they send the pictures through. And that's the excitement, right? And that's what really drives our company. I'm the lucky guy to be sitting here at head office with a couple of other slightly older gentlemen and ladies. We can pick from the best ideas and have these discussions with the team and have a lot of fun trying to implement it. And if it works, fantastic. If it doesn't work, we'll try something else. It's super exciting.