Yotel: How to scale-up with small hotel rooms

0:02Dougal Shaw: I'm very familiar with the Yotel concept but I have to admit I'm very excited because I haven't actually stayed in one before. But here we are now at one in central London, London City. Can you show me how it would work to check in and reception here? Sure of course. Dougal, first of all, welcome to Yotel London City. I'll show you right in. Yeah, because I see lots of signs saying check in and check out, lots of computer terminals but there's also some human staff members here as well. As hopefully you're aware, Yotel is all about generation go. People moving quickly, very self-sufficient, and wanting to not waste any time on transaction.

0:35So we've created Kiosk, which allows you to check in in less than a minute, which hopefully I'm going to show you now. Yeah, let's see.

0:42Dougal Shaw: I'm being given a personal tour of Yotel's flagship hotel in Clerkenwell, London, by none other than the company's CEO himself, Schubert Virio. I'm doing a self-check-in with him to see what the rooms are like, but also to hear the story of this unique hotel group. And now I need to create my key to go to my room. The fundamental thing in any hotel. Yeah, how many keys do you want? Let's go for one for now. I haven't timed this but I was thinking it took less than a minute. About that, yeah. And that's the whole point, right, of the hotel experience versus queuing in a hotel to wait and to be told, you know, your room is not ready.

1:21Dougal Shaw: I'm Dougal Shaw and this is the Business Leader Podcast. Today we're going to take a tour of Yotel's first hotel in central London, which was opened in 2020. Yotels are known for their compact, functional but stylish designs. The brand was started by British entrepreneur Simon Woodruff, who also founded the Yosushi food chain. Inspired by high-end long-haul travel and the minimalism of Japanese hotels, he opened the first Yotel in Gatwick Airport in 2007. The idea was successful and expanded to other international airports. Virio became CEO in 2014 with a mission to supercharge the concept with global expansion, taking it into urban areas.

2:02Dougal Shaw: It now has 23 hotels in cities around the world, including New York, Miami, Singapore, Geneva and Edinburgh. They are divided into separate brands like Yotel Air for hotels and airports and Yopad for longer stays. We began by checking out a typical Yotel room, which you would find in a city centre.

2:24All right.

2:26Dougal Shaw: So welcome to a hotel room, right? Let's just describe it a bit for people. So got a nice double bed, not massive space, quite a small, compact, functional space, ensuite bathroom behind us and a view over, is that St. Paul's? I think so. Yeah, I'm seeing absolutely so yeah i mean the whole point here is uh not creating gigantic room which are kind of useless where we the entire room was designed around the customer what they want right so we are urban brand we live you know we live and breath the city uh and our customers do as well uh they generally don't stay very long right there are people on the go very busy they stay here for two nights three nights you know we've decided to remove everything a customer doesn't need and focus on the essential so if you stay for two or three nights realize you don't really need like an initial sofa an initial armchair etc we use a fantastic bed right which can recline into a sofa right as you can see there and press on this button bed becomes a bit large i see and i hadn't realized i thought there's something that's not here and it's yeah it's furniture there is normally an armchair in a in a hotel room and not well as we have a bed which turns into a sofa which has both usage with a great TV ahead of it and then you get a full-size, queen-size bed once it's down.

3:50Dougal Shaw: So it's optimizing space, the bed is also the sofa. You optimize space and you have a double function of that key element of the room which is the bed which takes a big chunk of it. And the reality is too, as I mentioned earlier on, we want to create a great product in a great location at a competitive price. So the one to achieve this, we realized that we have to remove what's expensive what's expensive by the way is not the sofa or it's not the armchair what's expensive is the real estate right so we need we needed to make the room more compact but still feels spacious for two people and still meets all these key requirements key touch points that we have in our brand which we've identified with our customers that's how it was born and we first tested naturally because a lot of the inspiration came from the airline industry, we first tested within the airport environment.

4:43And actually, our first hotels had two inspirations. It had airlines, as well as pod hotels in Japan, like even more smaller areas. And that's why within an airport environment, it made a hell of a lot of sense. And the rooms are typically 10 square meters. After the success of our first airport hotels, we thought, well, that concept, that idea, that customer and its journey can be expanded into the city so our branch naturally expanded into the city and that's when we created our first urban hotel in New York, Yotel New York. But as we did that it was also quite a revolution within our companies.

5:18We realized look now we're in the city so people are not staying just a few hours before the airplane takes off or and so forth. They're going to stay two or three nights with us so we had to reinvent a little bit ourselves to adjust the original product into what we see here today in London City right so and then as we did that we realized well they had both hotels hotel in London Gatwick or this hotel London City they obviously share the same DNA and the same approach and they actually cater to the same customer but that customer is in a different time of its journey right and really and the way he or she is staying with us and what they are expecting and the key requirements are slightly different and that's why we thought well if we if we call them both the same it's a little bit confusing right so we and that's why we created yotel air which is like more the lighter version or the airport version of yotel and then yotel being a core brand within the cities right and that's how we created two separate brand uh out of one and today the yotel concept has really grown up very rapidly so it has become our main brand right whilst our original hotels which we're still very proud of and still growing actively has probably make up 20 percent of our hotels nowadays and looking out the window here

6:41Dougal Shaw: we're in the heart of london as you as we said we can seest paul's um but you were talking about the real estate footprint and that being the main cost and something you said before that i thought what was pretty amazing was that this used to be a tiny kind of garage, basically, this area. Not exactly a petrol station, but something like that, the kind of a four-quart size. And yet it's become this, you know, how many stories are we here? Seven stories? Seven stories. Seven stories. Just one basement, 112 rooms. So from such a small, I would guess that's one of the benefits of your model being so compact that you can turn a very small footprint into a fairly large hotel.

7:17Dougal Shaw: In terms of number of keys, absolutely. So we've got about 6 ,000 square meters of real estate here, and we've got over 200 rooms, right? So in terms of the room to square meter ratio, it's super high. And that's the whole concept. But we've done that. So you might argue, well, that's what budget hotels do, right? Small rooms in a small site. But there's a huge difference with budget hotels, right? Budget hotels are not in a city center. They're typically in the suburbs because that's where they're cheap. And the quality, right? Everything here is well thought through. And we spoke a lot about the furnitures and the layout.

7:49but there's some other elements which are probably less thought through by the customer because they take it for granted but isolation you don't hear your neighbor double glazing you know high ceilings it's a great shower great heating you know air conditioning so you actually it's a small room but it's very smartly done right and quite well thought through and as a customer your experience is very comfortable because we realize that what we're in london city we're in one of the greatest town in the world what's expensive is the cost of the land right building even if my my air conditioning is better and obviously it's a bit more expensive but frankly speaking this doesn't make a huge difference but it makes a huge in terms of cost it makes a huge difference from a customer perspective the other interesting thing is

8:39Dougal Shaw: we're in clark and well and clark and well is it's quite a cool part of london but it's not really that well known actually um probably not to people out outside of the uk um you know it's not like piccadilly circus or the central parts of london so when you're choosing a hotel location that's obviously key was it a bit of a risk setting up here i i would not call it a risk uh i agree with you clerkenwell is unfortunately the best hidden gem in london right i mean it shouldn't be hidden it's such a gem everybody should know about clerkenwell and how great this district is on its own as to what is it got to offer from an architect architectural point of view from a design point of view from an fnb point of view also because of its connectivity right there's i don't i can't think of many other areas in london which is better connected right be to go to the airports go to the train stations or to travel around london but cleric and well yeah it's not as well known as say shortage which is just a few blocks away right or obviously oxford street which is not a few blocks away and that's why it's a bit of a hidden gem now Now, I suppose for the resident, it's amazing because they don't have all the noise and hustle of the tourist.

9:44But for us as a brand, we also had to do a lot of marketing around the location and explain why Clark-Ewenwell is such a great area. But for us, it was always a no-brainer. I mean, such a location is fantastic. And therefore, it made complete sense for us to set our first hotel in the UK, actually in the city in the UK, in this particular area. and that's typically the type of locations we're looking at. Areas which are either not yet completely priced where it should be. I'm not sure if price is the right word, but you know what I mean? It's not yet completely perceived for what it really is and it still has some uplift potential or which are really in the process of gentrifying and these kind of new cool areas in town which are happening.

10:37Dougal Shaw: So you joined in 2014, I think. The Yo Hotel concept had been started by Simon Woodruff. So first of all, how important is it for you to have a good relationship with a founder in a case like this? You know, I think any business, any story, anything you built in life has got different lifetimes, different cycles, right? And everybody brings its own piece to the jigsaw, right? so he needed Yotel needed Simon Woodruff to come up with the idea and he needed somebody who thinks completely differently to create the concept and it's not the first time in my career that I inherit a business where they have a very creative person coming up with something different and then he needed probably somebody like me to put business in it and to grow it and so forth so it's a natural kind of continuation I suppose even though we are bringing a very different angle.

11:33We each brought a very different angle to the business. And I've got an excellent relationship with Simon, and he's exceptionally proud of what we were able to do with his concept. I don't think he ever thought it could grow that much when he did it.

11:44Dougal Shaw: So, yeah, we catch up very regularly. And just explain to people, what experience did you bring? What had you done in your career before you joined? You know, our hospitality industry is a very strange industry. it's an industry which has really two faces and two sides right it's got the customer side of it and the experience and the management and what we're looking at right now it's also got the hard side of real estate right it's like it's got two different aspects right it's a bit like the yin and the yang right that kind of thing and for a long time I've been you know I've been in hospitality since the beginning of my career.

12:24I did a hotel school and but for a long time I've been hesitating on which side I should be. So I've been going back and forth and I've spent a lot of time on the real estate side you know developing hotels or other types of projects for that matter but very much on real estate development, real estate investment and so forth and eventually a little bit by chance and surprise and you know acquaintance you make in life I was given the opportunity to go on the customer side right on the operation side and taking over the leadership of the uotel after sam and woodruff and and i think probably that's what i bring to the table i've got the understanding of both sides and having worked on for many years on the real estate side and leading listed companies successfully hopefully i bring that kind of business sense to your hotel and you know when i started we were eight people so we're really much very much into a startup mode right we had our first hotels in the airports and we had just opened a hotel in new york and how to go from a startup to what's today a full-size sme company right and we're not yet a giant company but you know we are now over a thousand employees working for a hotel in many different countries with different partners and so forth so people love speaking about startup success stories and so forth but i think for any entrepreneurs they probably know what i'm talking about that that to go from that startup point to a what's now a financially viable and hopefully successful business is actually exceptionally hard and requires uh you know and i think most startups probably don't get there we're fortunate to get there and not don't get me wrong not just thanks to me I mean I've added my piece to it but thanks to an entire team and my shareholders and my partners and plenty of people contributed to that but it required you know we had to move from away from you know we had created Simon had created this concept now we're to focus on building it and and and and and focus on building a business

14:36Dougal Shaw: on the back of it so what does that mean doing does it mean restructuring hiring different people Well, there was not much restructuring to do. What we had to do is just build it. We had to build a platform. As I said, we were eight people to grow a company and we had very, very high ambitions to go global, to stay asset light. So we operate hotels on behalf of hotel owners or real estate investors. so it required in one hand to build the platform hire the people to support that be it on operations be it on the brand side be it on the distribution side be on the finance side build an entire company to get this done and at the same time which was as important pretty even more important at the very beginning was to convince real estate owners and investors so people from my former life that you know what don't build another hotel just build a new hotel it's much smarter and you know both from an experience point of view, from a real estate investment point of view, it's exactly what should meet your expectation.

15:34And, you know, we started to get some traction and convince some real estate companies and owners and investors and working at the network. And then it started, right? Now you've got business coming up and you build a platform in parallel and so forth. And that's what we've been doing for the past 10 years.

15:52Dougal Shaw: Two points picking up on that. One is you've got significant financial investment now, which is institutional private investors, and they are active investors in a sense that they're involved in your board. So it's part of your job as CEO to kind of coordinate them and what they want and their input. Yeah, absolutely. So we have currently 23 hotels in operation. I haven't worked out the math of what's the value of these assets. It's probably around a couple billion dollars with circa 14 or 15 different owners. Right. So we've got to manage that. We have a high responsibility to manage this large real estate stable of properties.

16:35And at the same time, we have a shareholder, which is a very large real estate company as well on its own. Now, they own a couple of our hotels. They own the Hotel New York, for example. And they have a significant stake in the Hotel Miami. But we have plenty of other owners. So in one hand, yeah, of course, we need to look after the interest of our shareholder as being a management company and sophisticated shareholders from the real estate world. and also manage the expectations of our other stakeholders, which are as important, which are the groups and companies and people who own the assets.

17:09And whilst doing that, operate, manage, lead, inspire a team of people who work for the Opco and who are focused primarily on one thing, is the customer experience.

17:21Dougal Shaw: Now, when a hotel market matures, it can embrace the franchise model. So you've started to do that now. Does that change the way you have to operate the business and how you kind of monitor things like quality in given hotels? So the idea that one day we would switch to franchises was always there, right? But first, we had to prove that the model worked. And the only way we could prove it is to operate it on our own. So we started on a management contract basis. That's how all the hotels were operated until very recently. as the company grew as owners more owners were intrigued interested attracted to work with us we started to work with a lot of investors who have as a prerogative that they can't have the brand operate the hotel and the way they operate is pure separation brand operator owner right especially in the u.s it's basically the prevailing model now but it's starting in europe increasingly and so forth.

18:23And you've got owners who simply want to diversify their risk between who operates the hotel and what the brand is. Because when you decide to go for a brand, honestly, you're not going to change brand every five years. I mean, it's a big investment, right? So you go in with a 20-year view. But you may want to change your operations more regularly, hence the separation of the two, which is a global trend in our industry. So it's coming up, and a lot of investors would like to work with the hotel, but it has to be on a franchise basis. So it kind of accelerated our thought like i knew we would get there i didn't think we'd get there so soon and the reality is we're now in that uh turning point whereby like we have to go there it is part of it and it's great i've got no problem with it but to operate under a franchise model uh has got certain implication because certainly i'm not the one in charge anymore of creating the great guest experience it's my third party operator so i need to have the capacity to train that operator to ensure they can work alongside our brand standard and to ensure they do it later on.

19:23And more importantly, I need to make sure that I can support the hotels on the distribution side, on the brand awareness side. And that's why we've invested considerably over the last 12, 18 months on this side of the business. And we're going to continue investing in this side of the business over the next 18 months, building up the teams, investing into the brand, investing on the digital side of the business and so forth so that we can support a third-party operator working with the Yota.

19:55Dougal Shaw: I suppose a unique selling thing about your concept is that it's kind of physically minimalist in terms of the footprint while also being high standard but it's also very kind of digital first and as we saw downstairs you can self-check in. There doesn't need to be as much human interaction as you might have in other hotels. And in hospitality, typically they say it's a lot about, it's a people's business. It's about that forging that personal connection. So have you kind of accepted that that's not an aspect you need to think about so much or because it's kind of priced into the concept or do you still have to be very focused on that as well?

20:32You know, ever since I took over your hotel, I've had this debate and I'm still surprised I'm having this debate as how people can think that technology could be something against people. I just don't get that part. We use technology in our day-to-day life 24-7, right? So it also includes hotels. I remember very well in 2014, 15, 16, when I started, I was pitching the brand. I was explaining who we were and so forth. We said, well, you don't understand hospitality. You're just a real estate guy. Hospitality is about people. I agree it's about people. Firstly, the people who stay in my hotels, right?

21:07And the people who work in my hotels, right? Okay. So we can also use technology to improve both aspects of the people's work. Right. I don't think there is an exceptionally exceptional joy among customers to queue, to get their key, to get to their room. Right. I don't think that's a great experience. Okay. Perhaps if you're in a super luxury hotel on an island somewhere and you've got five people looking after you, it might be a nice experience. But generally speaking, when you're checking in hotel in london it's not a great experience right so we thought how we can get rid of that and why would you have to go to the hotel to figure out if your room is ready or not when you can actually tell someone before they arrive similarly it's not the best of jobs to check out people all day long which what a lot of people unfortunately do in this industry and no wonder there's a high turnover right uh very repetitive job check out check out check out check out and sometimes if you're lucky you do a check-in.

22:05So we thought, why don't we just get rid of that? It's not against the people. It's just like both people, employee side, customer side, are not really enjoying this. And technology can solve for that pretty easily. And it doesn't mean that we don't want people in our hotels. It allows us to do different, create different roles in our hotels. And as and when we can, because we also have to work with labor restrictions and union restrictions in some areas and so forth, we try as much as possible to create multifunctional roles. Whereby, yes, sometimes you may find a customer who say, you know what, I'd like to have a traditional check-in.

22:42I'd like someone to check me in. Fine. I'm not going to refuse it. There's no problem. You can do it in our hotel here. You can do it. And someone needs to be able to do so. But that probably happens 20 % of the time. So that's not very often. One time out of the five. Most of the time, people just check themselves in naturally. So one time out of the five, you need to do it. right so now the guy who is doing this he's got to do something else and just wait right so we try and create rules which allows him like why don't you just help behind a bar or why don't you just you know spend more time with the customer chat with them understand what they want right become more like a customer relationship manager than just a check-in clerk right and that's what technology allows us us not just you tell everybody to do right and i think it's just the best idea ever i don't that's why i still don't understand why people are questioning that right so and again for us I mean I dare say we were among the pioneers to introduce this within the industry but frankly speaking we got it from another industry right we got it from the airline industry once again right when is the last time you actually queue to get your boarding pass very rarely I mean sometimes you have to because you're traveling with a kid or you've got no suitcase to check in but generally speaking it doesn't matter if you travel in first class or in economy you're just going to check through your smartphone why it's easier it's faster and what's the experience of queuing behind a desk none so um so i think that's that that's that's very much part of our dna and we try to push it we try different ideas we've tried robots as well to provide certain services um sometimes it makes complete sense sometimes it doesn't make so much sense to be perfectly honest that's what we're you know with this creative environment which we we keep on finding new areas where we feel that technology can add something to the mix.

24:32Dougal Shaw: Do you think there's a generational change there where perhaps, for example, younger people are very comfortable doing everything on the app, less human interaction, and maybe older people want the face-to-face. Do you see that at all? Well, that's what I thought, but it's not true statistically. And actually, I mean, you think around you, right? I mean, older people use smartphones as well, and they seem to be doing quite okay with it. I mean, except probably elderly people, which may sometimes struggle with technology. But generally speaking, the technology we have today is so user-friendly that everybody's quite comfortable with it.

25:10And so there's no real age group, I think. I think everybody's comfortable with the technology. And again, as I said, if you're not, it's not like we're telling you it's impossible. We're only a technology hotel. You need to go somewhere else. There's someone to help you. There are people, don't get me wrong.

25:27Dougal Shaw: And a closing question, looking back on your career and your time on both sides of the hotel industry, is there any advice you would like to have given your younger self starting out that would benefit them? Well, what I've always believed in and what I think is super important is never, ever, ever agree to complacency. You know, never be satisfied with what you have. Just always aim for more and always work harder to get better. and that's why one of our kind of internal leitmotiv or what drives us as a group is to challenge the status quo and that's what really i believe we're doing is and and not just for the sake of changing stuff it's just for the sake of thinking like how just just ask why why are we doing this and could we do it better it can be a process within the head office it can be a way we design our hotel the way we greet our customer and always think you know ahead and always regardless what your business is, by the way, it's not just for hospitality.

26:25And always challenge yourself to do things better and differently. And as soon as you fall into complacency, that's the end of it.

26:33Dougal Shaw: You've been listening to me, Dougal Shaw, speaking to Hubert Virio, CEO of Yotel for the Business Leader Podcast. Please do rate and subscribe to us wherever you get your podcasts. We do two episodes every week packed with business inspiration and thought-provoking ideas.

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