Hostel Chain Targets New Generation of Backpackers
A European hostel chain that offers youngsters the chance to stay in quirky buildings and events such as DJ sessions plans to double in size to 28 sites within five years, aiming to cater for the latest generation of backpackers.
Generator Hostels, a private equity-backed chain, said its hostels were 96 percent full this summer despite security fears after attacks in Europe and Britain's vote to leave the European Union – issues which have dampened demand at traditional hotel groups.
Hotels are also facing a growing challenge from home sharing service Airbnb, but Generator, where the average guest is aged 20 to 21, says the social aspect of its hostels set them apart.
"Airbnb seems to be the biggest story in the world right now and I think it is for the traditional lodging sector if you have a more commoditized guest room experience, versus what we offer, which is an extreme social engagement," CEO Fredrick Korallus told Reuters in an interview.
Generator targets Instagram and Snapchat users who share photos of its sites. The group's hostel in London is a former police station, while in Amsterdam the former auditorium of a university building serves as a quirky bar.
Euromonitor travel analyst Wouter Geerts said that, while Generator still needed to compete with Airbnb, its bigger rival was shifting onto different ground.
"Airbnb's product has grown up a bit and it has become more open to older consumers and business travelers," he said.
With its rooms mainly sleeping four people, Generator's revenue per available room is higher than some economy hotel rivals, while the eye-catching buildings and social events mean it can charge more, said Korallus, a Swede who used to work for Radisson hotels-owner Carlson Rezidor.
Generator will open its first U.S. hostel in Miami in 2017, and wants to add more locations in the United States as well as expanding elsewhere in Europe, such as Italy and Poland.
Asked about funding the group's plan to double in size, Korallus said: "We would maybe need some new capital."
Patron Capital has owned Generator Hostels since 2007. The chain is forecasting an annualized revenue run rate of 115 million euros, with core earnings (EBITDA) of about 40 million euros, once Miami and two other locations open next year.