Wholesale distributors and hotels: a love-hate relationship
Once, hotels would ring-fence inventory for B2B clients. Frequently, these B2B segments were wholesale distributor.
These intermediaries would sell rooms to holidaymakers and business travelers offline via brochures and agencies. Through the wholesale distribution business chain, hotels could be confident they could earn a respectable margin – or at least ensure some long-term lower-yield baseline trade. Wholesalers had vast networks of agencies and tour operators at their disposal, so they could generally make a decent profit through high-volume business. Subsequently, the tour operators and agents could bundle the product to market to customers over the counter. By and large, the supply chain represented little risk to all involved.
However, the arrival of the Internet changed everything. Promoting greater transparency, the customer was newly empowered; whereas before B2B rates were negotiated behind closed doors, they became public knowledge. Previously, hotels favored the wholesale distribution business as their route to offline custom – now, the B2B hotel wholesalers were selling indiscriminately to on- and offline travel agencies. This new more transparent, competitive environment caused the market to become more turbulent, where profit margins were permanently in flux.
A race to the bottom
Despite the opportunity the Internet presented, smaller online agencies quickly began to realize they could not compete with the power of mega-OTAs like Expedia. In response, these smaller organizations decided to market themselves as under-the-radar cheap rate channels. This model relied on agreements with credit card companies and B2B hotel wholesalers who could access a broader cross-section of room rates. If these two partners were secured, these cut-price OTAs could set up automatic markups that guarantee a profit. Unfortunately for hoteliers, these would always be cheaper than direct channels.
Concurrently, small and medium-sized organizations lacked the resources to market their product internationally. Consequently, they relied on third parties to extend their global reach. As such, excluding wholesale distributors or OTAs became out of the question, despite the challenges they created.
The pressure increases
In past five years, the landscape has continued to transform. Metamediary sites like Kayak, Trivago, and Skyscanner have an even greater access to wholesale inventory and have gained huge visibility. To compound the problem, many wholesale distributors have made alliances that jeopardize hoteliers’ profit margins even more. In some scenarios, the hotel is not even aware of the OTA marketing their product. In addition, it is entirely possible they may not even know the wholesaler who is selling their rooms to the OTAs. Although price-transparency has improved for the customer, the online supply chain is significantly more convoluted than the networks of decades past.
Wholesale distributors: Marketing friend or revenue foe?
Whilst B2B hotel wholesalers have received a fair amount of criticism for their tactics, their margins have also suffered. With the e-commerce market changing all the time, wholesales have also found themselves in precarious situations. Although hotels may try to exercise power over their business collaborators, ultimately companies have little influence over the thousands of customers who use uncertified OTAs and metamediaries every day. Ultimately, one benefit is the increased visibility OTAs and wholesalers provide. Therefore, hoteliers should exploit this marketing clout to draw custom to their direct channels, taking control in today’s dog-eat-dog world of distribution.