Working with Suppliers - Thomas Cook Challenges Hotel Bills

First there was Serco threatening to withdraw their support if suppliers didnt accept a price cut. Now Thomas Cook - one of the duopoly of mass tour operators in the UK - has decided to flex its muscles and demonstrate its bargaining power with a key supplier group - holiday hotels. Is this an abuse of Thomas Cook’s market dominance?

This is a fascinating example of Porter’s Five Forces in action. It is unlikely to generate the same market hostility as the Serco example since the “victims” concerned are foreign hotel operators rather than plucky British small firms struggling to make money on public sector contracts. But the principle involved is the same. One dominant customer is trying to use its bargaining power to extract commercial advantage over a fragmented supplier base who, by definition, have much less bargaining power.

The choice for hotels in Spain, Greece, Turkey and elsewhere is simple. Accept a 5% cut in the final value of hotel rooms supplied to Thomas Cook during the 2010 summer season, or risk losing the key demand provided by a dominant tour operator from a key destination market like the UK. Few will put up much of a fight, though the decision will leave a nasty taste in the mouth. If you are a Thomas Cook customer at one of these hotels next summer, don’t be too surprised if the hotel management are a little less welcoming than normal!