The LoopNet service and information provided therein, while believed to be accurate, are provided "as is". By clicking Accept All, you consent to the use of ALL the cookies. Kelso described it saying, The middle market space [i.e., hotels valued at less than $15 million] is overwhelmingly a franchise model, whereby an owner would enter into a franchise agreement with Hilton, or Hyatt or Intercontinental. They aim to provide a unique and authentic experience at every hotel. (With) soft brands, I get the best of both worlds, he said. Daily physical activity. Retrieved from https://skift.com/insight/skift-insights-deck-soft-brands-weighing-the-risks- rewards-and-realities/, Stone, R. (2018). We also use third-party cookies that help us analyze and understand how you use this website. Patel said that, if everything goes according to plan, investors can expect annual returns approaching 20%, which is certainly impressive when considered in comparison to other real estate assets. He has worked in the commercial real estate industry for more than 15 years, serving in a variety of marketing, content and communications roles for companies that include Newmark Knight Frank and Cushman & Wakefield. Small hotels dont have big-brand financial backing to aid them if they need renovations, expensive repairsor a revamp after a natural disaster, which could put them out of business. Particularly susceptible to economic turbulence. There are disadvantages to staying independent (unbranded). Patel said that investors should assume that at least 15% to 18% of their operating expenses will go to brand-related costs, and that percentage grows as you climb the brand ladder from economy to luxury. There is no one else to guide and advise you. Their location was chosen due to the attractiveness of the place and the potential profit. This potential for high returns is partially owed to the flexibility fostered by hotels unique tenancy model. Weve seen all of the major hotel companies get into the soft-brand arena, and theyre trying to scale up. The benefits of staying independent (unbranded) include savings on brand affiliation fees, control over management and entrepreneurship, greater flexibility, and ability to structure hotel standards to meet the market demand and the opportunity to create a niche personality (Butler & Braun, 2014; Rushmore, 2004). Freitag described the relationship between these entities as a triangle between the owner, the management company and the brand. 5 Video Games That Will Boost Your Brain Power And Reduce Stress, Nia Long Finds Success as an Instagram Influencer. Are independent hotels capable of competing with chain hotels. Retrieved from https://scholarship.sha.cornell.edu/chrpubs/47/, Holverson, S., & Revaz, F. (2006). Cloudflare Ray ID: 7c088146c8c40cf3 You must put 35% to 40% equity into any deal, Patel said. This group is simply not inclined to spend money or time on application . For example, markets where guests prefer boutique properties (Kwortnik, 2011), unique destinations such as mountain resort area, urban markets with large convention business, and a significant amount of tourism (Stone, 2018). Big brands are much more likely than small, independent hotels to buy property to build new hotels, according to the study by STR, a systems and tech research company. Its fair to say that while every commercial real estate (CRE) asset type has its idiosyncratic features, as well as distinctive attributes and challenges, hotels are particularly unique. ), do not possess dedicated reservation and marketing systems and it is hard for them to compete with brands that have larger marketing budgets. In the modern hospitality landscape, brands rule the day. Running an independent restaurant can also help you avoid some of the personal and legal risks of running a franchise. When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. The resources needed to create a digital presence are significant and ones that not all small, independent hotels have. Here you can manage your preferences regarding cookies: Essential cookies enable core functionalities of the website such as marking your data inputs, network management and accessibility. On the other hand, Patel noted that in an independent hotel, you dont have someone looking over your shoulder, which offers an investor more flexibility, particularly with regard to reducing expenses; a consideration that becomes particularly critical during turbulent economic periods, such as the one the industry is currently experiencing. The hotels that arent related to a hotel chain are considered independent. Jared Kelso, executive managing director, C&W Capital Markets. They are mostly small capacity hotels (26 rooms on average) with family management. Retrieved from https://scholarship.sha.cornell.edu/chrpubs/224/, Enz, C. A., & Canina, L. (2011). All About G Adventures Vs Intrepid Vs Contiki. Some other places featuring her business writing include JobHero, LoveToKnow, PocketSense, Chron and Study.com. Not to mention, independent hotels have doubled the pace of branded ADRs since early 2014 . All rights reserved. The objective is to know very well the business that is being managed and to know how to identify (and differentiate) the pros and cons. Holverson and Revaz (2006) posited that independent family-owned hotels that built loyalty through tradition and quality had repeat customers, satisfactory performance results, and took advantage of growing Internet opportunities did not need to invest in brand affiliation. Hotels Magazine. Create alignment and synergy across the board, from the top management level, strategies, employees' skillsets, and the actual business processes. The aforementioned brand impact isnt the only area where hotel financing differs from other CRE asset types. She also has earned a Master of Business Administration degree with a leadership and strategy concentration from Western Governors University along with a bookkeeping certification. Startup Costs and Franchise Fees Expensive startup costs and ongoing fees are some franchise disadvantages that can make it harder for you to get started as a business owner as well as to operate profitably. We apologize, but the feature you are trying to access is currently unavailable. Register to receive personalised research and resources by email. We inspire our audience of meeting and event professionals to dream bigand create brilliant experiences that delight attendees, achieve desired results and elevate the impact of the meetings industry. If you're inexperienced in running or managing a restaurant, having less direction can present challenges when things go wrong, whether you struggle to market yourself or have distribution issues. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. International Journal of Hospitality Management, 30(3), 515521. How am I doing compared to the competition? You know, he said. Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. As Barton said, Its a fun business; no day is ever the same., Kelso concurred. Those flags are going to get me more revenue per room, he said. Pros and cons of independent hotels versus chains, five types of guests and how to appeal to them. What Are the Essential Requirements for Gastric Sleeve Surgery? Building and managing your brand. So when it comes to staffing models, when it comes to building new assets, architectural plans, you name it, there is a step-by-step playbook to follow, and we see our profitability is substantially higher at branded hotels than they are in the independent and soft-branded hotels.. It does not store any personal data. In some cases, you might end up selling for a much lower price than desired if you do have trouble finding someone to buy the restaurant. Chains often also choose the location for the hotel because of the locations attractiveness. Comparing chains versus independent hote . 2. Whereas an independent hotel can be original and adapt their marketing and distribution strategies as they see fit, chains must adhere to the chains overarching strategy. Registration on or use of this site constitutes acceptance of our terms and conditions and privacy policy. This cookie is set by GDPR Cookie Consent plugin. Kwortnik, R. J. Independent hotels advantages and competitiveness compared to chains 22 Oct, 2019 These independent hotels now account for 50% of the French hotel pool. On the other hand, in attempting to be original, independent hotels must be creative in their design, what they offer, their decorational elements, gastronomic proposal and in all aspects of the hotels concept. Chase said a soft brand might be the same as a brand, but theres still a lot of work that goes into sales and marketing for a soft-branded property to attract guests. From my perspective, branded hotels have a much easier time of pushing inventory. To request a reprint or commercial or derivative permissions for this article, please click on the relevant link below. In this two-part series, LoopNet provides an overview of the lodging/hospitality/hotel terms that will be applied interchangeably throughout this series sector. Having an independent restaurant means you're on your own and will have to seek your own resources for help when you need it, such as your local chamber of commerce or fellow restaurant owners. Volume: hotel chains, due to their standard and extensive offer, benefit from economies of scale due to the expansion of their business and the reduction of costs for bulk purchases and management. Quality assurance, consulting support and lender comfort are provided by the Hotel Chains. Other disadvantages include high cost of effective distribution, increasing costs of communication, inability to obtain necessary marketing intelligence in order to compete (Holverson & Revaz, 2006), high amount of investments required for technology solutions (Ting, 2017), cost of paying high OTA commissions and advertising expenses may offset the benefit of not paying franchise fees to the brand, harder to get access to capital as lenders consider independent properties risky and prefer to finance affiliated hotels (Stone, 2018). LoopNet disclaims any and all representations, warranties, or guarantees of any kind. Roughly 30 years ago, independent hotels accounted for about two-thirds of the properties in the hospitality industry. Were seeing a large increase in insurance premiums, on the general liability side and on the property side. He estimated that general liability premiums had increased by approximately 18% to 20%, while property insurance had increased by 10% to 16%, year over year. And there is only so much you can do with a certain physical box until it becomes economically unfeasible, he said. These banks often like hotel loans because they also get all the daily deposits and theres more to their relationship than just a loan.. When the brakes come to a halt in the broader economy, they come to a halt in the hotel industry, he said. Of course, high rewards rarely come to the dance unaccompanied by their less appealing chaperone, high risk. It's not being weak to need a shoulder to cry on because even the most seemingly strong person may have a break down at some point. Your IP: To begin with, theres the duration of tenancy. This leaves little room for creativity, and creates a feeling that no matter where you are in the world, everything is the same. For example, a 5-star hotel has higher standards regarding cleanliness. Both parties expectations, responsibilities, and duties should be set in this document. A comparison of branded and independent hotels performance during a full economic cycle. Doctoral dissertation in business administration. What are the rates of the hotel rooms? Cornell Hospitality Report, 15(21), 3-11. Best shoes for different occasions: Work, parties and Outdoor Activities, How to Choose the Right Home Designer for Your Project, Smart ways to style your casual shirt for vacation, Guidelines to start your career in online teaching, Why Local SEO is Essential for Small Business Owners, Five Steps Women Can Take to Improve Their Health. Of course, it is less unlikely that they can compete on price, but quality and the type of offer is a great place to focus efforts. The disadvantages of an independent hotel include: no broad advertising exposure, no management and consulting insight from an affiliated property, and it is unable to take advantage of thevolume of purchasing power of a chain hotel. Consider both the advantages and disadvantages of hotel ownership as a franchisee to decide if it's right for you. 4 minute read, The Mews Blog>Pros and cons of independent hotels versus chains. There is no independence. Conclusions and managerial implications, https://doi.org/10.1080/1331677X.2019.1710719, http://horwathhtl.com/2017/04/06/european-hotels-chains-report-2017/, https://ec.europa.eu/eurostat/statistics-explained/pdfscache/34962.pdf, http://www.hotelnewsnow.com/media/File/PDFs/Misc/BIG%20BRANDS%20REPORT%202015_compressed.pdf, https://corporate.cms-horwathhtl.com/wp-content/uploads/sites/2/2018/11/HHTL_2018-EU-CHAINS-REPORT.pdf, No. Subscribe to receive tips, articles and tools. This is perhaps why hotels have historically outperformed the consumer price index (CPI), Freitag said. On the other hand, the main advantage of independent hotels is that they are more personalized and tend to cater to a specific target audience. Whereas chains are built with the idea of having a standard offer, including standardized design and quality standards no matter where a guest stays in the world, independent hotels pride themselves on their uniqueness. Independent hotel chains are not to be confused with general hotel chains. For example, in Barcelona you might find a chain on the famous Ramblas Street, whereas a smaller property would look for a more singular location. The main con is typically over-standardization. According to Ford Barton, principal of Lodging Partners, a brokerage and advisory firm focused on the hospitality and lodging sector, OTAs have fostered a commoditization of hotels. This, in turn, has often resulted in less pricing power for the hotels.. Hotel brand conversions: What works and what doesn't. There are Associations or Marketing organizations that link together small to medium-sized independent travel agencies. The insurance market is very unstable, Patel said. Another differentiating factor is the fact that independent hotels focus on the individual guest, seeking to anticipate their needs, and going above and beyond when it comes to service. Moreover, the authors found that affiliation with the brand positively drove occupancy and ADR. Dev (2015) concurred that two factors drove the financial results for hotels that changed brands - the strength of the brand (60%) and fit between the brand and the property (40%). And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. I dont think the story has been completely told yet as it relates to soft brands, he said. The decision-making process is longer. You may also be able to start an independent restaurant with less cash than you would with a franchise. As Freitag noted, Theyve been there and done that, right? Butler, J., & Braun, R. (2014). Generally, the independent hotel is managed as if it were a family business, with a limited and versatile team in its activities. On the contrary, O'Neill and Carlbck (2011) reported that unaffiliated hotels had higher RevPAR. When she's not at work, she's probably surfing, dancing, or exploring the world. Daniel Schmergel is the Managing Editor of LoopNet. More space for original design, product creativity and a unique identity. February 12th, 2013 at 12:09 PM EST. This cookie is set by GDPR Cookie Consent plugin. And just two years ago, a study by Expedia found that they had a greater average daily room rate and faster overall growth than their branded counterparts. Chains, on the other hand, can be more competitive on pricing, and can provide a sense of reliability that will appeal to a wider target audience. Why do people choose to stay in a boutique hotel over a major hotel chain? Its one of those areas where you cant go halfway, you have to go all the way, and branding is certainly the easier way to go.. What are the disadvantages of chain hotels? Whats the story behind soft brands?When asked if a soft brand is really just a brand, Horodas said hes not so sure how soft brands will play out in the future as more pop up in the industry. . Investors will want to have the hotel in a nearby location so they can visit the hotel and keep a close eye on the investment, Barton said. The action you just performed triggered the security solution. This result is the direct consequence of a specific management and administration that entails advantages and disadvantages. Weve looked at the differences between these two structure types, but you may still be wondering if there is any way for them both to compete. I will tell you its five to six times harder to open an independent or a soft brand, he said. It may be because of the architecture of the place but also because of the services designed for a niche clientele: there is no comparison with a single offer, therefore there is less competition and an economy due to specialization (it reduces costs by not having an extensive offer that pleases everyone ). A boutique hotel is a small, upscale, luxury hotel that has a distinct personality, intimate experience, and personalized service. Its great to be creative, but we like to make money, he said. Unpublished manuscript, Gothenburg, Sweden. It can be a very labor intensive asset class, especially towards the higher end, as you provide more services, Freitag said. Conclusion. Fixed prices : the established price policy, being little variable, ensures a constant and clear revenue. We know that every hotelier defines "efficient" and "cost-effective" differently, so this is why some opt to leverage the marketing power of OTAs and others do not. But today, independent hotels account for less than 30 percent of hospitality venues. When you're running a franchise, you get the benefit of having the chain's reputation and brand awareness, but when you're opening an independent restaurant, you have to put time, money and effort into establishing yourself in the community and marketing yourself. Each Autograph Collection hotel has its very own look and feel, making it improbable that most consumers can discern that any two are under the same umbrella. Consumers increasingly prefer experiences over products, looking for something unique and memorable, and the independent hotel can better cater to this new shift in consumer preferences (Stone, 2018). Want more coverage of the Hotel Data Conference? The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. Promotion : a marketing and communication office that is in charge of advertising the chain as a whole and the individual recognition of each structure. Stone (2018) posited that the operating model that will satisfy all hotel owners did not exist. You are not the first one. While smaller, singular hotels will have a hard time competing on price, where they can stand out is by developing an offer that is unique, in an incomparable location with impeccable service. With a franchise, it can be easier to find potential buyers since the chain's brand is well known and has a proven value. Business travelers can take advantage of the chain hotel. The staff is similar to those at boutique hotels.
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