70.32.113.124 The brands offer obvious benefits in terms of their marketing reach and name recognition. The unique advantage that independent hotels have is autonomy . Yield Management : a system that enhances profits by calculating supply and demand (widely used by hotel chains). Independent hotels are hotels that are owned and run by themselves. Franchising.com: Weighing the Pros and Cons of Franchising vs. The Shifting Scene of Independent Hotels in America, Groups360 Adds Choice Hotels to Group Instant Booking Platform, Meeting Profs Travel Report: Air Travel Chaos Looms, Japan Lifts Covid Controls, Smart Meetings Virginia Beach Experience: Lessons in the Future of F2F, Smart Moves at Lark Hotels, Noble House and More. 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. One of the ways different hotels can be sure that they are offering a one-of-a-kind service is by carrying out a competitive analysis. Building and managing your brand. 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 ). These cookies track visitors across websites and collect information to provide customized ads. Here is what we found to be the biggest challenges with PMS solutions by hotel operation type: Independent Hotels. Being independent allows you to develop your own brand, menus and dining experience for your customers. This cookie is set by GDPR Cookie Consent plugin. Unpublished manuscript, Gothenburg, Sweden. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. The study found an early advantage in RevPAR driven by occupancy for affiliated full-service hotels that decreased as time went on. This result is the direct consequence of a specific management and administration that entails advantages and disadvantages. It is essential to know the hotel owner's motivation some hotel owners want to grow the business, and some value harmonious living and stability. Advantage: Full Control Over Operations 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. When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. Dev (2015) introduced an argument that could potentially explain the mixed performance results of affiliated and unaffiliated properties presented in various studies. One of the differentiating aspects of hotels that every expert LoopNet spoke with agreed upon is the amount of work they require. This leaves little room for creativity for each individual property. Some of them are scaling up faster than others, but I think, ultimately, were going to see as they scale up, and if theyre successful with scaling up, theyve got to become more standardized and more bureaucratic, and the creativity factor is going to start to diminish. A 5-star hotel should give you a better experience than a 3 . Dont Expect Hotel Companies to Stop Launching New Soft Brands Anytime Soon. They have the ability to negotiate better room rates for employees who stay there a lot. This group is simply not inclined to spend money or time on application . Ashley Donohoe started writing professionally about business topics in 2010. Less bureaucracy and more attention to original guest experience and unique initiatives. NASHVILLE, TennesseeSome hoteliers prefer absolute creative freedom, others want some wiggle room in terms of creativity and others want guidelines completely laid out for them from a brand. In some instances, the owner and the management may be the same, but its very common that the brand is a third party.. Retrieved from https://research.skift.com/report/a-deep-dive-into-operating- branding-strategies-for-hotel-owners/, Ting, D. (2017). Qualitatively, this approach leads to the same results as those reported in the paper, which are omitted to save space. 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.. The decision-making process is longer. Why do people choose to stay in a boutique hotel over a major hotel chain? As Barton said, Its a fun business; no day is ever the same., Kelso concurred. You will have to operate within those limited constraints. Carlbck (2017) posited that affiliation is necessary when a business is focused on growth and development. Literature review and research hypothesis formulation, 6. The biggest disadvantage however is the lack of independence. This cookie is set by GDPR Cookie Consent plugin. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. Hospitality hot takes straight to your inbox. Example: an employee for 50 reservations instead of 10 is more profitable. 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. The greatest advantage to me is the ability to be creative, he said. Unfold - The most innovative hospitality forum is back! Cornell Hospitality Quarterly, 57(2), 193-201. doi: 10.1177/1938965516631014, Dev, C. S. (2015). Because many of the elements that make hotels a sometimes challenging real estate asset are the same features that make them a compelling opportunity. These lease terms provide investors with a certain degree of security, even if markets take a downward turn. Kelso commented on the increased complexity of the insurance policies required for hotels, particularly for resort properties in areas prone to hurricanes or other natural disasters. They are mostly small capacity hotels (26 rooms on average) with family management. 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. This means they may fall short in some aspects of the guest experience. This can have a positive impact on energy levels and your overall health. Retrieved from https://skift.com/insight/skift-insights-deck-soft-brands-weighing-the-risks- rewards-and-realities/, Stone, R. (2018). The hotel needs to meet certain criteria to stay in the chain. Independent hotel brands have two major disadvantages, which of the most common is lack of capital to invest in marketing and business development, and the other is not being able to attract or retain top talents which makes marketing management a lot more inefficient compared to what international brands can do. Multiple factors account for this decline. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. Of course, high rewards rarely come to the dance unaccompanied by their less appealing chaperone, high risk. If the hotel is profitable, and growth is not part of the strategy, the hotel can afford to stay unbranded. Thus, the decision to affiliate or stay independent should be hotel specific as it can benefit one property, and another hotel could perform better without affiliation. Every one of my independent hotels is different from any other hotel; every one of my independent hotels really speaks to the location its in; every one of them has a theme; every one of them creates or provides a different experience to the guest. Its great to be creative, but we like to make money, he said. Provisions relating to the exchange of services should be included in the term sheet. Learn aboutfive types of guests and how to appeal to them. typically do not own the hotels that bear their names. Hotel as Chain or Independent The Advantages and Disadvantages of Hotels Affiliating with a Brand Dev, Chekitan S., James R. Brown, and Zheng Zhou Kevin. Kwortnik, R. J. Part one, which centered around the current and anticipated near-term state of the market, as well as current investment opportunities, can be found here. From my perspective, branded hotels have a much easier time of pushing inventory. Even multifamily properties, which have more frequent turnover than their commercial counterparts, typically offer one- to two-year leases. Overall, the authors concluded that the performance of franchised hotels was not superior to that of independent properties. Brand affiliation for the small independent hotel could help to stay competitive in the market (Carlbck, 2017); however, for hotels operating in particular markets, staying independent could be more beneficial (Kwortnik, 2011; Stone, 2018). 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. Youve got hundreds of operating issues; youve got a very different debt market for hospitality assets than you do [for] other asset classes; you have to contend with the brands, you have to contend with the managers, and you have to contend with the third-party OTAs (online travel advisors) such as Expedia, TripAdvisor and Travelocity.. This website uses cookies to improve your experience while you navigate through the website. Quality assurance, consulting support and lender comfort are provided by the Hotel Chains. Retrieved from https://gupea.ub.gu.se/handle/2077/53941/, Carvell, S. A., Canina, L., & Sturman, M. C. (2016). Retrieved from http://ejtr.vumk.eu/index.php/forthcoming-articles/654- v2310/, Carlbck, M. (2017). By correctly segmenting your hotels offer for a specific target group, they can better compete with chains. Retrieved from https://skift.com/2017/06/27/dont-expect-hotel- companies-to-stop-launching-new-soft-brands-anytime-soon/. 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. Smart Meetings 2023 Bright Business Media LLC. There will always be businesses that want or need to see Marriot, Hilton, Hyatt or Intercontinental on their expense reports, Kelso said. Comparing chains versus independent hote . 2. Advantages of hotel chains = disadvantages for the independent hotel. Another key difference is in the marketing and distribution strategies. Conclusion. Barton also noted that lenders will want to see a clear management plan in place, and will even give particular consideration to investors that choose to literally sleep where they eat, often showing a preference for owner-occupied hotels. ONeill, J. W., & Carlbck, M. (2011). According to the STR report, from 2003 to 2007which saw more than three dozen hurricanes, in places such as the Gulf and Atlantic coastal regions of the United States1,000 independent hotel properties faced a permanent closure. Hotel owners might decide that being independent is just too expensive for them and that the high effort that is required for the independent operation could not be justified when help from influential brands and large distribution platforms is available (Stone, 2018). They aim to provide a unique and authentic experience at every hotel. While having full control over your restaurant is an advantage in terms of flexibility and creativity, it also comes with the disadvantage of full responsibility. What are the disadvantages of chain hotels? There are disadvantages to staying independent (unbranded). Since they are usually just one-off hotels, this means that they can focus all their attention and resources in providing the best experience possible, constantly adapting to make service even better. 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. To begin with, theres the duration of tenancy. You must register your contact information to view secure information on this listing. Such challenges notwithstanding, all of the experts LoopNet spoke with believe this is a particularly compelling moment for investors to consider hotel assets. Registered in England & Wales No. 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. International hotel companies can help independent hotels create higher revenue streams and give owners access to a global network of resources to help sustain their business. Thats just my feeling and my personal prediction, but I think once you have 50 or 100 or 200 Autograph or Curio, (properties) or whatever it might be, theyre going to become more homogenous; theyre going to become much more bureaucratic and standardized. This is one of the biggest benefits of running an independent boutique hotel over a larger chain; the hotels tend to be smaller, and more time can be spent hiring the right people and crafting the right team. Cloudflare Ray ID: 7c088146c8c40cf3 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. 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. Restaurant Franchising, Forbes: Why Independent Restaurants Are Closing. It is a type of hotel that does not have an affiliation with any particular chain. ), do not possess dedicated reservation and marketing systems and it is hard for them to compete with brands that have larger marketing budgets. Proximity : an unbeatable relationship with the guest that allows quality support and communication for a better guest experience (favored by social networks). You will have to do all the marketing and brand building yourself. Cash flow volatility. So taking a spontaneous or unplanned last-minute holiday may not always be. Does paying higher franchise fees command higher RevPAR?. According to Freitag, this enables hotel owners to rapidly increase prices in response to enhanced demand. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc. Your growth rates year over year are going to look really, really strong, Freitag said. Pros and cons of independent hotels versus chains, five types of guests and how to appeal to them. Hoboken, NJ: John Wiley & Sons, 388-404. Another disadvantage is that it can take longer for your independent restaurant to gain customers and have a good profit. Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. On the flip side, they tend to be more expensive and elite. From the lobby to your room, everything is usually well-designed. Franchise Operators Agreement. We noticed you're using Internet Explorer to view our site properly, please use a more up-to-date browser like Chrome, Firefox or Edge. Patel concurred with that assessment. Kelso said that investors should be prepared for swift changes in financing options. Weve looked at the advantages and disadvantages of these two types of hotels, as well as whether these two hotel types are capable of competing. Eric Horodas, president and CEO of Greystone Hotels, said he likes having creative freedom with independents. There is no independence. But what exactly is the difference between these two types of structures? Explore your hospitality hub. The authors concluded that the value that the brand brings is not static and varies over time. Eva has over a decade of international experience in marketing, communication, events and digital marketing. Registration on or use of this site constitutes acceptance of our terms and conditions and privacy policy. 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 hotels dont offer any similar safeguards. The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". What Are the Essential Requirements for Gastric Sleeve Surgery? Your IP: 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. Share. Advantages. LoopNets sources also noted the uniquely enjoyable and exciting nature of the hotel industry. Permission is granted subject to the terms of the License under which the work was published. Hoteliers on the Pros and cons of independence panel at this years Hotel Data Conference in Nashville took a specific side and talked about why they liked their specific affiliation of choice, whether it be independent, branded or soft branded. Holverson and Revaz ( 2 for their tourism growth. Freitag observed that underfunding the equity portion of a purchase is whats putting a lot of people into jeopardy right now their monthly mortgage payment is just so high., Further, because of the unique, daily revenue stream that hotels provide, Barton advocated for the benefits of securing financing with a smaller, local institution. However, with an independent restaurant, you have the freedom to shop around for an affordable restaurant location and then compare the prices of suppliers, services and equipment to find an arrangement that fits your budget. Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet. A deep dive into operating and branding strategies for hotel owners. 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. Not to mention, independent hotels have doubled the pace of branded ADRs since early 2014 . The capital markets environment for hospitality changes much more quickly than it does for other asset classes, because it more closely mirrors whats going on in the economy, he said. The quality of the guest experience can be controlled by brands. 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). This leaves little room for creativity, and creates a feeling that no matter where you are in the world, everything is the same. Jared Kelso, executive managing director of C&W Capital Markets and one of three senior partners in the firms national hospitality capital markets practice group, explained that, Its vastly more complex [than other asset types]. of observations (after data cleaning). The volume of passengers is not very high compared to a chain hotel, but it is similar in terms of figures per activity. Learn about hotel management companies, including advantages and . Brands can also be critical if youre courting the business travel market. International Journal of Contemporary Hospitality Management, 29(11), 2941-2961. doi: 10.1108/IJCHM-02-2016-0060. While consumers may still appreciate the presumed quality and service assurances that accompany a brand, they tend to be less brand specific, Barton said. We apologize for the inconvenience. These cookies ensure basic functionalities and security features of the website, anonymously. 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. Todays consumer is becoming more and more demanding, which has inspired a more personalized and varied offer in the hospitality sector. You will have limited resources and budget. But today, independent hotels account for less than 30 percent of hospitality venues. School of Business, Economics, and Law at the University of Gothenburg. Kelso neatly summed up the investment profile of hotels in a single sentence: Its a high-risk, high-reward asset class.. Register a free Taylor & Francis Online account today to boost your research and gain these benefits: Comparing chains versus independent hotels based on international sales: an exploratory study, a University of Bologna, Rimini, Italy;b Horwath HTL, Rome, Italy, c Universidad Internacional de La Rioja, Logroo, La Rioja, Spain, d Universitat Politcnica de Valncia, Valencia, Spain, Social media analytics: A tool for the success of online retail industry, Asymmetric information and deal selection: Evidence from the Italian venture capital market, Global-local trajectories for regional competitiveness: Tourism innovation in the western cape, Catalysts in introducing information technology in small and medium-sized hospitality organisations, A comparison of the performance of brand-affiliated and unaffiliated hotel properties, Expansion strategy of international hotel firms, Hotel chain affiliation as an environmental performance strategy for luxury hotels, Visitor attractions and events: Responding to seasonality, Modal choice in a world of alliances: Analyzing organisational forms in the international hotel sector, How firms relate to their markets: an empirical examination of contemporary marketing practices, Efficiency evaluation of hotel chains: A Spanish case study, Profitability determinants of hotel companies in selected Mediterranean countries, Determinantes en la eleccin del modo de entrada de las hoteleras espaolas en destinos forneos, The eclectic theory of international production: A case study of the international hotel industry, A comparison of the performance of independent and franchise hotels: The first two years of operation, European Hotels and Chains Report, Horwath HTL. (2017). 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 there is only so much you can do with a certain physical box until it becomes economically unfeasible, he said. There are more constituents in a hotel investment than there might be in many others, and there is no durable revenue stream, as we learned to our chagrin again in 2020. Perhaps the single most unique (and commonplace) feature of hotels compared to other real estate assets is the presence of brands or flags, in industry parlance. I dont think the story has been completely told yet as it relates to soft brands, he said. 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. Good boutique hotels also know how to take advantage of the surrounding area. Hotels are designed to give you a comfortable and luxurious experience. Particularly susceptible to economic turbulence. doi 10.1016/j.ijhm.2010.08.003, Rushmore, S. (2004). You are not the first one. They are important players in the hotel market worldwide. Smart Meetings is the leading meetings industry publisher and voice of inspiration for meeting professionals. With an independent restaurant, you might run into some hurdles if you want to sell. This website is using a security service to protect itself from online attacks. Disadvantages include full accountability, more time needed to become profitable and resale difficulties. (2016) compared key performance indicators of affiliated and unaffiliated hotels over a full 10-year economic cycle. He added that investors just need to be very, very clear on what services you offer, how much staff you need and what your debt service looks like in order to ride out this period of economic uncertainty. Jared Kelso, executive managing director, C&W Capital Markets. Cornell Hospitality Report, 11(21), 6-13. When you run a franchise, the franchisor is the one who tells you what food you can serve, what your location must look like and what procedures you must follow in your daily operations. 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). 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. He added that in order to weather downturns, you really have to ensure that your capital base is built to withstand economic turbulence.. 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. 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. Kelso described how this differs from other real estate asset classes. You'll need more time to see a return on your investment than you would if you run a franchise. Error occurred with your registration, please try again. Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features. Because of the time and energy required to manage facilities and staff (including the management team, should you elect to outsource that function), both Barton and Patel advised that it is beneficial to be located proximate to your investment. According to Patel, in addition to greater complexity, insurance for hotels comes with increased costs, and those expenses are growing. I think with a smaller hotel, you may do well with a local lender in the area, he said. A comparison of the performance of independent and franchise hotels: The first two years of operation. What is a chain hotel give examples of the chain hotels? Apart from helping you reduce over-bookings, easily maintain rate parity, and allowing for easier reporting, choosing an all-in-one solution for your hotel will help you: Save time: many manual tasks will be automated. A hotel owner needs to assess the benefits and costs of affiliating as well as compare various affiliation alternatives against each other (Carlbck, 2017). Their location was chosen due to the attractiveness of the place and the potential profit. We use cookies to improve your website experience. Disadvantage: Missed marketing opportunities. Skift Research. 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. If you forgot your password, click to reset it. Barton observed that these significant returns are partially derived through margins. Make your property remarkable with an ecosystem of hospitality solutions that maximize revenue and enhance the guest experience, The control centre for front office and back office staff with smart automation, A connected guest experience thats memorable as well as modern, Make every payment fast, secure and automatic, Tools for better understanding your business, Hospitalitys biggest marketplace of apps and integrations, The power to easily connect your tech to Mews, One size does not fit all. Having experience running all aspects of her small business, she is knowledgeable about the daily issues and decisions that business owners face. Everything you need in one beautiful print and digital magazine. Running an independent restaurant has its perks: You can change your menu at any time, use whatever slogans and logos you want and avoid some of the costs and risks of franchise ownership. You dont have to sort of wonder, How is the competition doing? Every hotel owner needs to decide whether to operate independently or lose some degree of independence to gain a possible competitive advantage by affiliating with the brand. A hotel franchise is referred to as a referral hotel chain. At the same time, though, you'll need to be patient, know where to find help and be able to handle the challenges of having full responsibility of your restaurant. Soft Brands - Weighing the Risks, Rewards, and Realities. Further details are available upon request. I think its far more important in the hospitality sector to consider the downside scenario, because the cash flow is so much more volatile than [it is in] other asset classes, he said. Smart Meetings publishes cutting-edge meetings content in print and digital magazines 12 times per year, hosts world-class networking events, produces CEU-accredited webinars and offers a myriad of digital resources. The hotel management agreements and franchise agreement handbook. 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.
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