The brand element (to brand or not to brand). All rights reserved. Retrieved from https://www.hvs.com/article/953-a-case-for-being-independent, Skift Report (2018). Kelso described how this differs from other real estate asset classes. Its also a sector that has been particularly impacted by the coronavirus, which has produced both distress and opportunities. They aim to provide a unique and authentic experience at every hotel. By clicking Accept All, you consent to the use of ALL the cookies. Brands can also be critical if youre courting the business travel market. When you're running a franchise, you usually have a lot of support from the chain in terms of training, mentorship and regular guidance. A comparison of branded and independent hotels performance during a full economic cycle, International hotel development: A study of potential franchisees in China, Strategic hotel development and positioning: The effect of revenue drivers on profitability, The role of brand affiliation in hotel market value, The relationship of sales and marketing expenses to hotel performance in the United States, Tourism in protected areas and the impact of servicescape on tourist satisfaction, key in sustainability, Cash regimes and the franchise system: An extension of the marginal value of cash, The internationalisation of the European hotel industry in the light of competition theories, Performance comparisons of hotels in China, Foreign market entry mode in the hotel industry: The impact of country-and firm-specific factors, The penetration of international hotel chains in Italy: Evidences from an updated census, Hotel chains: survival strategies for a dynamic future, The future of hotel chains: Branded marketplaces driven by the sharing economy, An extended COPRAS model for multi-criteria decision-making problems and its application in web-based hotel evaluation and selection, Network advantages effect on exit performance: examining venture capitals inter-organizational networks. To tell the truth, the small and medium-sized companies that operate in this sector share similar operations and characteristics that are their own (with their benefits and drawbacks). The most obvious advantage of a suite hotel is extra space. 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. If you continue to see this message, your account may be locked due to too many failed attempts. In addition to brands, one of the most potent forces influencing the hotel market are OTAs (online travel advisors), and its important that investors understand the impact theyve had, and continue to have, on the industry. Please check back in a few minutes. Advantage: Full Control Over Operations Their ability to offer experiences different than the larger, branded hotels appealed to the younger generation, anxious to have one-of-a-kind experiences. A comparison of the performance of independent and franchise hotels: The first two years of operation. Ultimately, Patel said that it all comes down to RevPAR (revenue per available room), one of the hotel industrys key metrics. And there is only so much you can do with a certain physical box until it becomes economically unfeasible, he said. Independent hotels are often based on their history. Part two, presented below, focuses on the long-term strengths, challenges and unique characteristics of the sector. What are the differences between independent and chain hotels? Disadvantages include full accountability, more time needed to become profitable and resale difficulties. It does not store any personal data. They have the ability to negotiate better room rates for employees who stay there a lot. You must register your contact information to view secure information on this listing. These cookies track visitors across websites and collect information to provide customized ads. 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. That said, it depends because each hotel is different. Los Angeles: JMBM Global Hospitality Group. 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. Advantages of an independent restaurant include potentially lower startup costs, full control over operations and avoidance of franchise risks. 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. Franchising.com: Weighing the Pros and Cons of Franchising vs. Unique experience : there is always a different offer, from the hostel to the boutique hotel. The LoopNet service and information provided therein, while believed to be accurate, are provided "as is". Does paying higher franchise fees command higher RevPAR?. Performance & security by Cloudflare. 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 ). When the brakes come to a halt in the broader economy, they come to a halt in the hotel industry, he said. Remember passwords are case sensitive. of observations (after data cleaning). This formulation comes from the identity FmPARph = w FmPARch +(1-w) FmPARih, whose proof is straightforward. Todays consumer is becoming more and more demanding, which has inspired a more personalized and varied offer in the hospitality sector. Cited by lists all citing articles based on Crossref citations.Articles with the Crossref icon will open in a new tab. A rack rate is the highest price a hotel can charge for a room, and a single hotel may offer a different rack rate for each room type on property. There are over a dozen separate brands in the portfolio of Hilton. 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. Business travelers can take advantage of the chain hotel. A comparison of the performance of brand-affiliated and unaffiliated hotel properties. Having experience running all aspects of her small business, she is knowledgeable about the daily issues and decisions that business owners face. Business travelers can take advantage of the chain hotel. (With) soft brands, I get the best of both worlds, he said. This is one of the most idiosyncratic asset types in real estate, as well as (potentially) one of the most rewarding. But I do have one thing that an independent doesnt have: I still have that assurance that other properties, hopefully, if they do it right, will have some type of level of standard, that I dont have a bunch of crap out there. The brand would place their flag on the property, subject to many, many requirements on the owner in terms of the design, the quality and the level of service they provide., Lest you think that the brand is doing the majority of the work for you, its important to understand that hotel brands typically do not manage the properties under their umbrella either. A boutique hotel is a small, upscale, luxury hotel that has a distinct personality, intimate experience, and personalized service. Hospitality hot takes straight to your inbox. It is free of its capabilities and possibilities. 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. Those flags are going to get me more revenue per room, he said. On the other hand, chains, being one of many, seek to offer a standardized experience that will be the same across the brands collection of products. 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. 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. 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. Your growth rates year over year are going to look really, really strong, Freitag said. Due to the degree of independence of subsidiary hotel brands, it's sometimes difficult to distinguish between a boutique property that's owned by a large company and one that is truly independentfinancially and otherwise. (Being an independent) takes a lot of courage. Furthermore, by creating a targeted, highly-segmented offer for a niche audience, it will be easier to capture clients that are not so price sensitive, but instead are looking for that one-of-a-kind experience. Restaurant Franchising, Forbes: Why Independent Restaurants Are Closing. In this two-part series, LoopNet provides an overview of the lodging/hospitality/hotel terms that will be applied interchangeably throughout this series sector. Your IP: So, lets get started. A case for being independent. 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. What Are the Essential Requirements for Gastric Sleeve Surgery? 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.. Jared Kelso, executive managing director, C&W Capital Markets. You will have to do all the marketing and brand building yourself. It is established that everything that is not related to a hotel chain is considered an independent hotel . What do you understand by referral Hotel? I dont think the story has been completely told yet as it relates to soft brands, he said. No other proprietors can use its name or brand. Example: staff organization that counts ten people from one day to the next. To Be or Not to Be - Brand Affiliation in the Hotel Industry. Independent hotels have higher average daily rate and rooms revenues per available room than branded hotels during the same time period, according to the results of the study. w) / (1-w), where w = ARch/ARph. Sign up to our monthly newsletter for industry insights, product news, partner updates and more. 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. For example, Franchise Direct reports that starting a KFC location can run anywhere from $1.4 to $2.7 million in initial investment costs, while Domino's looks for a net worth of $250,000. (, How power distance affects online hotel ratings: The positive moderating roles of hotel chain and reviewers travel experience, Intellectual property rights, complementarity and the firms economic performance, Perceptions of European independent hoteliers: Hard and soft branding choices, Organisational form as a solution to the problem of credible commitment: The evolution of naming strategies among U.S. hotel chains, Star rating and corporate affiliation: Their influence on room price and performance of hotels in Israel, Categorical data analysis: Away from ANOVAs (transformation or not) and towards logit mixed models, Department of Tourism Management Alexander Technological Educational Institute of Thessaloniki, Overcoming the liability of foreignness through lobbying: An examination of franchise systems, Construction of an instrument to evaluate the User eXperience of a group of co-creators in the upstream innovation process, Country-of-operation and brand images: Evidence from the Chinese hotel industry, Managerial academic experience, external monitoring, and financial reporting quality, Competition in the international hotel industry, Maximum likelihood algorithms for generalized linear mixed models, Greening the hospitality industry: How do green human resource management practices influence organizational citizenship behavior in hotels? Owners can change interiors or upgrade amenities when they see fit. Soft Brands - Weighing the Risks, Rewards, and Realities. Hotels are designed to give you a comfortable and luxurious experience. Hoteliers on the "Pros and cons of independence" panel at this year's Hotel Data Conference in Nashville took a specific side and talked about why they liked their specific affiliation of choice,. Do brand hotels perform better than independent hotels? The main con is typically over-standardization. This group is simply not inclined to spend money or time on application . However, that increased revenue comes with a cost. According to Freitag, hotels are also particularly susceptible to the whims of the consumer. According to Patel, in addition to greater complexity, insurance for hotels comes with increased costs, and those expenses are growing. This is partially due to lenders viewing larger, more reputable companies as less of a financial risk, said Ting Phonsanam, founder of Momentum Hospitality Group. I reviewed the literature on the subject, and there is no simple answer. Both parties expectations, responsibilities, and duties should be set in this document. 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. Error occurred with your registration, please try again. Dev (2015) introduced an argument that could potentially explain the mixed performance results of affiliated and unaffiliated properties presented in various studies. The main con is typically over-standardization. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc. Permission is granted subject to the terms of the License under which the work was published. A comparison of branded and independent hotels performance during a full economic cycle. 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. The username or password you entered is incorrect. 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. 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. Of course, high rewards rarely come to the dance unaccompanied by their less appealing chaperone, high risk. The study found no consistent advantages in all segments for either affiliated or unaffiliated properties. 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. 2. Perceptions of European independent hoteliers: Hard and soft branding choices. 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. Short-term tenancy can be both an advantage and a disadvantage for hotel assets, and well dig more deeply into that later in this article, but its also just one of the unique facets that new investors need to be aware of when entering the hotel space. 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. The author analyzed the performance of hotels that changed brands and suggested that the effect of the brand itself should be separated from the hotel's fit with the brand. Based on conversations with various industry experts, LoopNet developed the following list of distinctive elements and important considerations for investors contemplating hotel properties: The Brand Element (To Brand or Not To Brand), Jan Freitag, national director of hospitality market analytics, CoStar. By closing this message, you are consenting to our use of cookies. Barton observed that these significant returns are partially derived through margins. 5 Howick Place | London | SW1P 1WG. The hospitality sector is vast and made up of a multitude of accommodation offerings. At the same time, you avoid the risk that a franchising company might go bankrupt or find itself in legal trouble, both of which could eventually force your business to close. There is no independence. Flexibility : the managers reactivity supposes an almost instantaneous decision-making power that limits monetary losses and increases profitability. 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. In some cases, the value of affiliation could be negative when the costs associated with the association are higher than the revenues received (Carlbck, 2015). As a hotelier, you have to follow certain rules and standards and can not react to the market demands as quick and flexible as you wish. There will always be businesses that want or need to see Marriot, Hilton, Hyatt or Intercontinental on their expense reports, Kelso said. I will tell you its five to six times harder to open an independent or a soft brand, he said. 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. On the liability side, there are insurance carriers getting out of the business, due to the pandemic, Patel said. When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. Learn about the advantages and disadvantages of being an independent hotel owner or franchisee of a hotel management company. Learn about hotel management companies, including advantages and . In this article, we took a deep dive into the top 3 disadvantages of hotel CRM and gave you tips on how to overcome these problems. Yield Management : a system that enhances profits by calculating supply and demand (widely used by hotel chains). (2016) compared key performance indicators of affiliated and unaffiliated hotels over a full 10-year economic cycle. That being said, chains tend to have a less personal touch, focusing on their brand standards rather than what each individual guest wants. Some of the principal disadvantages of hotels include: While the nightly tenancy model enables hotels to raise prices when demand is high, it also makes them uniquely vulnerable to economic downturns. I think with a smaller hotel, you may do well with a local lender in the area, he said. LoopNets sources also noted the uniquely enjoyable and exciting nature of the hotel industry. What are the advantages of chain hotels? The hotels that arent related to a hotel chain are considered independent. The aforementioned brand impact isnt the only area where hotel financing differs from other CRE asset types. Hoboken, NJ: John Wiley & Sons, 388-404. 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. A hotel owner needs to assess the benefits and costs of affiliating as well as compare various affiliation alternatives against each other (Carlbck, 2017). 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. This cookie is set by GDPR Cookie Consent plugin. Unfold - The most innovative hospitality forum is back! Accordingly, an independent hotel that takes the money that it would have put into a brand and reallocates it toward search engine optimization (SEO) or other digital marketing efforts to attract online interest may be well-positioned in the 2021 hotel landscape. Example: an employee for 50 reservations instead of 10 is more profitable. Quality assurance, consulting support and lender comfort are provided by the Hotel Chains. 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. 1 Wider potential for innovation is the advantage of independent hotels 2 Easily focus on resources 3 Personalization is easier in independent hotels 4 Adoption of any market shift is easy 5 More detail-oriented Wider Potential for Innovation Independent hotels can adopt new processes for enhancing their performance. By correctly segmenting your hotels offer for a specific target group, they can better compete with chains. All About G Adventures Vs Intrepid Vs Contiki. Chain Hotels Business's typically involve a much greater degree of movement than other lines of work. Carvell et al. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. We also use third-party cookies that help us analyze and understand how you use this website. Registration on or use of this site constitutes acceptance of our terms and conditions and privacy policy. Permission will be required if your reuse is not covered by the terms of the License. O'Neill and Carlbck (2011) and Carvell, et. Share. You may also be able to start an independent restaurant with less cash than you would with a franchise. The hotel needs to meet certain criteria to stay in the chain. What Is The Difference Between A 5 Star And 7 Star Hotel? The offer has expanded to meet these changing demands, and to cater to different types of guests, which has seen the rise of different types of structures like boutique hotels, independent hotels and chain hotels. 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. In The Shifting Scene of Independent Hotels in America, a research report by STR, a systems and tech research company, various reasons were unveiled, such as independent hotels lack of funding in comparison to larger brands, such as Marriott and Hilton; the steady absorption of these independent hotels by larger brands; and smaller hotels difficulty in keeping up with the ceaselessly changing industry. Other disadvantages of franchise model include loss of flexibility in pricing, promotion, and operation (Dev, 2015), risk of being de-flagged and losing franchise fees for failure to uphold brand standards, reduced ability to be entrepreneurial (Kwortnik, 2011), loss of a certain amount of control and management independence, unequal distribution The biggest advantage of an independent business or restaurant is that you get full reign over how you run it. With an independent restaurant, you don't have to worry about coming up with a large franchise fee or prove a large net worth like many chain restaurants require for franchisees. Explore your hospitality hub. 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. You also have the option to opt-out of these cookies. Due to the degree of independence of subsidiary hotel brands, its sometimes difficult to distinguish between a boutique property thats owned by a large company and one that is truly independentfinancially and otherwise. The cookie is used to store the user consent for the cookies in the category "Analytics". a. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. Some other places featuring her business writing include JobHero, LoveToKnow, PocketSense, Chron and Study.com. That is to say, independent hotels might use technology to create a seamless guest journey, enhancing the guest experience and being able to offer service 24/7. 70.32.113.124 Less bureaucracy and more attention to original guest experience and unique initiatives. However, you may visit "Cookie Settings" to provide a controlled consent. Another disadvantage is that it can take longer for your independent restaurant to gain customers and have a good profit.
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