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. There will always be businesses that want or need to see Marriot, Hilton, Hyatt or Intercontinental on their expense reports, Kelso said. The decision-making process is longer. Dont Expect Hotel Companies to Stop Launching New Soft Brands Anytime Soon. While he acknowledged that the relationship between hotel costs and CPI has deviated slightly in the last two or three years, in general, when things get more expensive, hoteliers have always found a way to increase their rate faster than everything else [in the economy].. 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]. Todays consumer is becoming more and more demanding, which has inspired a more personalized and varied offer in the hospitality sector. 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. Franchise Direct: How Much Does It Cost to Open a Fast Food Franchise in the United States. 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.. Conclusion. There is no independence. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. Most days, you will spend your day walking, running errands for your business, and performing a multitude of tasks. Soft brands of international hotel companies are taking over. Chain Hotels Business's typically involve a much greater degree of movement than other lines of work. The majority of chain hotels are approved for tourism. 2. According to Sachin Patel, managing principal of Shiv Properties, which is a stakeholder in 11 hotel properties, banks in the last four to six years have been reluctant to finance independent properties. Remember passwords are case sensitive. This is one of the most idiosyncratic asset types in real estate, as well as (potentially) one of the most rewarding. Promotion : a marketing and communication office that is in charge of advertising the chain as a whole and the individual recognition of each structure. From a CRE investment perspective, key advantages of hotels include: The principal advantage of hotels is, as Kelso noted, the opportunity to drive significantly higher leveraged returns.. Business travelers can take advantage of the chain hotel. This leaves little room for creativity for each individual property. Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. 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. al. According to Kelso, its also important to bear in mind that the franchise agreements that investors enter into with brands are usually long term (five to 15 years, typically) and largely are not terminable., Nonetheless, particularly for the nascent investor, its difficult to overvalue the advantage of lived experience that the brands provide. What is the advantage of an independent hotel? 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. Key advantages of independent hotels over chain properties: More focus on what the guest wants, vs. focus on chain brand standards. A deep dive into operating and branding strategies for hotel owners. Disadvantages include full accountability, more time needed to become profitable and resale difficulties. If you forgot your password, click to reset it. Please contact Customer Support at 1-800-613-1303. Does the asset-light and fee-oriented strategy create value? However, that increased revenue comes with a cost. 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. Freitag also mentioned that abundant data, including information found in the dSTAR Report produced by STR (which, like LoopNet, is owned by CoStar Group), is an industry attribute that investors can benefit from. If you decide you want to try something new, like adding outdoor dining or offering new desserts, you don't have to worry about getting approval like you would with a franchise. These things stand there for 30, 40, 50 years, but consumer tastes change, consumer preferences change. Consider both the advantages and disadvantages of hotel ownership as a franchisee to decide if it's right for you. Advertising cookies for delivering tailored and customized advertising. Agreements : a large booking platform accompanied by agreements with agencies, tour operators and OTAs, constitutes an impressive commercial force. Traditional Business, WebstaurantStore: Independent Ownership vs. Theres fixed costs and variable costs in operating a hotel. Multiple factors account for this decline. Permission will be required if your reuse is not covered by the terms of the License. If the hotel is profitable, and growth is not part of the strategy, the hotel can afford to stay unbranded. 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. (2011). A case for being independent. These cookies will be stored in your browser only with your consent. 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. These cookies ensure basic functionalities and security features of the website, anonymously. 3099067 Generally, the independent hotel is managed as if it were a family business, with a limited and versatile team in its activities. 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. Los Angeles: JMBM Global Hospitality Group. When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. Are independent hotels capable of competing with chain hotels. 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.. Retrieved from http://www.hotellawyer.com/resource-center.html/, Carlbck, M. (2015). Retrieved from https://skift.com/insight/skift-insights-deck-soft-brands-weighing-the-risks- rewards-and-realities/, Stone, R. (2018). By correctly segmenting your hotels offer for a specific target group, they can better compete with chains. Example: an employee for 50 reservations instead of 10 is more profitable. A comparison of branded and independent hotels performance during a full economic cycle. Do brand hotels perform better than independent hotels? A lot of people have made mistakes [and] learned a lot, and you can participate in that learning.. 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. 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. Beautiful Design. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. The unique advantage that independent hotels have is autonomy . All About G Adventures Vs Intrepid Vs Contiki. School of Business, Economics, and Law at the University of Gothenburg. Please try again. And once you cover the fixed costs, the margins on the variable costs become very attractive. Fixed costs include taxes, insurance and financing; variable costs are items such as food, room supplies, guest amenities and labor. It is established that everything that is not related to a hotel chain is considered an independent hotel . When the brakes come to a halt in the broader economy, they come to a halt in the hotel industry, he 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. 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). Is being independent a weakness? Quality assurance, consulting support and lender comfort are provided by the Hotel Chains. Advantages of an independent restaurant include potentially lower startup costs, full control over operations and avoidance of franchise risks. But opting out of some of these cookies may affect your browsing experience. It is free of its capabilities and possibilities. 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). Such challenges notwithstanding, all of the experts LoopNet spoke with believe this is a particularly compelling moment for investors to consider hotel assets. Smart Meetings is the leading meetings industry publisher and voice of inspiration for meeting professionals. Registration on or use of this site constitutes acceptance of our terms and conditions and privacy policy. Some sources also speculated that the loyalty programs, which have long been one of the primary benefits offered by the brand franchise model, are less relevant in an era where OTAs dominate. Having the ability to efficiently and cost-effectively market room nights is a goal all independent hotels should work towards. 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. 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. 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. Evolving consumer preferences. 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. Their ability to offer experiences different than the larger, branded hotels appealed to the younger generation, anxious to have one-of-a-kind experiences. February 12th, 2013 at 12:09 PM EST. Increase revenue: more direct bookings and less commission. Be in touch with the hottest topics around & the breaking news around the world. Kelso neatly summed up the investment profile of hotels in a single sentence: Its a high-risk, high-reward asset class.. Some of the principal disadvantages of hotels include: Particularly susceptible to economic turbulence. ONeill, J. W., & Carlbck, M. (2011). 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. Ashley Donohoe started writing professionally about business topics in 2010. These banks often like hotel loans because they also get all the daily deposits and theres more to their relationship than just a loan.. According to Freitag, approximately 70% of hotels in the United States are branded. The remaining insurance companies are using the situation to their advantage and raising premiums. 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. Learn about the advantages and disadvantages of being an independent hotel owner or franchisee of a hotel management company. Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures. While the nightly tenancy model enables hotels to raise prices when demand is high, it also makes them uniquely vulnerable to economic downturns. Your IP: 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. 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. They are mostly small capacity hotels (26 rooms on average) with family management. 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. O'Neill and Carlbck (2011) and Carvell, et. This cookie is set by GDPR Cookie Consent plugin. The study did not find a significant difference in net operating income (NOI) during economic expansions and found significantly higher NOI for branded hotels during recessions. The volume of passengers is not very high compared to a chain hotel, but it is similar in terms of figures per activity. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. The insurance market is very unstable, Patel said. 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. Freitag said that another key advantage of hotels is their widespread distribution, which opens up opportunities for investors in almost any market in the country. Samantha Shankman, Skift. A competitive analysis will help indicate what other hotels in the area and with a similar offer are doing so that you can be sure to be competitive within your comp set. Another disadvantage is that it can take longer for your independent restaurant to gain customers and have a good profit. Independent hotels are different from chains in that they are not built with the idea of having a standard offer, but with the idea that they are unique. Error occurred with your registration, please try again. A 5-star hotel should give you a better experience than a 3 . Butler, J., & Braun, R. (2014). There is no independence. 5 Video Games That Will Boost Your Brain Power And Reduce Stress, Nia Long Finds Success as an Instagram Influencer. Booking platforms, frequent traveler points programs, and the like are offered by them. Hotels are designed to give you a comfortable and luxurious experience. 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). BTR Shines Even as CRE Sales Plummet: Heres What to Focus on Next, What Self-Starters Should Know About Self-Storage Investment, CRE Sales Plummet in Q1 as Expected; Heres What to Focus on Next, 5 NNN Retail Properties Available For Under $4 Million, How Rising Interest Rates Are Impacting NNN Retail Properties. 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. 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. Example: an employee for 50 reservations instead of 10 is more profitable. This personalized touch, of simply just knowing what their guests want, gives them a competitive edge. 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. The main con is typically over-standardization. Doctoral dissertation in business administration. For a limited time, new AAdvantage Platinum Select card card holders can earn 75,000 American Airlines AAdvantage bonus miles after spending $3,500 in the first four months of account opening. 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. The greatest advantage to me is the ability to be creative, he said. There are over a dozen separate brands in the portfolio of Hilton. We apologize, but the feature you are trying to access is currently unavailable. 10 Tips to Improve Your Housekeeping Operation, 22 Aug 2022 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. 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.