Please try again. I can be creative; I can be different; I can distinguish myself; and I can provide each and every one of my guests with a (unique) experience.. (, 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? Much of this growth is in midscale properties, which increased from 4,400 in 1990 to more than 16,000 in 2018, and upscale hotels, which grew from 2,500 properties in 1990 to 7,500 in 2018. These cookies will be stored in your browser only with your consent. 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. Increase revenue: more direct bookings and less commission. Its also a sector that has been particularly impacted by the coronavirus, which has produced both distress and opportunities. February 12th, 2013 at 12:09 PM EST. 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. 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. While all hotels focus on profitability, chains are more focused on getting the most revenue possible out of every hotel room. The cookie is used to store the user consent for the cookies in the category "Analytics". You'll need more time to see a return on your investment than you would if you run a franchise. We use cookies to improve your website experience. 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. A deep dive into operating and branding strategies for hotel owners. I think with a smaller hotel, you may do well with a local lender in the area, he said. 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. Their ability to offer experiences different than the larger, branded hotels appealed to the younger generation, anxious to have one-of-a-kind experiences. 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. The aforementioned brand impact isnt the only area where hotel financing differs from other CRE asset types. For more information please visit our Permissions help page. Hospitality hot takes straight to your inbox. Butler, J., & Braun, R. (2014). To Be or Not to Be - Brand Affiliation in the Hotel Industry. Consider both the advantages and disadvantages of hotel ownership as a franchisee to decide if it's right for you. 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. 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. The good news is, if you can buy today, youre buying at the trough. Barton observed that these significant returns are partially derived through margins. What are the disadvantages of chain hotels? 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. However, affiliation with the brand does not guarantee an improvement in financial performance. 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. They dont have to worry about maintaining the same quality. Beautiful Design. School of Business, Economics, and Law at the University of Gothenburg. This cookie is set by GDPR Cookie Consent plugin. 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. 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. Booking platforms, frequent traveler points programs, and the like are offered by them. Even multifamily properties, which have more frequent turnover than their commercial counterparts, typically offer one- to two-year leases. On the flip side, they tend to be more expensive and elite. 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. How am I doing compared to the competition? You know, he said. For Patel, a soft brand is still a brand. Be in touch with the hottest topics around & the breaking news around the world. doi 10.1016/j.ijhm.2010.08.003, Rushmore, S. (2004). 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. Smart Meetings 2023 Bright Business Media LLC. 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 Ravi Patel, president of Hawkeye Hotels, took the branded side in the debate. Soft Brands - Weighing the Risks, Rewards, and Realities. 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. 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. While independent hotels tend to be singular and not belong to a group, more and more chains are starting to acquire these types of hotels to diversify their portfolios. You must put 35% to 40% equity into any deal, Patel said. It is true that a franchise can come with some cost benefits, like allowing you to get group discounts for startup supplies and saving money on initial advertising and lease costs. But opting out of some of these cookies may affect your browsing experience. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. Daily physical activity. 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. By correctly segmenting your hotels offer for a specific target group, they can better compete with chains. According to Freitag, this enables hotel owners to rapidly increase prices in response to enhanced demand. What are the advantages of chain hotels? 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. They are free to be innovative. I will tell you its five to six times harder to open an independent or a soft brand, he said. 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. Good boutique hotels also know how to take advantage of the surrounding area. 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. This leaves little room for creativity for each individual property. Unique experience : there is always a different offer, from the hostel to the boutique hotel. Disadvantage: Missed marketing opportunities. Sign up to our monthly newsletter for industry insights, product news, partner updates and more. What is the advantage of an independent hotel? 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]. 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. Carlbck (2017) posited that affiliation is necessary when a business is focused on growth and development. If you continue to see this message, your account may be locked due to too many failed attempts. But today, independent hotels account for less than 30 percent of hospitality venues. CONS With fewer staff, working patterns are less flexible and main priority is to ensure that shifts are always covered. It is a type of hotel that does not have an affiliation with any particular chain. According to Patel, in addition to greater complexity, insurance for hotels comes with increased costs, and those expenses are growing. Retrieved from https://skift.com/insight/skift-insights-deck-soft-brands-weighing-the-risks- rewards-and-realities/, Stone, R. (2018). Independent hotels are more open to change. That said, it depends because each hotel is different. Advantages. Do brands matter? To operate the hotel under a unique brand, hotel owners should have the necessary expertise, understanding of technology and distribution, strong marketing or social reach, and create a resonating brand story (Stone, 2018). The username or password you entered is incorrect. There are Associations or Marketing organizations that link together small to medium-sized independent travel agencies. 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. The insurance market is very unstable, Patel said. You will have to do all the marketing and brand building yourself. However, that increased revenue comes with a cost. 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. This cookie is set by GDPR Cookie Consent plugin. The main con is typically over-standardization. What is the difference between independent hotels and chain hotels? The differences in performance indicators were not consistent across market price segments and market types. You dont have to sort of wonder, How is the competition doing? Skift Research. The quality of the guest experience can be controlled by brands. The action you just performed triggered the security solution. 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 greatest advantage to me is the ability to be creative, he said. a. People also read lists articles that other readers of this article have read. 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. 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. This potential for high returns is partially owed to the flexibility fostered by hotels unique tenancy model. (Being an independent) takes a lot of courage. 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. The LoopNet service and information provided therein, while believed to be accurate, are provided "as is". (2011). This cookie is set by GDPR Cookie Consent plugin. Evolving consumer preferences. There is a significant difference in the overall experience both kinds of hotels offer. Choose a solution to find out more, Hospitality events, insights and inspiration, Everything from industry trends and hotelier interviews to product releases and events. 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%). It can be a very labor intensive asset class, especially towards the higher end, as you provide more services, Freitag said. Promotion : a marketing and communication office that is in charge of advertising the chain as a whole and the individual recognition of each structure. Another key difference is in the marketing and distribution strategies. Such challenges notwithstanding, all of the experts LoopNet spoke with believe this is a particularly compelling moment for investors to consider hotel assets. The authors concluded that the value that the brand brings is not static and varies over time. 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. On the other hand, chain hotels have extremely high service standards, but they tend to offer a more standard approach to customer service, attending to the needs of their clients as they arise and being sure to offer professionality and quality service across their whole chain. LoopNets sources also noted the uniquely enjoyable and exciting nature of the hotel industry. Not long ago, independent hotels were on the rise. 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. 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. 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 selecting hotels through those services tend to focus more on price and less on brand loyalty. 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. Error occurred with your registration, please try again. Hoboken, NJ: John Wiley & Sons, 388-404. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. (With) soft brands, I get the best of both worlds, he said. They aim to provide a unique and authentic experience at every hotel. Since you don't have a franchisor to whom you need to answer, you only have to worry about yourself and your own employees, and this can reduce conflict from disagreements over operations. With an independent restaurant, you might run into some hurdles if you want to sell. Advantages of an independent restaurant include potentially lower startup costs, full control over operations and avoidance of franchise risks. Is being independent a weakness? 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. I dont think the story has been completely told yet as it relates to soft brands, he said. Retrieved from https://scholarship.sha.cornell.edu/chrpubs/47/, Holverson, S., & Revaz, F. (2006). Gerry Chase, president and COO of Newcastle Hotels & Resorts, said he likes having creative freedom, but he also likes having the support of a brand as a soft-branded hotel. Each of these is important on its own, but even more important to work together seamlessly to provide an enjoyable, attractive, and seamless experience for potential guests. 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. 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.. Cited by lists all citing articles based on Crossref citations.Articles with the Crossref icon will open in a new tab. Another disadvantage is that it can take longer for your independent restaurant to gain customers and have a good profit. Why do people choose to stay in a boutique hotel over a major hotel chain? Another way they can compete with chains is on the level of service they provide and when it comes to a specialized target audience. What are the disadvantages of chain hotels? How does a Global Financial Report Help My Business? 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. 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. Learn about hotel management companies, including advantages and . Advantages of an independent restaurant include potentially lower startup costs, full control over operations and avoidance of franchise risks. This formulation comes from the identity FmPARph = w FmPARch +(1-w) FmPARih, whose proof is straightforward. The hotel management agreements and franchise agreement handbook. Create alignment and synergy across the board, from the top management level, strategies, employees' skillsets, and the actual business processes. Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. This is particularly helpful when traveling with two or more people for an extended period of time. Perceptions of European independent hoteliers: Hard and soft branding choices. That email address has already been registered. Doctoral dissertation in business administration. From my perspective, branded hotels have a much easier time of pushing inventory. 4 minute read, The Mews Blog>Pros and cons of independent hotels versus chains. Performance & security by Cloudflare. Their location was chosen due to the attractiveness of the place and the potential profit. What is the difference between a room rate and a rack rate? They are important players in the hotel market worldwide. To begin with, theres the duration of tenancy. 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. A hotel management contract is an agreement between a hotel owner and a management firm. Hotel Management Agreement Advantages and Disadvantages. The study found no consistent advantages in all segments for either affiliated or unaffiliated properties. 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. Does paying higher franchise fees command higher RevPAR?. These things stand there for 30, 40, 50 years, but consumer tastes change, consumer preferences change. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. This website uses cookies to improve your experience while you navigate through the website. They focus on quantity to achieve this goal and for this reason can often be more competitive in terms of pricing. 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. The biggest challenge in our business is getting and keeping the best people for the job, as we believe that there is nothing worse than . We are aware of this issue and our team is working hard to resolve the matter. 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). These cookies track visitors across websites and collect information to provide customized ads. Explore your hospitality hub. Key advantages of independent hotels over chain properties: More focus on what the guest wants, vs. focus on chain brand standards. The most obvious advantage of a suite hotel is extra space. Unpublished manuscript, Gothenburg, Sweden. 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. As Barton said, Its a fun business; no day is ever the same., Kelso concurred.

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