NASHVILLE, Tennessee—To brand or not to brand? As hotel owners and investors look to leverage recovering performance fundamentals, the question of whether to affiliate a property with a chain or to go it alone as an independent has become more important than ever.
Hotel chains, on one hand, provide reservations support, marketing, guest loyalty programs, brand standards (i.e. quality assurance) and lender comfort—but at a cost.
Independents, on the other hand, provide freedom and a sense of uniqueness—but without the support of a major affiliation.
A set of panelists set out to parse the respective pros and cons of either approach during a breakout session at last week’s Hotel Data Conference.
In general, the U.S. hotel industry has tended to favor the chain approach during the past 20 years, according to data from STR, the parent company of HotelNewsNow.com. In 1990, only 57% of the country’s room supply was branded. Today, that number is 70%.
But within that overview of supply exists various segment niches that deserve further analyses, said Bobby Bowers, senior VP at the Hendersonville, Tennessee-based research company.
Conference center hotels
Supply sample: Chains (62 hotels / 19,000 rooms); Independents (62 hotels / 15,000 rooms)
Average size: Chains (306 rooms); Independents (242 rooms)
Median age: Chains (28 years); Independents (24 years)
Chain conference center hotels benefit from a consistent occupancy premium of roughly 12.5 percentage points, Bowers said.
The rate side, however, is a different tale: Independent conference center hotels hold a slight premium over their branded counterparts and are better at holding rates during recessions.
Chain hotels, however, consistently post a premium in revenue per available room.
Scott Pusillo of Crestline Hotels & Resorts, which manages both branded and independent properties, said independent conference center hotels are typically much more profitable. “The lack of a fee structure works a lot better in these indie conference centers.”
Bill Hanley of the Lexington Collection Worldwide, a membership organization, shared a similar sentiment: “Their pricing is all-inclusive and generally tends to be a little bit more aggressive than you tend to see in a chain hotel,” he said. “… Unless you can prove a need for a brand, they’re much better off.”
Boutique hotels
Supply sample: Chains (262 hotels / 42,000 rooms): Independents (263 rooms / 31,000 rooms)
Average size: Chains (160 rooms); Independents (118 rooms)
Median age: Chains (12 years); Independents (26 years)
Bowers qualified STR’s supply sample, admitting quite a few independent boutique properties represented are located in Manhattan, which could skew the data.
In the measure of occupancy, for example, independent boutique hotels have traditionally held a slight premium over brands. Through June 2011, however, when the New York market has seen pressure from an influx in supply, branded boutiques recorded a slightly higher occupancy.
Independent boutique hotels hold a significant premium on the rate side, however, while RevPAR is almost even between the two sub-segments.
What’s muddled the playing field in the boutique arena is the emergence of soft-brand affiliations, which STR categorizes as part of the branded boutique bucket. Choice Hotels International’s Ascend Collection, for example, allows independent hotels the added marketing and reservations boost of a major hotel chain but allows them to maintain their uniqueness.
“It’s very soft branding,” said Bill Carlson, senior VP of performance analytics at Choice. “It’s basically exposing that particular hotel to a wider range of guests.”
But what about the truly branded boutique hotels, such as Hotel Indigo or Aloft?
“I think it remains to be seen,” Pusillo said. “… The problem for them is when they entered the market. They came in at the wrong time, and there’s not enough of them to determine if the public will use them.”
Destination resorts
Supply sample: Chains (156 hotels / 77,000 rooms); Independents (81 hotels / 35,000 rooms)
Average size: Chains (454 rooms); Independents (432 rooms)
Median age: Chains (27 years); Independents (40 years)
Chain destination resorts hold premiums over their independent counterparts in all three key performance metrics. There was a slight compression in rate, which was fueled primarily by loyalty redemptions, Pusillo said.
“Over the long haul though, it is much more comforting to an owner to be in a chain, because it is much more predictable,” he said.
