ATLANTA—As the cost of new construction grows and hoteliers are trying to get as much return out of their investment as possible, dual-branded hotels continue to grow in popularity among developers.
During the “Dual branding: What works and what doesn’t” panel at the 2018 ALIS Summer Update conference, a group of hotel development experts discussed the factors that play into dual-branded hotels.
As for who is driving the development of dual-branded hotels, Gary Finnell, senior director of development at Hilton, said it was owners first, brands second, lenders third and guests last.
Owners like being able to score two good brands at one time in a good location, he said, and it cuts down on the cost for land as well as creates efficiencies in operations and staffing. Brands are all about location, he said, and it can get the company in a market with two good hotels. Lenders like having a good location paired with good brands, he said, but they see the risk of more expensive construction projects.
“The guest is the least priority, I hate to say,” he said. “They like a certain location. … They want to be there. It can be hard to deliver both brand experiences when they’re side by side.”
In his experience with dual-branded hotels, the bigger value is on the extended-stay property compared to the select-service property, PeachState Hospitality COO Ricky Raman said.
In terms of pushing rate, dual brands can be double-edged swords, he said. The lower-priced property can pull down rate even in peak demand, he said. However, if the property is in an urban market where demand stays above 80%, that doesn’t matter, he said, and it can even lift up the rate at the lower-priced hotel.
“It depends on the guest you are attracting,” he said. “Do they have to be here for a reason, or do they have other options where $10 makes a difference and you could gain or lose a guest based on that?”
The hotels’ designs are critical to maintaining the integrity of each brand’s standards, Finnell said. While the front desk and lobby areas can be melded into one to highlight the dual-branded approach, he said, there are other ways to show how they are separate brands, such as using keycards and glass doors to control access when only one of the hotels offers a free breakfast.
Hilton created a taskforce to analyze why guest satisfaction scores are initially lower at new dual-branded hotels, Finnell said. The reason is “almost laughable” where it comes down to human nature, he said, because with guests, the grass is always greener on the other side. In one example, a Hilton Garden Inn guest was upset guests at the Homewood Suites were getting free breakfast, he said, while a guest at the Homewood Suites was upset the Hilton Garden Inn guests were paying less, meaning he wasn’t getting as good a deal.
“It’s about educating the guests when you check them in,” he said.
Operations
Having dual-branded hotels creates the opportunity to share the labor force and cut expenses, said Mike McGeehan, chief development officer at G6 Hospitality, but the properties might still need dedicated staff for certain brand segments. It’s critical they understand the difference between the brands, he said, and they should go to training for each brand to know that.
“It’s critical teams operating the properties understand the dual-brand concept and understand each’s standards and practices,” he said. “If you have one back-of-house team, you need to make sure that they’re representing each individual brand’s character or spirit together and not just focusing on one or the other.”
From an operational standpoint, those in charge need to draw a line at what’s shared and what’s not, Raman said. There could be a central GM but separate assistant GMs, he said, and food and beverage and housekeeping could be shared.
Some tasks will be easier to share than others, such as housekeeping, he said, as a clean room is a clean room. Staff could wear a brand-agnostic uniform with a dual-branded name tag, he added.
The hotels should run two separate profit and loss reports, he said, and then use those to gauge the total cost and profit of the operation.
Knowing the risks
When considering whether to pursue a dual-branded hotel deal, look to see if there is demand for one in the market, McGeehan said.
“Have you done your homework, your feasibility study?” he asked.
It tends to make more sense to pursue dual brands in urban markets where land cost is higher because it can improve developers’ return on investment, McGeehan said, which conversely means some secondary and tertiary markets might not be the best choice.
A dual-branded hotel should have at least 100 rooms between the two of them, he said. If demand only justifies an 80-room product, he said, the market likely only needs one of the brands.
From a developer’s perspective, it’s important to understand the brands’ expectations before entering into a franchise agreement, McGeehan said.
“You have to look for your best interests as well,” he said. “One brand might be very successful while the other is struggling. What is the brand going to do to help you? Is there an opportunity within the agreement to convert the entire property to one brand? If you want to transfer ownership and sell the property, how does that work? How adaptable is the agreement to transfer?”
There are huge opportunities that come with dual branding, he said, but developers also have to protect themselves.
The loan to build both brands will be larger than single-brand properties, Finnell said. If one of the projects is delayed, that’s still two brands and a bigger risk.
With the amount of incoming supply, it’s possible a dual-branded hotel could push the boundaries of some markets, Raman said. Developers might not want to put two brands out at the same time, he said, and instead start with a single asset if possible to see how it stabilizes.