LONDON—Executives from four of the world’s largest hotel chains agreed the biggest European sea change is that franchises in the continent are on the up.
An interesting twist in this debate—in a session titled “The Brands: Cruise control?” held at the 27th European Hotel Investment Conference and hosted by Deloitte in London on 4 November—was that two of the panelists represented Starwood Hotels & Resorts Worldwide and Marriott International, which two weeks later on 16 November announced intentions to merge in mid-2016.
Matt Fry, senior VP of global development at Starwood Hotels, said his company would not franchise its St. Regis or W brands.
Carlton Ervin, chief development officer, Europe, Marriott International, said that while more than 60% of Marriott’s European portfolio was under management contracts, 40 of the 50 deals it had signed in 2015 are franchises.
“We’re shifting our model,” Ervin said. “We used to have two hats, one on the brand, the other on selling management services, but there has been a huge evolution away from doing the second part, which has come about because of the rise of third-party operators.”
Robert Shepherd, chief development officer, Europe, at InterContinental Hotels Group, put a wrench in the works by adding that perhaps IHG had leaned the other direction, at least in 2015.
“Ninety-three percent of IHG’s European portfolio is franchised, but it does come down to the independent preference of owners,” Shepherd said. “We think of our table as being round, between us, owners and third-party operators, and while we’ve always had a focus on franchise hotels, it does feel odd to say that we have probably signed more management contracts this year than in any other one.”
The final panelist, Patrick Fitzgibbon, senior VP, development, Europe and Africa, at Hilton Worldwide Holdings, said Hilton remained happy with management agreements.
“(Hilton Worldwide) is growing its tails where our customers want to be. We do not want the customer to know if the hotel is owned, managed or franchised. It’s about consistency of service and expectation across our brands. … Management teams have to manage in a complex environment, and we need to provide the tools for that,” Fitzgibbon said, who added Europe was showing increased opportunities for management contracts.
“That said, management contracts that do not return profits will be short, and they will be terminable,” Fitzgibbon added.
But franchising seems to have the wind at its heels, panelists said.
“One of the trends for Europe will be a more liberal attitude to that operating model,” Ervin said. “Once brands get comfortable with franchises, even in the luxury sector, they’ll be something we’ll all be happier with.”
Brand value
Moderator Nikola Reid, senior manager of the travel, hospitality and leisure industry team at Deloitte, asked if there was now more pressure on brands to perform in Europe.
Reid noted a 50% increase in business travelers booking independent properties. Were online travel agency loyalty schemes also threatening the business-as-usual landscape?
“The demise of brands is greatly exaggerated,” Fry said. “Yes, there is greater transparency, which is here to stay, and it makes us hold our feet to the fire, but I still think it is a very level playing field.”
“It comes down to what is better to drive returns to owners, and playing into this is the adoption of technology, innovation and social media,” Fitzgibbon said. “Consumers do have so much information today, and you cannot ignore that.”
“And we concentrate on our own loyalty, to make sure we give customers what it is they want in a world where brands are included in most of what people do every day in their lives,” Fitzgibbon added.
“OTAs have no true contact with their customers,” Ervin said.
Ervin said the job of the brand in Europe was not to saturate the market.
“There could be too many brands in Europe as far as owners and customers are concerned,” he said. “In Europe, we have hotels that have that independent feel that we knew we would kill if we came in too heavy with our brand proposition, which is where the (soft brand) Autograph Collection came in.”
Fitzgibbon added that soft brands do not mean regular brands are becoming less relevant. Shepherd agreed.
“The pace of growth with our hard brands addresses the commercial challenge from OTAs with loyalty, and by doing so we’ve saved our owners millions in commissions,” Shepherd said. “They have the choice of playing into (the Booking.com and Expedia) duopoly or having the safety of a strong brand.”