), do not possess dedicated reservation and marketing systems and it is hard for them to compete with brands that have larger marketing budgets. The Cornell School of Hotel Administration on Hospitality. Kelso neatly summed up the investment profile of hotels in a single sentence: Its a high-risk, high-reward asset class.. Thus, the decision to affiliate or stay independent should be hotel specific as it can benefit one property, and another hotel could perform better without affiliation. What is a chain hotel give examples of the chain hotels? When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. This personalized touch, of simply just knowing what their guests want, gives them a competitive edge. All rights reserved. A comparison of the performance of brand-affiliated and unaffiliated hotel properties. The majority of chain hotels are approved for tourism. Theres fixed costs and variable costs in operating a hotel. The main con is typically over-standardization. According to the STR report, from 2003 to 2007which saw more than three dozen hurricanes, in places such as the Gulf and Atlantic coastal regions of the United States1,000 independent hotel properties faced a permanent closure. 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. 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. Patel concurred with that assessment. The action you just performed triggered the security solution. 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]. Is being independent a weakness? The biggest disadvantage however is the lack of independence. What are the benefits of using a data collection application? Weve seen all of the major hotel companies get into the soft-brand arena, and theyre trying to scale up. What Are the Essential Requirements for Gastric Sleeve Surgery? In the modern hospitality landscape, brands rule the day. Department of Business Administration. 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. Doctoral dissertation in business administration. They have the ability to negotiate better room rates for employees who stay there a lot. 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.. That being said, chains tend to have a less personal touch, focusing on their brand standards rather than what each individual guest wants. This leaves little room for creativity for each individual property. 4 minute read, The Mews Blog>Pros and cons of independent hotels versus chains. Does the asset-light and fee-oriented strategy create value? Because of the potential for a significant reduction in revenue during economic downturns, all of the experts LoopNet spoke with said it was critical that investors plan to fund a substantial portion of the purchase with cash. 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. Chains often also choose the location for the hotel because of the locations attractiveness. The franchise agreement is a legal license agreement between the hotel brand and the hotel owner that . 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. What are the rates of the hotel rooms? According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. 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. 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. Consumers selecting hotels through those services tend to focus more on price and less on brand loyalty. At the same time, you avoid the risk that a franchising company might go bankrupt or find itself in legal trouble, both of which could eventually force your business to close. Freitag described the relationship between these entities as a triangle between the owner, the management company and the brand. Eva has over a decade of international experience in marketing, communication, events and digital marketing. 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. The insurance market is very unstable, Patel said. While consumers may still appreciate the presumed quality and service assurances that accompany a brand, they tend to be less brand specific, Barton said. 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. Learn about the advantages and disadvantages of being an independent hotel owner or franchisee of a hotel management company. Independent hotels are often based on their history. 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].. Proximity : an unbeatable relationship with the guest that allows quality support and communication for a better guest experience (favored by social networks). Hua, ONeill, Nusair, Singh, and DeFranco (2017) in their analysis of 2,120 properties across the United States over six years (2008 - 2013), concluded that the expected benefits of affiliating with the brand exceeded expected costs. Holverson and Revaz (2006) posited that independent family-owned hotels that built loyalty through tradition and quality had repeat customers, satisfactory performance results, and took advantage of growing Internet opportunities did not need to invest in brand affiliation. International hotel companies can help independent hotels create higher revenue streams and give owners access to a global network of resources to help sustain their business. Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. The unique advantage that independent hotels have is autonomy . Analytical cookies are used to understand how visitors interact with the website. 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. A 5-star hotel should give you a better experience than a 3 . These cookies allow a website to remember choices you have made in the past, like what language and currency you prefer, remember your name and email and automatically fill forms. The hotels that arent related to a hotel chain are considered independent. Generally, the independent hotel is managed as if it were a family business, with a limited and versatile team in its activities. But what exactly is the difference between these two types of structures? Kelso described how this differs from other real estate asset classes. A comparison of the performance of independent and franchise hotels: The first two years of operation. The decision-making process is longer. Smart Meetings is the leading meetings industry publisher and voice of inspiration for meeting professionals. Editors note: The moderator of the Pros and cons of independence panel asked each participant to specifically take one side: soft brand, brand or independent. Some of the principal disadvantages of hotels include: While the nightly tenancy model enables hotels to raise prices when demand is high, it also makes them uniquely vulnerable to economic downturns. 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. What Is The Difference Between A 5 Star And 7 Star Hotel? These cookies will be stored in your browser only with your consent. LoopNet disclaims any and all representations, warranties, or guarantees of any kind. Disadvantages include full accountability, more time needed to become profitable and resale difficulties. According to a 2017 study from Expedia, independent hotels had greater overall average daily rate and faster growth than their branded counterparts. You may also be able to start an independent restaurant with less cash than you would with a franchise. 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Big brands are much more likely than small, independent hotels to buy property to build new hotels, according to the study by STR, a systems and tech research company. There are Associations or Marketing organizations that link together small to medium-sized independent travel agencies. Were seeing a large increase in insurance premiums, on the general liability side and on the property side. He estimated that general liability premiums had increased by approximately 18% to 20%, while property insurance had increased by 10% to 16%, year over year. doi 10.1016/j.ijhm.2010.08.003, Rushmore, S. (2004). The brands offer obvious benefits in terms of their marketing reach and name recognition. 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. Want more coverage of the Hotel Data Conference? 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. How am I doing compared to the competition? You know, he said. The main pro of a hotel chain is reliability, meaning that wherever a guest goes they can know what to expect, which is generally a high level of service. Permission will be required if your reuse is not covered by the terms of the License. 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. If the hotel is profitable, and growth is not part of the strategy, the hotel can afford to stay unbranded. 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.. You must register your contact information to view secure information on this listing. This group is simply not inclined to spend money or time on application . Retrieved from https://gupea.ub.gu.se/handle/2077/53941/, Carvell, S. A., Canina, L., & Sturman, M. C. (2016). This cookie is set by GDPR Cookie Consent plugin. The good news is, if you can buy today, youre buying at the trough. Despite independent hotels decline, the number of hotel properties in the United States has been increasing, from 38,000 in 1990 to 56,000 in 2018. There are disadvantages to staying independent (unbranded). To begin with, theres the duration of tenancy. February 12th, 2013 at 12:09 PM EST. On the contrary, O'Neill and Carlbck (2011) reported that unaffiliated hotels had higher RevPAR. Soft Brands - Weighing the Risks, Rewards, and Realities. Weve looked at the advantages and disadvantages of these two types of hotels, as well as whether these two hotel types are capable of competing. Please contact Customer Support at 1-800-613-1303. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. Both studies found that unaffiliated hotels had higher average daily rates (ADR), and affiliated hotels had higher occupancy rates. 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 cookies ensure basic functionalities and security features of the website, anonymously. Franchising.com: Weighing the Pros and Cons of Franchising vs. While the nightly tenancy model enables hotels to raise prices when demand is high, it also makes them uniquely vulnerable to economic downturns. Smart Meetings 2023 Bright Business Media LLC. Necessary cookies are absolutely essential for the website to function properly. 10 Tips to Improve Your Housekeeping Operation, 22 Aug 2022 When you're running a franchise, you get the benefit of having the chain's reputation and brand awareness, but when you're opening an independent restaurant, you have to put time, money and effort into establishing yourself in the community and marketing yourself. There is no one else to guide and advise you. Part two, presented below, focuses on the long-term strengths, challenges and unique characteristics of the sector. Having experience running all aspects of her small business, she is knowledgeable about the daily issues and decisions that business owners face. Some boutique brands, such as Autograph Collectionwhich is owned by Marriott International and has more than 175 properties globallyhave the benefit of both retaining their autonomy and receiving financial backing from larger parent companies. According to Patel, in addition to greater complexity, insurance for hotels comes with increased costs, and those expenses are growing. Learn about hotel management companies, including advantages and . It does not store any personal data. The offer has expanded to meet these changing demands, and to cater to different types of guests, which has seen the rise of different types of structures like boutique hotels, independent hotels and chain hotels. (Being an independent) takes a lot of courage. This is one of the most idiosyncratic asset types in real estate, as well as (potentially) one of the most rewarding. Moreover, the authors found that affiliation with the brand positively drove occupancy and ADR. A comparison of branded and independent hotels performance during a full economic cycle. We use cookies to improve your website experience. However, with an independent restaurant, you have the freedom to shop around for an affordable restaurant location and then compare the prices of suppliers, services and equipment to find an arrangement that fits your budget. And just two years ago, a study by Expedia found that they had a greater average daily room rate and faster overall growth than their branded counterparts. This cookie is set by GDPR Cookie Consent plugin. However, you may visit "Cookie Settings" to provide a controlled consent. They focus on quantity to achieve this goal and for this reason can often be more competitive in terms of pricing. Choose a solution to find out more, Hospitality events, insights and inspiration, Everything from industry trends and hotelier interviews to product releases and events. The objective is to know very well the business that is being managed and to know how to identify (and differentiate) the pros and cons. Retrieved from https://scholarship.sha.cornell.edu/chrpubs/224/, Enz, C. A., & Canina, L. (2011). Poor marketing communications Poor budget allocation Poorly managed advertising campaigns Poor product presentation These items are all part of the core hotel brand experience. Ashley Donohoe started writing professionally about business topics in 2010. I dont think the story has been completely told yet as it relates to soft brands, he said. 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. The greatest advantage to me is the ability to be creative, he said. 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. The hotel management agreements and franchise agreement handbook. Promotion : a marketing and communication office that is in charge of advertising the chain as a whole and the individual recognition of each structure. What is the advantage of an independent hotel? You can email the site owner to let them know you were blocked. Both parties expectations, responsibilities, and duties should be set in this document. I think with a smaller hotel, you may do well with a local lender in the area, he said. We are aware of this issue and our team is working hard to resolve the matter. Its a great sector to play in, its certainly an exciting one to play in, and theres no question theres going to be a tremendous amount of opportunity over the next 24 months; I encourage everyone to dive in., Balancing Economic Strength and Interest Rate Hikes, Corporate Earnings Becoming More Relevant, From Auto Goods to Quick Service Restaurants, Theres an Option for Almost Every Investor, Understanding the Enduring Appeal and Shifting Prices. Some other places featuring her business writing include JobHero, LoveToKnow, PocketSense, Chron and Study.com. Independent hotels also dont have to contribute revenue or pay marketing fees to the chain, meaning less overhead costs. Advantages. Whereas chains are built with the idea of having a standard offer, including standardized design and quality standards no matter where a guest stays in the world, independent hotels pride themselves on their uniqueness. This originality is often the deciding factor when it comes to a guest choosing to stay at a smaller, unique property. 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). With a franchise, it can be easier to find potential buyers since the chain's brand is well known and has a proven value. Agreements : a large booking platform accompanied by agreements with agencies, tour operators and OTAs, constitutes an impressive commercial force. Cloudflare Ray ID: 7c088146c8c40cf3 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. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. Your IP: When you're running a franchise, you usually have a lot of support from the chain in terms of training, mentorship and regular guidance. To Be or Not to Be - Brand Affiliation in the Hotel Industry. 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. Freitag observed that underfunding the equity portion of a purchase is whats putting a lot of people into jeopardy right now their monthly mortgage payment is just so high., Further, because of the unique, daily revenue stream that hotels provide, Barton advocated for the benefits of securing financing with a smaller, local institution. We apologize, but the feature you are trying to access is currently unavailable. International Journal of Contemporary Hospitality Management, 29(11), 2941-2961. doi: 10.1108/IJCHM-02-2016-0060. A hotel franchise is referred to as a referral hotel chain. Roughly 30 years ago, independent hotels accounted for about two-thirds of the properties in the hospitality industry. 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. LoopNets sources also noted the uniquely enjoyable and exciting nature of the hotel industry. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. International Journal of Contemporary Hospitality Management, 18(5), 398-413. doi: 10.1108/09596110610673538, Hua, N., ONeill, J., Nusair, K., Singh, D., & DeFranco, A. . As today's travelers gravitate toward unique lodging accommodations, the boutique hotel scene is thriving. Rushmore (2004) suggested that hotels with the following attributes did not need a brand: Exclusive location, unique architecture, rare amenities, boutique hotel, or an eye-catching name. Brands can also be critical if youre courting the business travel market. The resources needed to create a digital presence are significant and ones that not all small, independent hotels have. On the flip side, they tend to be more expensive and elite. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc. The study found an early advantage in RevPAR driven by occupancy for affiliated full-service hotels that decreased as time went on. Example: an employee for 50 reservations instead of 10 is more profitable. Disadvantages include full accountability, more time needed to become profitable and resale difficulties. Do brands matter? What are the differences between independent and chain hotels? O'Neill and Carlbck (2011) and Carvell, et. Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. Register to receive personalised research and resources by email. By closing this message, you are consenting to our use of cookies. 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. Hoboken, NJ: John Wiley & Sons, 388-404. The brand companies franchise their brands to the hotel owners. 70.32.113.124 So taking a spontaneous or unplanned last-minute holiday may not always be. In addition to these benefits, brands make it easier for investors to access financing. Booking platforms, frequent traveler points programs, and the like are offered by them. Evolving consumer preferences.
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