Is the cost of doing business higher for independent brands?
The pros and cons regarding brand affiliation versus independent operation has been a long standing debate in the hotel industry. The shift from the more traditional dominance of independent privately owned small operations to large multinational conglomerates and multiple brand affiliations, now sees an industry where investors seek return on their capital like never before.
As large hotel companies make their presence known in the hotel industry and as hotel owners and investors look to leverage recovering performance fundamentals, it does place the independent operator in a delicate situation of having to decide whether to affiliate or stay independent – a dilemma any new entrant into the industry will also face. The question “Is the cost of doing business higher for independent brands than it would be for international brands?” comes into the frame.
J.S. Anand the CEO of Leva Hotels & resorts seems to think so. At the Hospitality leadership forum at this year’s Hotel Show, Anand, spoke on the challenges of positioning an independent brand in a competitive market. “ The cost of doing business is far more for independent brands when compared to global brands” going on to add that “when it comes to promoting ourselves we must first of all look at the location”.
As an operator of an independent brand, he is not far from the truth since hotels which boast of a unique location could manage well on their own without brand affiliation. Due to the uniqueness of their location, such hotels may be able to generate a rate premium. However, with branding assuming huge importance in today’s world, one might argue that Statler’s axiom “location, location and location” could be replaced by “flag, flag and flag” – as critical factors for a success.
Anand also exclaimed, “Is it a challenge for us to position ourselves? Absolutely, since we don’t have the colossal marketing budgets of international brands or the giant loyalty programmes”. True, Hotel chains of repute do provide global sales and marketing support and guest loyalty programmes, apart from other useful tools such as central reservations systems, cumulative purchasing power and brand awareness – but at a considerable cost.
Brand loyalty programmes associated with hotel brands, for instance, do create value for their member properties. The loyalty programmes in combination with the possibility of greater commercial accounts negotiated at corporate level could ensure a relatively stable occupancy for an affiliated property -especially during a time of recession. Independent brands on the other hand may have to spend more to fight for business, particularly during bad times.
Overall, it is important to be aware of what a hotel affiliation yields in terms of occupancy, ADR, RevPAR and NOI and to compare those figures to the costs associated with the same affiliation.
In2ition
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