disadvantages of independent hotels

Promotion : a marketing and communication office that is in charge of advertising the chain as a whole and the individual recognition of each structure. Ways in which health insurance can help your child during an emergency? 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. From my perspective, branded hotels have a much easier time of pushing inventory. Independent hotel chains are not to be confused with general hotel chains. Literature review and research hypothesis formulation, 6. This personalized touch, of simply just knowing what their guests want, gives them a competitive edge. 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. According to a 2017 study from Expedia, independent hotels had greater overall average daily rate and faster growth than their branded counterparts. In addition to these benefits, brands make it easier for investors to access financing. Due to the degree of independence of subsidiary hotel brands, its sometimes difficult to distinguish between a boutique property thats owned by a large company and one that is truly independentfinancially and otherwise. It is established that everything that is not related to a hotel chain is considered an independent hotel . With a franchise, it can be easier to find potential buyers since the chain's brand is well known and has a proven value. Other disadvantages include high cost of effective distribution, increasing costs of communication, inability to obtain necessary marketing intelligence in order to compete (Holverson & Revaz, 2006), high amount of investments required for technology solutions (Ting, 2017), cost of paying high OTA commissions and advertising expenses may offset the benefit of not paying franchise fees to the brand, harder to get access to capital as lenders consider independent properties risky and prefer to finance affiliated hotels (Stone, 2018). Retrieved from https://scholarship.sha.cornell.edu/chrpubs/47/, Holverson, S., & Revaz, F. (2006). Poor marketing communications Poor budget allocation Poorly managed advertising campaigns Poor product presentation These items are all part of the core hotel brand experience. The quality of the guest experience can be controlled by brands. When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. Unique experience : there is always a different offer, from the hostel to the boutique hotel. Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features. 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. These cookies will be stored in your browser only with your consent. The most obvious advantage of a suite hotel is extra space. In addition to brands, one of the most potent forces influencing the hotel market are OTAs (online travel advisors), and its important that investors understand the impact theyve had, and continue to have, on the industry. On the other hand, in attempting to be original, independent hotels must be creative in their design, what they offer, their decorational elements, gastronomic proposal and in all aspects of the hotels concept. What are the advantages of chain hotels? (3rd ed.). Please check back in a few minutes. While the nightly tenancy model enables hotels to raise prices when demand is high, it also makes them uniquely vulnerable to economic downturns. 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. They usually create guest profiles, so they register their guests preferences and can better tailor their services, especially for repeat guests. No other proprietors can use its name or brand. On the liability side, there are insurance carriers getting out of the business, due to the pandemic, Patel said. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. 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. Be in touch with the hottest topics around & the breaking news around the world. Yield Management : a system that enhances profits by calculating supply and demand (widely used by hotel chains). They like to see the corporate or franchise model in financing these deals.. a. Trying to maximize the advantages of independent hotels in small accommodation such as B & Bs, hostels, country houses and small hotels is one of the keys to differentiate yourself from the chains and to be successful! It is a type of hotel that does not have an affiliation with any particular chain. This potential for high returns is partially owed to the flexibility fostered by hotels unique tenancy model. 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. To tell the truth, the small and medium-sized companies that operate in this sector share similar operations and characteristics that are their own (with their benefits and drawbacks). Kelso described how this differs from other real estate asset classes. While all hotels focus on profitability, chains are more focused on getting the most revenue possible out of every hotel room. Independent hotels are hotels that are owned and run by themselves. Please try again. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. People also read lists articles that other readers of this article have read. What are the differences between independent and chain hotels? Performance & security by Cloudflare. Volume: hotel chains, due to their standard and extensive offer, benefit from economies of scale due to the expansion of their business and the reduction of costs for bulk purchases and management. The decision-making process is longer. This is partially due to lenders viewing larger, more reputable companies as less of a financial risk, said Ting Phonsanam, founder of Momentum Hospitality Group. Subscribe to receive tips, articles and tools. She also has earned a Master of Business Administration degree with a leadership and strategy concentration from Western Governors University along with a bookkeeping certification. Not to mention, independent hotels have doubled the pace of branded ADRs since early 2014 . Cash flow volatility. 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. They aim to provide a unique and authentic experience at every hotel. Restaurant Franchising, Forbes: Why Independent Restaurants Are Closing. Most commercial assets, whether youre considering office, retail or industrial product, operate with long-term leases, anywhere from three- to 15-years in duration. Dont Expect Hotel Companies to Stop Launching New Soft Brands Anytime Soon. Key advantages of independent hotels over chain properties: More focus on what the guest wants, vs. focus on chain brand standards. These cookies ensure basic functionalities and security features of the website, anonymously. Weve seen all of the major hotel companies get into the soft-brand arena, and theyre trying to scale up. You must register your contact information to view secure information on this listing. 2. International Journal of Contemporary Hospitality Management, 29(11), 2941-2961. doi: 10.1108/IJCHM-02-2016-0060. Advantages of an independent restaurant include potentially lower startup costs, full control over operations and avoidance of franchise risks. The disadvantages of an independent hotel include: no broad advertising exposure, no management and consulting insight from an affiliated property, and it is unable to take advantage of thevolume of purchasing power of a chain hotel. 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. You dont have to sort of wonder, How is the competition doing? Retrieved from https://research.skift.com/report/a-deep-dive-into-operating- branding-strategies-for-hotel-owners/, Ting, D. (2017). This cookie is set by GDPR Cookie Consent plugin. Assets that have long-term leases might not feel the impact to cash flow for 6, 12 or 24 months after the onset of an economic event, whereas hotels feel it on day one., As Barton observed, Typically this industrys had eight- to 10-year cycles, and in the down years, it can be a tough couple of years., Kelso echoed this view. By clicking "Log In," I agree to LoopNet's. Independent hotels are often based on their history. 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. We apologize for the inconvenience. What Are the Essential Requirements for Gastric Sleeve Surgery? Hotels are designed to give you a comfortable and luxurious experience. A competitive analysis will help indicate what other hotels in the area and with a similar offer are doing so that you can be sure to be competitive within your comp set. Cornell Hospitality Report, 11(21), 6-13. 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. Register a free Taylor & Francis Online account today to boost your research and gain these benefits: Comparing chains versus independent hotels based on international sales: an exploratory study, a University of Bologna, Rimini, Italy;b Horwath HTL, Rome, Italy, c Universidad Internacional de La Rioja, Logroo, La Rioja, Spain, d Universitat Politcnica de Valncia, Valencia, Spain, Social media analytics: A tool for the success of online retail industry, Asymmetric information and deal selection: Evidence from the Italian venture capital market, Global-local trajectories for regional competitiveness: Tourism innovation in the western cape, Catalysts in introducing information technology in small and medium-sized hospitality organisations, A comparison of the performance of brand-affiliated and unaffiliated hotel properties, Expansion strategy of international hotel firms, Hotel chain affiliation as an environmental performance strategy for luxury hotels, Visitor attractions and events: Responding to seasonality, Modal choice in a world of alliances: Analyzing organisational forms in the international hotel sector, How firms relate to their markets: an empirical examination of contemporary marketing practices, Efficiency evaluation of hotel chains: A Spanish case study, Profitability determinants of hotel companies in selected Mediterranean countries, Determinantes en la eleccin del modo de entrada de las hoteleras espaolas en destinos forneos, The eclectic theory of international production: A case study of the international hotel industry, A comparison of the performance of independent and franchise hotels: The first two years of operation, European Hotels and Chains Report, Horwath HTL. Qualitatively, this approach leads to the same results as those reported in the paper, which are omitted to save space. Stone (2018) posited that the operating model that will satisfy all hotel owners did not exist. The resources needed to create a digital presence are significant and ones that not all small, independent hotels have. The Cornell School of Hotel Administration on Hospitality. One of the differentiating aspects of hotels that every expert LoopNet spoke with agreed upon is the amount of work they require. Roughly 30 years ago, independent hotels accounted for about two-thirds of the properties in the hospitality industry. This leaves little room for creativity for each individual property. Less bureaucracy and more attention to original guest experience and unique initiatives. The study found no consistent advantages in all segments for either affiliated or unaffiliated properties. 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. Generally, the independent hotel is managed as if it were a family business, with a limited and versatile team in its activities. Register to receive personalised research and resources by email. (2016) compared key performance indicators of affiliated and unaffiliated hotels over a full 10-year economic cycle. The brand companies franchise their brands to the hotel owners. Most days, you will spend your day walking, running errands for your business, and performing a multitude of tasks. The franchise agreement is a legal license agreement between the hotel brand and the hotel owner that . Building and managing your brand. There are Associations or Marketing organizations that link together small to medium-sized independent travel agencies. 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. LoopNet disclaims any and all representations, warranties, or guarantees of any kind. When she's not at work, she's probably surfing, dancing, or exploring the world. According to Kelso, its also important to bear in mind that the franchise agreements that investors enter into with brands are usually long term (five to 15 years, typically) and largely are not terminable., Nonetheless, particularly for the nascent investor, its difficult to overvalue the advantage of lived experience that the brands provide. 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. Theres fixed costs and variable costs in operating a hotel. There is no independence. The analysis follows the stages of the affiliation process from the perspective of the individual hotel as elaborated in and Ivanova & Ivanov (2015): 1) evaluation of the option to join a chain. 4 minute read, The Mews Blog>Pros and cons of independent hotels versus chains. Independent hotels are more open to change. 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. Consumers selecting hotels through those services tend to focus more on price and less on brand loyalty. Business travelers can take advantage of the chain hotel. It can be a very labor intensive asset class, especially towards the higher end, as you provide more services, Freitag said. The authors concluded that the value that the brand brings is not static and varies over time. According to Ford Barton, principal of Lodging Partners, a brokerage and advisory firm focused on the hospitality and lodging sector, OTAs have fostered a commoditization of hotels. This, in turn, has often resulted in less pricing power for the hotels.. A deep dive into operating and branding strategies for hotel owners. Brand Value Attributable to Affiliation (BVAA) - a Method for Measurement in a Consortium Context. Every hotel owner needs to decide whether to operate independently or lose some degree of independence to gain a possible competitive advantage by affiliating with the brand. That said, it depends because each hotel is different. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. Each Autograph Collection hotel has its very own look and feel, making it improbable that most consumers can discern that any two are under the same umbrella. A 5-star hotel should give you a better experience than a 3 . So taking a spontaneous or unplanned last-minute holiday may not always be. 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. This group is simply not inclined to spend money or time on application . What are the disadvantages of chain hotels? School of Business, Economics, and Law at the University of Gothenburg. There is no independence. What is the difference between a room rate and a rack rate? That is to say, they strive to offer a unique and authentic experience at every hotel. 70.32.113.124 In this two-part series, LoopNet provides an overview of the lodging/hospitality/hotel terms that will be applied interchangeably throughout this series sector. For Patel, a soft brand is still a brand. How does a Global Financial Report Help My Business? Volume: hotel chains, due to their standard and extensive offer, benefit from economies of scale due to the expansion of their business and the reduction of costs for bulk purchases and management. 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]. As Jan Freitag, national director of hospitality market analytics at CoStar, pithily observed, a hotels lease terms are just one night.. While smaller, singular hotels will have a hard time competing on price, where they can stand out is by developing an offer that is unique, in an incomparable location with impeccable service. The benefits of staying independent (unbranded) include savings on brand affiliation fees, control over management and entrepreneurship, greater flexibility, and ability to structure hotel standards to meet the market demand and the opportunity to create a niche personality (Butler & Braun, 2014; Rushmore, 2004). We also use third-party cookies that help us analyze and understand how you use this website. The username or password you entered is incorrect. 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. The decision on whether to affiliate with the brand or not should be made on the property by property basis. Disadvantages include full accountability, more time needed to become profitable and resale difficulties. By closing this message, you are consenting to our use of cookies. Franchise Direct: How Much Does It Cost to Open a Fast Food Franchise in the United States. 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. Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. To begin with, theres the duration of tenancy. Kelso described it saying, The middle market space [i.e., hotels valued at less than $15 million] is overwhelmingly a franchise model, whereby an owner would enter into a franchise agreement with Hilton, or Hyatt or Intercontinental. CONS With fewer staff, working patterns are less flexible and main priority is to ensure that shifts are always covered. Ultimately, Patel said that it all comes down to RevPAR (revenue per available room), one of the hotel industrys key metrics. Does the asset-light and fee-oriented strategy create value? Best shoes for different occasions: Work, parties and Outdoor Activities, How to Choose the Right Home Designer for Your Project, Smart ways to style your casual shirt for vacation, Guidelines to start your career in online teaching, Why Local SEO is Essential for Small Business Owners, Five Steps Women Can Take to Improve Their Health. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. Agreements : a large booking platform accompanied by agreements with agencies, tour operators and OTAs, constitutes an impressive commercial force. From a CRE investment perspective, key advantages of hotels include: The principal advantage of hotels is, as Kelso noted, the opportunity to drive significantly higher leveraged returns.. Retrieved from http://ejtr.vumk.eu/index.php/forthcoming-articles/654- v2310/, Carlbck, M. (2017). The good news is, if you can buy today, youre buying at the trough. Your IP: The main con is typically over-standardization. Should hotel owners partner with hotel brands or keep their properties independent (unbranded)? Doctoral dissertation in business administration. Choose a solution to find out more, Hospitality events, insights and inspiration, Everything from industry trends and hotelier interviews to product releases and events. Advantages. 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. Another way they can compete with chains is on the level of service they provide and when it comes to a specialized target audience. What is the difference between independent hotels and chain hotels? Click here. Hoboken, NJ: John Wiley & Sons, 388-404. Even multifamily properties, which have more frequent turnover than their commercial counterparts, typically offer one- to two-year leases. 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.. However, that increased revenue comes with a cost. Everything you need in one beautiful print and digital magazine. The majority of chain hotels are approved for tourism. For more information please visit our Permissions help page. They are usually located in trendy neighbourhoods in large cities, have luxury amenities, and have a modern design. The staff is similar to those at boutique hotels. Advantages of hotel chains = disadvantages for the independent hotel. Did you know that with a free Taylor & Francis Online account you can gain access to the following benefits? w) / (1-w), where w = ARch/ARph. Owners can change interiors or upgrade amenities when they see fit. Thus, affiliation with the brand could positively affect the performance of the hotel and carries value for the owner. Flexibility : the managers reactivity supposes an almost instantaneous decision-making power that limits monetary losses and increases profitability. 5 Video Games That Will Boost Your Brain Power And Reduce Stress, Nia Long Finds Success as an Instagram Influencer. Patel concurred with that assessment. 5 Howick Place | London | SW1P 1WG. On the flip side, they tend to be more expensive and elite. 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. The biggest disadvantage however is the lack of independence. Quality assurance, consulting support and lender comfort are provided by the Hotel Chains. 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. To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy. This cookie is set by GDPR Cookie Consent plugin. Error occurred with your registration, please try again.
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