They aim to provide a unique and authentic experience at every hotel. This leaves little room for creativity for each individual property. 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. Some of the principal disadvantages of hotels include: Particularly susceptible to economic turbulence. The brands offer obvious benefits in terms of their marketing reach and name recognition. Barton also noted that lenders will want to see a clear management plan in place, and will even give particular consideration to investors that choose to literally sleep where they eat, often showing a preference for owner-occupied hotels. Of course, high rewards rarely come to the dance unaccompanied by their less appealing chaperone, high risk. Cornell Hospitality Quarterly, 57(2), 193-201. doi: 10.1177/1938965516631014, Dev, C. S. (2015). A 5-star hotel should give you a better experience than a 3 . They are important players in the hotel market worldwide. Since you don't have a franchisor to whom you need to answer, you only have to worry about yourself and your own employees, and this can reduce conflict from disagreements over operations. 10 Tips to Improve Your Housekeeping Operation, 22 Aug 2022 Disadvantages of Independent Hotels: You are alone to face all challenges and fight all battles. To request a reprint or commercial or derivative permissions for this article, please click on the relevant link below. 3099067 They are usually located in trendy neighbourhoods in large cities, have luxury amenities, and have a modern design. . There is no one else to guide and advise you. Do brand hotels perform better than independent hotels? Does the asset-light and fee-oriented strategy create value? There are Associations or Marketing organizations that link together small to medium-sized independent travel agencies. 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.. Youve got hundreds of operating issues; youve got a very different debt market for hospitality assets than you do [for] other asset classes; you have to contend with the brands, you have to contend with the managers, and you have to contend with the third-party OTAs (online travel advisors) such as Expedia, TripAdvisor and Travelocity.. Hotel owners might decide that being independent is just too expensive for them and that the high effort that is required for the independent operation could not be justified when help from influential brands and large distribution platforms is available (Stone, 2018). They focus on quantity to achieve this goal and for this reason can often be more competitive in terms of pricing. (With) soft brands, I get the best of both worlds, he said. These cookies track visitors across websites and collect information to provide customized ads. The remaining insurance companies are using the situation to their advantage and raising premiums. The hospitality sector is vast and made up of a multitude of accommodation offerings. Cash flow volatility. They have the ability to negotiate better room rates for employees who stay there a lot. Please try another or click, By clicking the button, you agree to LoopNet's, An Overview of This High-Risk, High-Reward Asset Class, Passwords is too common or does not have at least 8 characters. What are the advantages of chain hotels? It is free of its capabilities and possibilities. Dont Expect Hotel Companies to Stop Launching New Soft Brands Anytime Soon. The username or password you entered is incorrect. In this article, we took a deep dive into the top 3 disadvantages of hotel CRM and gave you tips on how to overcome these problems. When you run a franchise, the franchisor is the one who tells you what food you can serve, what your location must look like and what procedures you must follow in your daily operations. Advertising cookies for delivering tailored and customized advertising. The benefits of running a small hotel business Other disadvantages of franchise model include loss of flexibility in pricing, promotion, and operation (Dev, 2015), risk of being de-flagged and losing franchise fees for failure to uphold brand standards, reduced ability to be entrepreneurial (Kwortnik, 2011), loss of a certain amount of control and management independence, unequal distribution Weve looked at the differences between these two structure types, but you may still be wondering if there is any way for them both to compete. This cookie is set by GDPR Cookie Consent plugin. In addition to these benefits, brands make it easier for investors to access financing. Hotel Brand Affiliation: Pros and Cons. - Hotel Revenue Insights He said that investors should be ready to manage more employees, and be ready to understand that payroll is a big component of a hotel, and that you will have to be involved in operations to make it successful.. From the lobby to your room, everything is usually well-designed. Example: an employee for 50 reservations instead of 10 is more profitable. Those flags are going to get me more revenue per room, he said. Smart Meetings publishes cutting-edge meetings content in print and digital magazines 12 times per year, hosts world-class networking events, produces CEU-accredited webinars and offers a myriad of digital resources. The study found no consistent advantages in all segments for either affiliated or unaffiliated properties. This formulation comes from the identity FmPARph = w FmPARch +(1-w) FmPARih, whose proof is straightforward. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc. We noticed you're using Internet Explorer to view our site properly, please use a more up-to-date browser like Chrome, Firefox or Edge. Part two, presented below, focuses on the long-term strengths, challenges and unique characteristics of the sector. Independent Hotels Decline Due to Mergers, Funding Problems Consider both the advantages and disadvantages of hotel ownership as a franchisee to decide if it's right for you. Hotel as Chain or Independent The Advantages and Disadvantages of Hotels Affiliating with a Brand Dev, Chekitan S., James R. Brown, and Zheng Zhou Kevin. 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. w) / (1-w), where w = ARch/ARph. Freitag described the relationship between these entities as a triangle between the owner, the management company and the brand. Eric Horodas, president and CEO of Greystone Hotels, said he likes having creative freedom with independents. Independents vs. chains - advantages and competitivness - Amenitiz There will always be businesses that want or need to see Marriot, Hilton, Hyatt or Intercontinental on their expense reports, Kelso said. Please check back in a few minutes. 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. 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. But what exactly is the difference between these two types of structures? Franchise Operators Agreement. Please include what you were doing when this page came up and the Cloudflare Ray ID found at the bottom of this page. This website uses cookies to improve your experience while you navigate through the website. If the hotel is profitable, and growth is not part of the strategy, the hotel can afford to stay unbranded. ), do not possess dedicated reservation and marketing systems and it is hard for them to compete with brands that have larger marketing budgets. What is the difference between a room rate and a rack rate? 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. 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. I will tell you its five to six times harder to open an independent or a soft brand, he said. Did you know that with a free Taylor & Francis Online account you can gain access to the following benefits? A comparison of branded and independent hotels performance during a full economic cycle. Independent hotels are still at a disadvantage online - Skift The majority of chain hotels are built to make money. Mews has a comprehensive platform designed for your specific business needs. The good news is, if you can buy today, youre buying at the trough. The greatest advantage to me is the ability to be creative, he said. 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). But opting out of some of these cookies may affect your browsing experience. And once you cover the fixed costs, the margins on the variable costs become very attractive. Fixed costs include taxes, insurance and financing; variable costs are items such as food, room supplies, guest amenities and labor. 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. Independents need a simple-to-use solution that enables easier adoption and employee training. The quality of the guest experience can be controlled by brands. Hoteliers on the "Pros and cons of independence" panel at this year's Hotel Data Conference in Nashville took a specific side and talked about why they liked their specific affiliation of choice,. Pros and cons of the independent hotel - the popping post Independent Hotels Vs Franchising - Which is Better? Analytical cookies help us improve our website by collecting and reporting information on how you use it. Investing in Hotels: Advantages, Disadvantages and Unique - LoopNet With an independent restaurant, you might run into some hurdles if you want to sell. LoopNets sources also noted the uniquely enjoyable and exciting nature of the hotel industry. (, How power distance affects online hotel ratings: The positive moderating roles of hotel chain and reviewers travel experience, Intellectual property rights, complementarity and the firms economic performance, Perceptions of European independent hoteliers: Hard and soft branding choices, Organisational form as a solution to the problem of credible commitment: The evolution of naming strategies among U.S. hotel chains, Star rating and corporate affiliation: Their influence on room price and performance of hotels in Israel, Categorical data analysis: Away from ANOVAs (transformation or not) and towards logit mixed models, Department of Tourism Management Alexander Technological Educational Institute of Thessaloniki, Overcoming the liability of foreignness through lobbying: An examination of franchise systems, Construction of an instrument to evaluate the User eXperience of a group of co-creators in the upstream innovation process, Country-of-operation and brand images: Evidence from the Chinese hotel industry, Managerial academic experience, external monitoring, and financial reporting quality, Competition in the international hotel industry, Maximum likelihood algorithms for generalized linear mixed models, Greening the hospitality industry: How do green human resource management practices influence organizational citizenship behavior in hotels? Sign up to our monthly newsletter for industry insights, product news, partner updates and more. Retrieved from https://gupea.ub.gu.se/handle/2077/53941/, Carvell, S. A., Canina, L., & Sturman, M. C. (2016). Such challenges notwithstanding, all of the experts LoopNet spoke with believe this is a particularly compelling moment for investors to consider hotel assets. The hotels that arent related to a hotel chain are considered independent. Learn about hotel management companies, including advantages and . 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. This is one of the most idiosyncratic asset types in real estate, as well as (potentially) one of the most rewarding. Weve seen all of the major hotel companies get into the soft-brand arena, and theyre trying to scale up. Choose a solution to find out more, Hospitality events, insights and inspiration, Everything from industry trends and hotelier interviews to product releases and events. It may be because of the architecture of the place but also because of the services designed for a niche clientele: there is no comparison with a single offer, therefore there is less competition and an economy due to specialization (it reduces costs by not having an extensive offer that pleases everyone ). 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. 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. 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. Independent hotels are often based on their history. Comparing chains versus independent hote . 2. Conclusion. Brand affiliation for the small independent hotel could help to stay competitive in the market (Carlbck, 2017); however, for hotels operating in particular markets, staying independent could be more beneficial (Kwortnik, 2011; Stone, 2018). Analytical cookies are used to understand how visitors interact with the website. Because many of the elements that make hotels a sometimes challenging real estate asset are the same features that make them a compelling opportunity. Example: an employee for 50 reservations instead of 10 is more profitable. Los Angeles: JMBM Global Hospitality Group. The brand would place their flag on the property, subject to many, many requirements on the owner in terms of the design, the quality and the level of service they provide., Lest you think that the brand is doing the majority of the work for you, its important to understand that hotel brands typically do not manage the properties under their umbrella either. Independent vs chain hotels: advantages and disadvantages What are the benefits of using a data collection application? Another disadvantage is that it can take longer for your independent restaurant to gain customers and have a good profit. Every one of my independent hotels is different from any other hotel; every one of my independent hotels really speaks to the location its in; every one of them has a theme; every one of them creates or provides a different experience to the guest. Its also a sector that has been particularly impacted by the coronavirus, which has produced both distress and opportunities. Retrieved from http://ejtr.vumk.eu/index.php/forthcoming-articles/654- v2310/, Carlbck, M. (2017). Retrieved from https://skift.com/2017/06/27/dont-expect-hotel- companies-to-stop-launching-new-soft-brands-anytime-soon/. Whats the story behind soft brands?When asked if a soft brand is really just a brand, Horodas said hes not so sure how soft brands will play out in the future as more pop up in the industry. A rack rate is the highest price a hotel can charge for a room, and a single hotel may offer a different rack rate for each room type on property. Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet. The main con is typically over-standardization. In some cases, the value of affiliation could be negative when the costs associated with the association are higher than the revenues received (Carlbck, 2015). Dev (2015) concurred that two factors drove the financial results for hotels that changed brands - the strength of the brand (60%) and fit between the brand and the property (40%). Learn about the advantages and disadvantages of being an independent hotel owner or franchisee of a hotel management company. Hotel brand affiliation through a franchise agreement: Pros and Cons By clicking Accept All, you consent to the use of ALL the cookies. This is one of the biggest benefits of running an independent boutique hotel over a larger chain; the hotels tend to be smaller, and more time can be spent hiring the right people and crafting the right team. Register to receive personalised research and resources by email. 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. Freitag said that another key advantage of hotels is their widespread distribution, which opens up opportunities for investors in almost any market in the country. 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]. Small hotels dont have big-brand financial backing to aid them if they need renovations, expensive repairsor a revamp after a natural disaster, which could put them out of business. a. I think with a smaller hotel, you may do well with a local lender in the area, he said. 4 minute read, The Mews Blog>Pros and cons of independent hotels versus chains. 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. This cookie is set by GDPR Cookie Consent plugin. Daily physical activity. Independent hotels - independently operated properties. What are the differences between independent and chain hotels? For Patel, a soft brand is still a brand. Permission will be required if your reuse is not covered by the terms of the License. Thats what I see.. Carvell et al. Independents vs. brands vs. soft brandsPanel moderator Patrick Mayock, senior director of research and development at HNNs parent company STR, asked each panelist to start the debate by explaining the advantages of being an independent, brand or soft brand. Holverson and Revaz ( 2 for their tourism growth. Want more coverage of the Hotel Data Conference? 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. 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. 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. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. How does a Global Financial Report Help My Business? The cookie is used to store the user consent for the cookies in the category "Other. 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. Kwortnik, R. J. The cookie is used to store the user consent for the cookies in the category "Analytics". While you can sell an independent restaurant, you'll need to have put in the effort to make a reputation for yourself and show potential buyers that the purchase would be profitable for them. CONS With fewer staff, working patterns are less flexible and main priority is to ensure that shifts are always covered. Advantages And Disadvantages Of Staying In A Hotel 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). These banks often like hotel loans because they also get all the daily deposits and theres more to their relationship than just a loan.. Another differentiating factor is the fact that independent hotels focus on the individual guest, seeking to anticipate their needs, and going above and beyond when it comes to service. They usually create guest profiles, so they register their guests preferences and can better tailor their services, especially for repeat guests. With a franchise, it can be easier to find potential buyers since the chain's brand is well known and has a proven value. Are independent hotels capable of competing with chain hotels. The insurance market is very unstable, Patel said. 3 reasons why independent hotels are thriving - Hotel Management The aforementioned brand impact isnt the only area where hotel financing differs from other CRE asset types. Each of these is important on its own, but even more important to work together seamlessly to provide an enjoyable, attractive, and seamless experience for potential guests. Advantages of hotel chains = disadvantages for the independent hotel. At the same time, though, you'll need to be patient, know where to find help and be able to handle the challenges of having full responsibility of your restaurant. Conclusions and managerial implications, https://doi.org/10.1080/1331677X.2019.1710719, http://horwathhtl.com/2017/04/06/european-hotels-chains-report-2017/, https://ec.europa.eu/eurostat/statistics-explained/pdfscache/34962.pdf, http://www.hotelnewsnow.com/media/File/PDFs/Misc/BIG%20BRANDS%20REPORT%202015_compressed.pdf, https://corporate.cms-horwathhtl.com/wp-content/uploads/sites/2/2018/11/HHTL_2018-EU-CHAINS-REPORT.pdf, No. Should hotel owners partner with hotel brands or keep their properties independent (unbranded)? Please try again. Do brands matter? Barton observed that these significant returns are partially derived through margins. What is a unique advantage of an independent hotel - Course Hero The identity of Independent Hotels is unique. 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. Perceptions of European independent hoteliers: Hard and soft branding choices. American Airlines AAdvantage MileUp credit card review - CNN 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. The majority of chain hotels are approved for tourism. There are more constituents in a hotel investment than there might be in many others, and there is no durable revenue stream, as we learned to our chagrin again in 2020. Building and managing your brand. Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. (2016) reported that these two advantages offset each other as there were no significant differences in revenue per available room (RevPAR).