disadvantages of independent hotels

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. The authors concluded that the value that the brand brings is not static and varies over time. (With) soft brands, I get the best of both worlds, he said. They dont have to worry about maintaining the same quality. All rights reserved. Please check back in a few minutes. Chains often also choose the location for the hotel because of the locations attractiveness. 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. You must put 35% to 40% equity into any deal, Patel said. Increase revenue: more direct bookings and less commission. On the other hand, chain hotels have extremely high service standards, but they tend to offer a more standard approach to customer service, attending to the needs of their clients as they arise and being sure to offer professionality and quality service across their whole chain. 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. The . Being independent allows you to develop your own brand, menus and dining experience for your customers. (3rd ed.). I think with a smaller hotel, you may do well with a local lender in the area, he said. People also read lists articles that other readers of this article have read. Unpublished manuscript, Gothenburg, Sweden. Fixed prices : the established price policy, being little variable, ensures a constant and clear revenue. By clicking "Log In," I agree to LoopNet's. But opting out of some of these cookies may affect your browsing experience. Thats just my feeling and my personal prediction, but I think once you have 50 or 100 or 200 Autograph or Curio, (properties) or whatever it might be, theyre going to become more homogenous; theyre going to become much more bureaucratic and standardized. One of the ways different hotels can be sure that they are offering a one-of-a-kind service is by carrying out a competitive analysis. According to Freitag, this enables hotel owners to rapidly increase prices in response to enhanced demand. Does the asset-light and fee-oriented strategy create value? But I do have one thing that an independent doesnt have: I still have that assurance that other properties, hopefully, if they do it right, will have some type of level of standard, that I dont have a bunch of crap out there. As today's travelers gravitate toward unique lodging accommodations, the boutique hotel scene is thriving. Click to reveal The majority of chain hotels are built to make money. According to Holverson and Revaz ( 2006 2015 1997) identified the main disadvantages of SME (independent) hotels as insufficient management and marketing skills within the distribution channel. This leaves little room for creativity for each individual property. 8 The correlation between chain penetration (in terms of rooms) and foreign arrivals is 0.3 in our data. 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). Eric Horodas, president and CEO of Greystone Hotels, said he likes having creative freedom with independents. The hospitality sector is vast and made up of a multitude of accommodation offerings. Example: an employee for 50 reservations instead of 10 is more profitable. 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. A lot of people have made mistakes [and] learned a lot, and you can participate in that learning.. 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. The brand element (to brand or not to brand). Some of the principal disadvantages of hotels include: Particularly susceptible to economic turbulence. I reviewed the literature on the subject, and there is no simple answer. School of Business, Economics, and Law at the University of Gothenburg. Independent hotels also dont have to contribute revenue or pay marketing fees to the chain, meaning less overhead costs. This is one of the most idiosyncratic asset types in real estate, as well as (potentially) one of the most rewarding. Performance & security by Cloudflare. Kelso neatly summed up the investment profile of hotels in a single sentence: Its a high-risk, high-reward asset class.. Register to receive personalised research and resources by email. Consumers increasingly prefer experiences over products, looking for something unique and memorable, and the independent hotel can better cater to this new shift in consumer preferences (Stone, 2018). Ashley Donohoe started writing professionally about business topics in 2010. 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. 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. If you continue to see this message, your account may be locked due to too many failed attempts. Registration on or use of this site constitutes acceptance of our terms and conditions and privacy policy. As Barton said, Its a fun business; no day is ever the same., Kelso concurred. The study did not find a significant difference in net operating income (NOI) during economic expansions and found significantly higher NOI for branded hotels during recessions. As Freitag noted, Theyve been there and done that, right? We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. We apologize for the inconvenience. They are free to be innovative. Cash flow volatility. 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. The aforementioned brand impact isnt the only area where hotel financing differs from other CRE asset types. 3099067 Provisions relating to the exchange of services should be included in the term sheet. 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. 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. There are over a dozen separate brands in the portfolio of Hilton. The Shifting Scene of Independent Hotels in America, Groups360 Adds Choice Hotels to Group Instant Booking Platform, Meeting Profs Travel Report: Air Travel Chaos Looms, Japan Lifts Covid Controls, Smart Meetings Virginia Beach Experience: Lessons in the Future of F2F, Smart Moves at Lark Hotels, Noble House and More. The franchise agreement is a legal license agreement between the hotel brand and the hotel owner that . "Global Brand Expansion: How to Select a Market Entry Strategy." Cornell Hotel and Restaurant Administration Quarterly 48.1 (2007): 13,27,8. You dont have to sort of wonder, How is the competition doing? There are Associations or Marketing organizations that link together small to medium-sized independent travel agencies. Measuring changes in the relative competitiveness of package tour destinations, Global strategies in the international hotel industry, Structural breaks, international tourism development and economic growth. A case for being independent. There are disadvantages to staying independent (unbranded). Chase said a soft brand might be the same as a brand, but theres still a lot of work that goes into sales and marketing for a soft-branded property to attract guests. Lack of a lengthy corporate structure and guidelines allow boutique hotels to offer a personalized experience. Retrieved from https://skift.com/2017/06/27/dont-expect-hotel- companies-to-stop-launching-new-soft-brands-anytime-soon/. Even multifamily properties, which have more frequent turnover than their commercial counterparts, typically offer one- to two-year leases. Patel said that investors should assume that at least 15% to 18% of their operating expenses will go to brand-related costs, and that percentage grows as you climb the brand ladder from economy to luxury. Pros and cons of independent hotels versus chains, five types of guests and how to appeal to them. Roughly 30 years ago, independent hotels accounted for about two-thirds of the properties in the hospitality industry. Poor marketing communications Poor budget allocation Poorly managed advertising campaigns Poor product presentation These items are all part of the core hotel brand experience. 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. A comparison of the performance of independent and franchise hotels: The first two years of operation. By closing this message, you are consenting to our use of cookies. Having an independent restaurant means you're on your own and will have to seek your own resources for help when you need it, such as your local chamber of commerce or fellow restaurant owners. To request a reprint or commercial or derivative permissions for this article, please click on the relevant link below. Further details are available upon request. It does not store any personal data. Want more coverage of the Hotel Data Conference? And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. We know that every hotelier defines "efficient" and "cost-effective" differently, so this is why some opt to leverage the marketing power of OTAs and others do not. The main con is typically over-standardization. While independent hotels tend to be singular and not belong to a group, more and more chains are starting to acquire these types of hotels to diversify their portfolios. Particularly susceptible to economic turbulence. Ways in which health insurance can help your child during an emergency? This cookie is set by GDPR Cookie Consent plugin. Owners can change interiors or upgrade amenities when they see fit. Because many of the elements that make hotels a sometimes challenging real estate asset are the same features that make them a compelling opportunity. Soft brands of international hotel companies are taking over. What Are the Essential Requirements for Gastric Sleeve Surgery? 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. As a hotelier, you have to follow certain rules and standards and can not react to the market demands as quick and flexible as you wish. Please include what you were doing when this page came up and the Cloudflare Ray ID found at the bottom of this page. We inspire our audience of meeting and event professionals to dream bigand create brilliant experiences that delight attendees, achieve desired results and elevate the impact of the meetings industry. 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. Multiple factors account for this decline. Whereas an independent hotel can be original and adapt their marketing and distribution strategies as they see fit, chains must adhere to the chains overarching strategy. International Journal of Hospitality Management, 30(3), 515521. Remember passwords are case sensitive. A comparison of the performance of brand-affiliated and unaffiliated hotel properties. There is no independence. With the cost savings for Yield Management. 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. Comparing chains versus independent hote . 2. Example: an employee for 50 reservations instead of 10 is more profitable. (2016) reported that these two advantages offset each other as there were no significant differences in revenue per available room (RevPAR). Part two, presented below, focuses on the long-term strengths, challenges and unique characteristics of the sector. However, affiliation with the brand does not guarantee an improvement in financial performance. Retrieved from https://research.skift.com/report/a-deep-dive-into-operating- branding-strategies-for-hotel-owners/, Ting, D. (2017). 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. Sign up to our monthly newsletter for industry insights, product news, partner updates and more. 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). doi 10.1016/j.ijhm.2010.08.003, Rushmore, S. (2004). 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. 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. A group of hotels run by a company is called a chain hotel. Beautiful Design. 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%). If you've ever spent a . On the liability side, there are insurance carriers getting out of the business, due to the pandemic, Patel 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. However, you may visit "Cookie Settings" to provide a controlled consent. What are the benefits of using a data collection application? 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. Yield Management : a system that enhances profits by calculating supply and demand (widely used by hotel chains). A boutique hotel is a small, upscale, luxury hotel that has a distinct personality, intimate experience, and personalized service. These cookies ensure basic functionalities and security features of the website, anonymously. Carlbck (2017) posited that affiliation is necessary when a business is focused on growth and development. 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.. Cornell Hospitality Report, 11(21), 6-13. Agreements : a large booking platform accompanied by agreements with agencies, tour operators and OTAs, constitutes an impressive commercial force. (2017). Apart from helping you reduce over-bookings, easily maintain rate parity, and allowing for easier reporting, choosing an all-in-one solution for your hotel will help you: Save time: many manual tasks will be automated. Cornell Hospitality Quarterly, 57(2), 193-201. doi: 10.1177/1938965516631014, Dev, C. S. (2015). If you forgot your password, click to reset it. 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 differences in performance indicators were not consistent across market price segments and market types. They aim to provide a unique and authentic experience at every hotel. Permission will be required if your reuse is not covered by the terms of the License. Be in touch with the hottest topics around & the breaking news around the world. 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. 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. What are the differences between independent and chain hotels? 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. 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. Doctoral dissertation in business administration. ONeill, J. W., & Carlbck, M. (2011). You will have to operate within those limited constraints. That email address has already been registered. They have the ability to negotiate better room rates for employees who stay there a lot. Retrieved from http://ejtr.vumk.eu/index.php/forthcoming-articles/654- v2310/, Carlbck, M. (2017). The main con is typically over-standardization. Another downside is, with the decision of belonging to a Chain, you decide against uniqueness. 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. Example: staff organization that counts ten people from one day to the next. 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 on whether to affiliate with the brand or not should be made on the property by property basis. 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. 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.. Hospitality hot takes straight to your inbox. 10 Tips to Improve Your Housekeeping Operation, 22 Aug 2022 Carvell et al. This potential for high returns is partially owed to the flexibility fostered by hotels unique tenancy model. Those flags are going to get me more revenue per room, he said. 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. Its also a sector that has been particularly impacted by the coronavirus, which has produced both distress and opportunities. They focus on quantity to achieve this goal and for this reason can often be more competitive in terms of pricing. 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. 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). Necessary cookies are absolutely essential for the website to function properly. Advantages of hotel chains = disadvantages for the independent hotel. We use cookies to improve your website experience. Cornell Hospitality Report, 15(21), 3-11. Some other places featuring her business writing include JobHero, LoveToKnow, PocketSense, Chron and Study.com. A deep dive into operating and branding strategies for hotel owners. More space for original design, product creativity and a unique identity. Kelso commented on the increased complexity of the insurance policies required for hotels, particularly for resort properties in areas prone to hurricanes or other natural disasters. It is free of its capabilities and possibilities. What is a chain hotel give examples of the chain hotels? International Journal of Contemporary Hospitality Management, 29(11), 2941-2961. doi: 10.1108/IJCHM-02-2016-0060. 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.

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