Example: staff organization that counts ten people from one day to the next. What are the disadvantages of chain hotels? 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. 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! Learn about the advantages and disadvantages of being an independent hotel owner or franchisee of a hotel management company. 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. 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. Butler, J., & Braun, R. (2014). Mews has a comprehensive platform designed for your specific business needs. "Global Brand Expansion: How to Select a Market Entry Strategy." Cornell Hotel and Restaurant Administration Quarterly 48.1 (2007): 13,27,8. typically do not own the hotels that bear their names. Disadvantages of Independent Hotels: You are alone to face all challenges and fight all battles. 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. 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. 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. Ways in which health insurance can help your child during an emergency? The hospitality sector is vast and made up of a multitude of accommodation offerings. What are the rates of the hotel rooms? If you're inexperienced in running or managing a restaurant, having less direction can present challenges when things go wrong, whether you struggle to market yourself or have distribution issues. 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. 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. A comparison of the performance of independent and franchise hotels: The first two years of operation. Consumers selecting hotels through those services tend to focus more on price and less on brand loyalty. Do brand hotels perform better than independent hotels? 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. By clicking "Log In," I agree to LoopNet's. For example, in Barcelona you might find a chain on the famous Ramblas Street, whereas a smaller property would look for a more singular location. According to Sachin Patel, managing principal of Shiv Properties, which is a stakeholder in 11 hotel properties, banks in the last four to six years have been reluctant to finance independent properties. 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. Advantages of hotel chains = disadvantages for the independent hotel. 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].. Unfold - The most innovative hospitality forum is back! On the other hand, chains, being one of many, seek to offer a standardized experience that will be the same across the brands collection of products. That is to say, they strive to offer a unique and authentic experience at every hotel. Retrieved from https://scholarship.sha.cornell.edu/chrpubs/224/, Enz, C. A., & Canina, L. (2011). A group of hotels run by a company is called a chain hotel. This is one of the most idiosyncratic asset types in real estate, as well as (potentially) one of the most rewarding. We also use third-party cookies that help us analyze and understand how you use this website. The cookie is used to store the user consent for the cookies in the category "Other. What do you understand by referral Hotel? Restaurant Franchising, Forbes: Why Independent Restaurants Are Closing. Kelso said that investors should be prepared for swift changes in financing options. (2017). (3rd ed.). That being said, chains tend to have a less personal touch, focusing on their brand standards rather than what each individual guest wants. 70.32.113.124 According to Freitag, this enables hotel owners to rapidly increase prices in response to enhanced demand. Even multifamily properties, which have more frequent turnover than their commercial counterparts, typically offer one- to two-year leases. And there is only so much you can do with a certain physical box until it becomes economically unfeasible, he said. Flexibility : the managers reactivity supposes an almost instantaneous decision-making power that limits monetary losses and increases profitability. 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. The material on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with the prior written permission of Bright Business Media LLC. 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. Independent hotels are hotels that are owned and run by themselves. The Cornell School of Hotel Administration on Hospitality. Its great to be creative, but we like to make money, he said. 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. Soft Brands - Weighing the Risks, Rewards, and Realities. The hotels that arent related to a hotel chain are considered independent. The quality of the guest experience can be controlled by brands. Business travelers can take advantage of the chain hotel. Analytical cookies are used to understand how visitors interact with the website. So, lets get started. These lease terms provide investors with a certain degree of security, even if markets take a downward turn. Does paying higher franchise fees command higher RevPAR?. Performance & security by Cloudflare. Independent hotels are different from chains in that they are not built with the idea of having a standard offer, but with the idea that they are unique. Weve seen all of the major hotel companies get into the soft-brand arena, and theyre trying to scale up. Its one of those areas where you cant go halfway, you have to go all the way, and branding is certainly the easier way to go.. You'll need more time to see a return on your investment than you would if you run a franchise. Both studies found that unaffiliated hotels had higher average daily rates (ADR), and affiliated hotels had higher occupancy rates. All hotels under the ensign of a hotel group are referred to as a chain 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. 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. This originality is often the deciding factor when it comes to a guest choosing to stay at a smaller, unique property. Fixed prices : the established price policy, being little variable, ensures a constant and clear revenue. By closing this message, you are consenting to our use of cookies. Particularly susceptible to economic turbulence. 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. 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. When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. While having full control over your restaurant is an advantage in terms of flexibility and creativity, it also comes with the disadvantage of full responsibility. They have the ability to negotiate better room rates for employees who stay there a lot. Is being independent a weakness? Being independent allows you to develop your own brand, menus and dining experience for your customers. You must register your contact information to view secure information on this listing. Freitag also mentioned that abundant data, including information found in the dSTAR Report produced by STR (which, like LoopNet, is owned by CoStar Group), is an industry attribute that investors can benefit from. In the modern hospitality landscape, brands rule the day. 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. 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. You also have the option to opt-out of these cookies. As today's travelers gravitate toward unique lodging accommodations, the boutique hotel scene is thriving. This website uses cookies to improve your experience while you navigate through the website. Chains, on the other hand, can be more competitive on pricing, and can provide a sense of reliability that will appeal to a wider target audience. The hotel management agreements and franchise agreement handbook. 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.. 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). If you continue to see this message, your account may be locked due to too many failed attempts. Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. What is the advantage of an independent hotel? 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. Lack of a lengthy corporate structure and guidelines allow boutique hotels to offer a personalized experience. 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. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. 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. The majority of chain hotels are approved for tourism. Ravi Patel, president of Hawkeye Hotels, took the branded side in the debate. A comparison of branded and independent hotels performance during a full economic cycle. Overall, the authors concluded that the performance of franchised hotels was not superior to that of independent properties. Why do people choose to stay in a boutique hotel over a major hotel chain? Quality assurance, consulting support and lender comfort are provided by the Hotel Chains. While the nightly tenancy model enables hotels to raise prices when demand is high, it also makes them uniquely vulnerable to economic downturns. You will have limited resources and budget. Your IP: With the cost savings for Yield Management. He added that investors just need to be very, very clear on what services you offer, how much staff you need and what your debt service looks like in order to ride out this period of economic uncertainty. 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. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. Retrieved from https://skift.com/insight/skift-insights-deck-soft-brands-weighing-the-risks- rewards-and-realities/, Stone, R. (2018). 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.. As Barton said, Its a fun business; no day is ever the same., Kelso concurred. Conclusion. We apologize for the inconvenience. Generally, the independent hotel is managed as if it were a family business, with a limited and versatile team in its activities. To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy. 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. More space for original design, product creativity and a unique identity. That said, it depends because each hotel is different. Hotels are designed to give you a comfortable and luxurious experience. To operate the hotel under a unique brand, hotel owners should have the necessary expertise, understanding of technology and distribution, strong marketing or social reach, and create a resonating brand story (Stone, 2018). 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. 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. I think with a smaller hotel, you may do well with a local lender in the area, he said. #1 Overcome the lack of organizational readiness. Key advantages of independent hotels over chain properties: More focus on what the guest wants, vs. focus on chain brand standards. Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. Having the ability to efficiently and cost-effectively market room nights is a goal all independent hotels should work towards. When she's not at work, she's probably surfing, dancing, or exploring the world. Advantages of an independent restaurant include potentially lower startup costs, full control over operations and avoidance of franchise risks. You dont have to sort of wonder, How is the competition doing? Not long ago, independent hotels were on the rise. The biggest advantage of an independent business or restaurant is that you get full reign over how you run it. Short-term tenancy can be both an advantage and a disadvantage for hotel assets, and well dig more deeply into that later in this article, but its also just one of the unique facets that new investors need to be aware of when entering the hotel space. Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures. 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. Evolving consumer preferences. How does a Global Financial Report Help My Business? The unique advantage that independent hotels have is autonomy . 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. doi 10.1016/j.ijhm.2010.08.003, Rushmore, S. (2004). Did you know that with a free Taylor & Francis Online account you can gain access to the following benefits? He has also previously held positions as an adjunct professor, music critic and editor-in-chief of an online arts and culture publication. The aforementioned brand impact isnt the only area where hotel financing differs from other CRE asset types. Advertising cookies for delivering tailored and customized advertising. 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. The action you just performed triggered the security solution. Booking platforms, frequent traveler points programs, and the like are offered by them. 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. 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. Cornell Hospitality Quarterly, 57(2), 193-201. doi: 10.1177/1938965516631014, Dev, C. S. (2015). Lets look more in detail about the difference between these two different kinds of hotels, as well as discover whether these two types of structures can compete. 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. Soft brands of international hotel companies are taking over. 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. 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. Example: an employee for 50 reservations instead of 10 is more profitable. What are the benefits of using a data collection application? 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. You do have more flexibility and creativity as a soft brand, but at the same time, a brand is a brand is a brand, he said. 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. 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. 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. Brands can also be critical if youre courting the business travel market. It is free of its capabilities and possibilities. CONS With fewer staff, working patterns are less flexible and main priority is to ensure that shifts are always covered. But hotels dont offer any similar safeguards. The majority of chain hotels are built to make money. Permission will be required if your reuse is not covered by the terms of the License. It can be a very labor intensive asset class, especially towards the higher end, as you provide more services, Freitag said. Thats what I see.. The most obvious advantage of a suite hotel is extra space. You will have to operate within those limited constraints. 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,. Unique experience : there is always a different offer, from the hostel to the boutique hotel. Yield Management : a system that enhances profits by calculating supply and demand (widely used by hotel chains). Their location was chosen due to the attractiveness of the place and the potential profit. While consumers may still appreciate the presumed quality and service assurances that accompany a brand, they tend to be less brand specific, Barton said. On the flip side, they tend to be more expensive and elite. Good boutique hotels also know how to take advantage of the surrounding area. 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. Please include what you were doing when this page came up and the Cloudflare Ray ID found at the bottom of this page. The study found no consistent advantages in all segments for either affiliated or unaffiliated properties. What is the difference between a room rate and a rack rate? LoopNets sources also noted the uniquely enjoyable and exciting nature of the hotel industry. 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. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. School of Business, Economics, and Law at the University of Gothenburg. They aim to provide a unique and authentic experience at every hotel. Based on conversations with various industry experts, LoopNet developed the following list of distinctive elements and important considerations for investors contemplating hotel properties: The Brand Element (To Brand or Not To Brand), Jan Freitag, national director of hospitality market analytics, CoStar. 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. 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). 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. While all hotels focus on profitability, chains are more focused on getting the most revenue possible out of every hotel room. On the contrary, O'Neill and Carlbck (2011) reported that unaffiliated hotels had higher RevPAR. The authors concluded that the value that the brand brings is not static and varies over time. I will tell you its five to six times harder to open an independent or a soft brand, he said. (, 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? From my perspective, branded hotels have a much easier time of pushing inventory. 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. Chains often also choose the location for the hotel because of the locations attractiveness. What is a chain hotel give examples of the chain hotels? (Being an independent) takes a lot of courage. On the liability side, there are insurance carriers getting out of the business, due to the pandemic, Patel said. Ultimately, Patel said that it all comes down to RevPAR (revenue per available room), one of the hotel industrys key metrics.