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. The hotel management agreements and franchise agreement handbook. 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. BTR Shines Even as CRE Sales Plummet: Heres What to Focus on Next, What Self-Starters Should Know About Self-Storage Investment, CRE Sales Plummet in Q1 as Expected; Heres What to Focus on Next, 5 NNN Retail Properties Available For Under $4 Million, How Rising Interest Rates Are Impacting NNN Retail Properties. 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 ). Franchise Operators Agreement. 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. This is one of the most idiosyncratic asset types in real estate, as well as (potentially) one of the most rewarding. typically do not own the hotels that bear their names. You may also be able to start an independent restaurant with less cash than you would with a franchise. They also provide access to customers via their robust loyalty programs. 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. And as large companies continue to grasp more control of the hospitality industry, smaller, independent hotels are suffering. Click here for Desk booking system for hot desking. On the contrary, O'Neill and Carlbck (2011) reported that unaffiliated hotels had higher RevPAR. Cash flow volatility. Their location was chosen due to the attractiveness of the place and the potential profit. 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. 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. Hotels Magazine. Hotel brand conversions: What works and what doesn't. The key to getting a competitive advantage is providing a unique experience that cannot be replicated in any other structure. The insurance market is very unstable, Patel 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. Jared Kelso, executive managing director, C&W Capital Markets. 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. 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. Proximity : an unbeatable relationship with the guest that allows quality support and communication for a better guest experience (favored by social networks). Retrieved from https://skift.com/insight/skift-insights-deck-soft-brands-weighing-the-risks- rewards-and-realities/, Stone, R. (2018). 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. These cookies track visitors across websites and collect information to provide customized ads. Cited by lists all citing articles based on Crossref citations.Articles with the Crossref icon will open in a new tab. The majority of chain hotels are built to make money. By clicking "Log In," I agree to LoopNet's. According to a 2017 study from Expedia, independent hotels had greater overall average daily rate and faster growth than their branded counterparts. Less bureaucracy and more attention to original guest experience and unique initiatives. This originality is often the deciding factor when it comes to a guest choosing to stay at a smaller, unique property. In this two-part series, LoopNet provides an overview of the lodging/hospitality/hotel terms that will be applied interchangeably throughout this series sector. Worlds Best Independent Hotel PMS Provider - World Travel Tech Awards 2022, Best Property Management System - Hotel Tech Awards 2020, 2022 Best Places to Work in Hotel Tech Winner, Great Place to Work Certified - United Kingdom, Great Place to Work Certified - Czech Republic. Barton observed that these significant returns are partially derived through margins. This cookie is set by GDPR Cookie Consent plugin. Here is what we found to be the biggest challenges with PMS solutions by hotel operation type: Independent Hotels. The volume of passengers is not very high compared to a chain hotel, but it is similar in terms of figures per activity. Business travelers can take advantage of the chain hotel. 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. Explore your hospitality hub. Both parties expectations, responsibilities, and duties should be set in this document. Please contact Customer Support at 1-800-613-1303. 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). But today, independent hotels account for less than 30 percent of hospitality venues. The quality of the guest experience can be controlled by brands. As Freitag noted, Theyve been there and done that, right? 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. What is a chain hotel give examples of the chain hotels? As Jan Freitag, national director of hospitality market analytics at CoStar, pithily observed, a hotels lease terms are just one night.. Doctoral dissertation in business administration. There is no independence. In addition to these benefits, brands make it easier for investors to access financing. Ways in which health insurance can help your child during an emergency? Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine. The LoopNet service and information provided therein, while believed to be accurate, are provided "as is". As today's travelers gravitate toward unique lodging accommodations, the boutique hotel scene is thriving. School of Business, Economics, and Law at the University of Gothenburg. Advantage: Full Control Over Operations That is to say, they strive to offer a unique and authentic experience at every hotel. The decision-making process is longer. 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. Kelso said that investors should be prepared for swift changes in financing options. 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. LoopNet disclaims any and all representations, warranties, or guarantees of any kind. He has also previously held positions as an adjunct professor, music critic and editor-in-chief of an online arts and culture publication. As Barton said, Its a fun business; no day is ever the same., Kelso concurred. Ashley Donohoe started writing professionally about business topics in 2010. Its also a sector that has been particularly impacted by the coronavirus, which has produced both distress and opportunities. 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. 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. Beautiful Design. Disadvantages include full accountability, more time needed to become profitable and resale difficulties. 4 minute read, The Mews Blog>Pros and cons of independent hotels versus chains. (2017). This personalized touch, of simply just knowing what their guests want, gives them a competitive edge. It does not store any personal data. Financial autonomy : independent accommodation does not have financial pressures from a group that demands a certain return. There are no discounts or premiums included in the rack rate for a hotel room. 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. 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. 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 particularly helpful when traveling with two or more people for an extended period of time. 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. Consider both the advantages and disadvantages of hotel ownership as a franchisee to decide if it's right for you. International Journal of Hospitality Management, 30(3), 515521. There are over a dozen separate brands in the portfolio of Hilton. They are usually located in trendy neighbourhoods in large cities, have luxury amenities, and have a modern design. 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. Flexibility : the managers reactivity supposes an almost instantaneous decision-making power that limits monetary losses and increases profitability. Advantages. 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. Disadvantages of Independent Hotels: You are alone to face all challenges and fight all battles. Running an independent restaurant can also help you avoid some of the personal and legal risks of running a franchise. Independent hotels are often based on their history. Todays consumer is becoming more and more demanding, which has inspired a more personalized and varied offer in the hospitality sector. Advantages of hotel chains = disadvantages for the independent hotel. Overall, the authors concluded that the performance of franchised hotels was not superior to that of independent properties. 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. These lease terms provide investors with a certain degree of security, even if markets take a downward turn. 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. Unfold - The most innovative hospitality forum is back! They aim to provide a unique and authentic experience at every hotel. Being independent allows you to develop your own brand, menus and dining experience for your customers. 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. A comparison of the performance of brand-affiliated and unaffiliated hotel properties. They have the ability to negotiate better room rates for employees who stay there a lot. To begin with, theres the duration of tenancy. Independent hotels are more agile and better prepared to adapt to the local market shifts ("Skift Report", 2018), and have the flexibility and opportunity to create unique experiences for the guests (Stone, 2018). They usually create guest profiles, so they register their guests preferences and can better tailor their services, especially for repeat guests. Having experience running all aspects of her small business, she is knowledgeable about the daily issues and decisions that business owners face. One of the differentiating aspects of hotels that every expert LoopNet spoke with agreed upon is the amount of work they require. A comparison of branded and independent hotels performance during a full economic cycle, International hotel development: A study of potential franchisees in China, Strategic hotel development and positioning: The effect of revenue drivers on profitability, The role of brand affiliation in hotel market value, The relationship of sales and marketing expenses to hotel performance in the United States, Tourism in protected areas and the impact of servicescape on tourist satisfaction, key in sustainability, Cash regimes and the franchise system: An extension of the marginal value of cash, The internationalisation of the European hotel industry in the light of competition theories, Performance comparisons of hotels in China, Foreign market entry mode in the hotel industry: The impact of country-and firm-specific factors, The penetration of international hotel chains in Italy: Evidences from an updated census, Hotel chains: survival strategies for a dynamic future, The future of hotel chains: Branded marketplaces driven by the sharing economy, An extended COPRAS model for multi-criteria decision-making problems and its application in web-based hotel evaluation and selection, Network advantages effect on exit performance: examining venture capitals inter-organizational networks. 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. They are important players in the hotel market worldwide. Business travelers can take advantage of the chain hotel. For example, a 5-star hotel has higher standards regarding cleanliness. of observations (after data cleaning). 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. The cookies is used to store the user consent for the cookies in the category "Necessary". This group is simply not inclined to spend money or time on application . The brand element (to brand or not to brand). Dont Expect Hotel Companies to Stop Launching New Soft Brands Anytime Soon. For more information please visit our Permissions help page. 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. A hotel franchise is referred to as a referral hotel chain. They like to see the corporate or franchise model in financing these deals.. Its fair to say that while every commercial real estate (CRE) asset type has its idiosyncratic features, as well as distinctive attributes and challenges, hotels are particularly unique. Example: an employee for 50 reservations instead of 10 is more profitable.

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