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Although some companies in certain industries have a tendency to consolidate and eliminate brands, the hotel industry is different. Most of the leading hotel companies with brands, such as Marriott, Hilton, IHG, Hyatt and AccorHotels, regularly acquire or create new brands or flags. Today, Marriott has 30 banners, Hilton has 22, IHG has 14, Hyatt has 29, AccorHotels has 40, and that’s just the tip of the iceberg. With so many flags to choose from, it’s easy to overlook another option – no branding at all. While choosing a brand is the obvious choice, operating an unbranded restaurant may be a better option.
Why choose an existing brand?
Major brands offer many benefits to hotel owners. Some of them are:
Name recognition.
Perhaps the greatest benefit of hotel branding is visibility, and brands work to maximize this benefit. Hotel companies spend time and effort to ensure that the traveling public recognizes the flag, which makes it easier to choose a hotel when others are available. Their use of traditional advertising, social media, endorsements and other techniques is polished and effective. Most importantly, hotel guests who have had a positive experience at a hotel assume (not always correctly) that the experience will be the same at other hotels.
Brand standards.
Brand recognition is part of brand standards, and brand standards can also provide benefits to owners. Although they represent a compliance cost, they help create uniformity among different flags and enhance interest in a particular hotel flag among the traveling public.
Reservation system.
Hotel companies invest in reservation systems that make booking a hotel easy, aiming to maximize the likelihood that travelers will actually book a room rather than just visit a website.
loyalty program.
While loyalty programs may place a financial burden on hotel owners, they are attractive to hotel guests and increase occupancy. Travelers are attracted to earning travel rewards, and even if hotels can’t recoup advertising or actual daily room rates, other expenses (food and beverages, on-site service, etc.) can provide additional financial benefits.
support.
When problems arise, hotel brands can provide support. They can provide troubleshooting expertise and, for brand managers, a backup force of experienced hotel staff.
Why not brand?
While major brands clearly have benefits, they can also come with challenges and costs—some of which are complementary to their benefits. For example:
cost.
The development and maintenance of a brand requires costs, and this cost is borne by the hotel owners. Owners should realize that it’s not just franchise or management fees – although these can be high enough to drive a hotel unprofitable – brands charge owners a dizzying array of fees. These fees include food and beverage fees, marketing fees, reservation fees, information technology fees, guest satisfaction fees, training fees, loyalty programs, centralized payments, mandatory property improvement program fees, transfer fees, etc. While the base monthly royalty for a franchise may be 5% of gross revenue, the actual fee paid to the brand may be much higher.
Brand standards.
While brand standards may provide guidance, they also incur costs, especially because hotel companies, aiming for a uniform product, may be reluctant to adjust their brand requirements, even if circumstances make it difficult to justify the standard.
Change the brand.
Nearly all hotel companies rely on long-term, no-cut agreements, typically lasting 20 years or more. While this makes sense for hotel companies, it can be a burden for owners, especially if the flag loses favor, is no longer competitive in the market, or imposes standards that are difficult to achieve at a reasonable cost ( This may happen).
competition.
Another effect of many brands is that hotel companies may establish multiple brands to compete for the same customers or demographics at similar prices. Owners often expect that they will be the exclusive proprietors of a particular brand in a region. Non-compete clauses are increasingly restrictive and almost never cover other brands, even if they pose real competition to the first brand. Although a hotel company has a very specific idea of the guests its brand wants to attract, when a hotel owner sees five, six or more hotels all under the same hotel company reservation system and in the same market, the owner may Would start to wonder if the neighborhood becomes too crowded.
What is the right decision?
Hotel owners need to consider some key issues when deciding not to brand their hotel:
- Do I have the resources to run an unbranded hotel?? This will include creating an image for the hotel, executing its construction or renovation and extending that image through its operations.
- How will I attract guests?? If a hotel has an obvious customer base—a major attraction, a university hospital, or some other attraction for guests—it doesn’t need a vibrant reservation system.
- Can I get funding?? Lenders and investors often prefer an existing brand because it has a proven track record, while unbranded hotels may have a harder time attracting funding.
- Do I have hotel professionals on my team?? Today’s industry is synonymous with disruption – violations of business models are common, and the market tends to reward entrepreneurs who break the rules. At the same time, rules are there for a reason, and because restaurants are so tightly regulated, it’s often more effective to stay in the box than outside of it.
Handle it correctly
Most hotel owners and developers don’t negotiate with brands on a day-to-day basis. The best and most effective way to get your brand right is to hire a professional consultant. As hotel attorneys, we at JMBM’s Global Hospitality Group® perform this function by investigating the owner’s goals, the specifics of the project, and its market fundamentals. From this, we identified an exhaustive list of possible candidate brands and operators. We work with the hotel developer or owner and other team members to review and prioritize options and compare the different terms required by the brand.
We’ve developed this approach through lessons learned over the past two decades – over the years, JMBM Global Hospitality Group® has signed thousands of brand management and franchise agreements on behalf of clients. Asking key questions before choosing a brand or deciding not to brand is key.
Click to view the latest articles on Hotel Management Agreements and Hotel Franchise and Licensing Agreements. For your convenience, a selection of individual articles on these topics are listed below.
JMBM’s Global Hospitality Group® Announces Fifth Edition of HMA and Franchise Agreement Manual
Restaurant Lawyers: 5 Tips for Your Next Hotel Management Agreement (HMA)
Think about it before signing a (non-binding) letter of intent!
Hotel Lawyers: Franchising and Management Disputes During the COVID-19 Pandemic
Hotel Lawyer: Questions from Brand Franchise Owners “What happened to my sanctuary?”
Restaurant Lawyer: Tips for Negotiating Annual Restaurant Budgets
Hotel Lawyer: Advantages and Disadvantages of Multi-Brand Hotels
Restaurant Lawyer: What’s the situation with all the new hotel brands? What does this mean to you?
*Learn how JMBM’s Global Hospitality Group® can assist you.
Jim Butler
+1 310 201 3526
JMBM
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