Brand to independent: The costs, benefits of the switch
 
Brand to independent: The costs, benefits of the switch
21 JUNE 2017 8:28 AM

Consider these best practices when thinking about de-flagging and going independent or joining a soft brand. 

NEW YORK—Taking a hotel from branded to soft branded or independent involves more than just flipping a switch and changing a sign. And the benefits are about more than just franchise fee cost savings, according to speakers at the recent Boutique Hotel Investment Conference.

Owners, managers and asset managers on the “Transition of branded hotel to boutique hotel” shared tips and best practices for the process.

Know your reasons
The speakers on the panel all agreed while it might sound simple, having a clear idea of why a hotel might work better as an independent or part of a soft brand is the first step.

Next is making sure the property tells a strong, resonant story on its own.

“The decision is always market- and property-specific, and it has to be about the story,” said Andrea Foster, SVP of development for Marcus Hotels & Resorts.

She talked about the company’s decision to convert a former Holiday Inn in North Hollywood, California, to an independent property, now known as The Garland.

“The Holiday Inn brand was suppressing the rate (for the hotel),” Foster said. “We talked with the owners, we looked at the significant leisure demand in the area, and that was helpful” in making the decision.

With the goal in mind that the property in its location could demand higher rates, she said the team applied laser focus to coming up with the hotel’s unique story as an independent hotel.

“We could renovate in order to raise the rate $50-plus, but everything in the renovation had to be about a story,” she said. “The hotel is in California, so it needed a California vibe. We added a restaurant that now is full of locals plus hotel guests. We also created an outdoor wedding venue because we had the land. We ran everything through that identity filter.”

In today’s competitive hotel environment, that story translates to sales, said David Israel, SVP at HotelAVE, which asset-manages boutique and soft-branded hotels in addition to branded ones.

“That building of the lifestyle element, the unique selling proposition for the asset, is so important,” he said. “At the end of the day, that’s your sales proposition, and you need to be able to tell the market you’re doing something different.”

That’s also the case for soft brands too. Julius Robinson, VP and global brand lead of Autograph Collection Hotels and the Tribute Portfolio for Marriott International, said defining the story must go beyond identifying with buzzwords like “boutique” and “luxury.” Robinson said, “Those are the two most overused words” when asking people to describe their hotel.

“Everyone says they’re boutique and everyone says they’re luxury, and most are neither,” he said. “At Autograph, we want to make sure the identity of the hotel is solid, bold and strong and it tells a story. That sets the benchmark for everything else.”

Dropping a brand shouldn’t be about saving money
Panelists said owners shouldn’t leave a brand for the wrong reasons.

“The mistake people make is they’ll say they want to save on franchise fees, so they’ll go independent,” Foster said. “But there is cost associated with going independent: creating the brand, logos, touch points, standards and additional marketing fees.”

Ed Blum, EVP of development and acquisitions for Interstate Hotels & Resorts, which manages 46 independent hotels plus several soft-branded hotels as part of its third-party management portfolio, advised owners not to think solely about the bottom line.

“You never want to convert (from a brand) just to save money, because it never works,” he said. “Certainly the bottom line can be better, but it doesn’t work in the long run.”

Making long-term investments is also important, Israel said.

“So much about being independent is building your brand for the long term and being relevant,” he said. “Those things that are so important (like marketing a new brand) are often the first things cut when you’re not hitting the numbers.”

That’s why Foster said the dollar is best spent in capital expenditures and marketing when choosing to de-flag a hotel.

“Whether it’s a full renovation or not, you want to make sure you’re spending the money in the right place, at guest touch points, in public space that people will talk about,” she said. “The other, of course, is marketing.”

Distribution plans are important
Speakers said distribution plays a big role in the switch from a branded hotel to an independent or soft-branded property, and that owners must pay attention to business mix and the tiny details of distribution.

“You can flip a switch and fill rooms via (online travel agencies), but it might not be filling the rooms the right way at the right rates,” Blum said.

For Marriott’s soft brands, Robinson said hotels can save “real money” when they look at the difference between having 70% to 80% dependency on OTAs to 10% or below by joining Marriott’s distribution platform.

Israel said it’s up to owners to decide what models work best for individual hotels when it comes to driving distribution decisions.

“Our independents average over 50% OTA (contribution), while soft brands are closer to 18-22%. That’s a huge cost differential,” he said. “The bigger question coming into play for indies is whether they even need their own website and booking engine … or if they’re better off paying OTA commissions or going to OTAs with exclusivity to bring commissions down.”

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