A survey of operating statements conducted by CBRE shows the touted efficiencies of dual-branded hotels don’t fully live up to all the hype.
REPORT FROM THE U.S.—For the past four years, the opening of dual-branded properties has been popular among hotel developers.
The perceived benefits of building a property with two or more brands are many, including two reservation systems to channel business to the property, two brands that will appeal to different demand segments in the market, enhanced ability to maximize land density requirements, efficiencies in the construction of the facility (e.g. one laundry room for two hotels), and efficiencies in the operation of the hotels, like shared staffing.
Using data from CBRE’s annual “Trends in the Hotel Industry” survey of operating statements from thousands of hotels across the U.S., we conducted an analysis that tested the theoretical operating efficiencies of a dual-branded property. The hypothesis is that operating two hotels within one structure should allow management to achieve operating efficiencies because of shared services, labor, management and facilities.
Within the Trends database, we identified 25 operating statements for dual-branded hotels for 2017. Two of the properties were removed from the sample as outliers because of the large number of combined rooms and urban location within a major market. In aggregate, the remaining 23 properties averaged 309 rooms in size, a 2017 average daily rate of $171.69 and an annual occupancy level of 75.9%.
Among the survey sample, we observed three different combinations of property types:
- limited-service and select-service: three properties;
- select-service and extended-stay: 13 properties; and
- limited-service and extended-stay: seven properties.
For the property type components of each of the dual-branded hotels, we selected 2017 operating statements from the Trends database for comparable properties that were single-branded hotels. The statements for the comparable properties were selected based on property type, number of rooms, occupancy and ADR. The comparable statements were then added together to match the size and performance of the respective dual-branded hotels.
When comparing total operated department expenses as a percent of total operating revenue, we did not find any efficiencies achieved by the dual-branded hotels. Across all three categories, the operated department expense ratios for the dual-branded properties were greater than the comparable groupings.
Since the dual-branded properties in our analysis were limited-service, select-service or extended-stay hotels, the rooms department comprises the majority of total operated department expenses. Further, within the rooms department, labor costs average more than half of the expenses. Therefore, it is reasonable to assume that a dual-branded hotel would benefit from sharing front desk, housekeeping, laundry and bell staffs.
Unfortunately, these labor efficiencies did not appear to materialize. Across the board, the rooms department ratios for the dual-branded hotels averaged 22.8%, compared to 22% at the comparable properties. Rooms department operating efficiencies were only observed at the select-service/limited-service dual-branded properties. From discussions with our clients, we understand that brand standards frequently require discrete check-in areas and employee uniforms within dual-branded hotels. Such requirements limit the ability of operators to benefit from shared staffing.
Undistributed departments in hotels are more administrative in nature and less guest-facing than the operated departments. It is in these overhead departments where we observed the greatest operating efficiencies for the dual-branded properties. Measured as a percent of total operating revenue, the dual-branded hotels achieved undistributed department expense ratios two to three percentage points less than their respective comparable properties across all three property combination categories.
Less incumbered by brand standards, it appears that hotels are able to share staffing for such back-of-the-house functions as management, accounting, security, marketing and maintenance. Further, combining two properties under one roof allows for more efficient energy consumption.
Based mainly on the ability to achieve operating efficiencies within the undistributed departments, the dual-branded hotels on average did achieve slightly greater profit margins compared to the comparable properties. This was true across all three dual-branded categories. Since we were measuring operating efficiencies, profit for this analysis was defined as gross operating profit.
This finding of just “slightly better” profit margins is consistent with a similar analysis performed by CBRE in April 2015. Since it is widely believed operating efficiencies are a major benefit when developing a dual-branded hotel, owners of these properties should be careful not to base the financial feasibility of their project solely on expectations of greater profit margins.
As noted earlier, there are several other benefits that dual-branded hotels provide. These benefits help to improve revenues, like two reservation systems, and reduce development costs for shared amenities such as a pool, exercise room and meeting space. It is these factors that might end up being the most important when determining if a dual-branded hotel is the appropriate property type to develop.
Robert Mandelbaum, director of research information services, and Gary McDade, senior research analyst, work in the research department of CBRE Hotels’ Americas Research. To benchmark the performance of your dual-branded hotel (existing or proposed) please visit https://pip.cbrehotels.com/store, or call (855) 223-1200. This article was published in the October 2018 edition of Lodging.
The assertions expressed in this article do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please feel free to comment or contact an editor with any questions or concerns.