How indies benefit from select-service efficiencies
 
How indies benefit from select-service efficiencies
28 AUGUST 2019 12:22 PM

Most of the attractive elements of a branded select-select service hotel translate into independent hotels, making it a popular property type to own and manage.

REPORT FROM THE U.S.—Just as with their branded counterparts, independent select-service hotels have been a popular option for owners and developers because of their revenue-generating abilities paired with lower costs to build and operate compared to full-service properties.

However, as more guests are looking for experiential stays at independent hotels, that means finding ways to go beyond what a branded select-service hotel would have to do, even blurring the lines a bit into full-service. But being an independent property gives them the freedom to experiment.

Most of the benefits of a select-service branded hotel crosses over into the independent space as well, said Richard Jones, SVP COO at Hospitality Management Ventures Group. There’s a lower cost of construction and an overall more efficient operating model, he said.

“In the right markets, with the right plan, you clearly see cost efficiencies not being affiliated with and having to carry all of the brand-related costs,” he said.

The operating models of branded versus independent in the select-service space are not that different, he said. What makes the difference in the independent space is having a more experiential strategy and taking creative approaches to design and services to create a unique identity, he said. Those don’t come at a significant cost, but they do require creativity and a leadership element from the GM on down to develop it and deliver it every day, he said.

“When you do that, the most successful lifestyle independent hotels generate a premium,” he said. “They can create a rate premium and demand premium because they can deliver that unique experience.”

Finding the sweet spot
HVMG’s two independent select-service properties have the ability to get creative and define themselves through the service experience, personality and design of the hotel, Jones said. The University Inn in Atlanta is a pure independent select-service product that is oriented toward meeting the needs of Emory University faculty, staff, students and the medical center, he said. The Plunge is a resort in Fort Lauderdale, Florida, the company considers select-service because of its smaller food-and-beverage operation, he said.

“When you have the ability to be more creative, it’s an obligation to be more creative,” he said. “You have to nail that and get it right.”

From a marketing perspective, these hotels are transient-oriented properties, which means having an online presence and positioning digital marketing through social media and other channels is critical, he said. Independent hotels in this space have to be committed to planning and executing a robust strategy there and then maintaining it, he said.

Most transient guests don’t really look at whether a property is a select-service or a full-service hotel, Jones said. Those who choose to stay in a lifestyle-oriented independent hotel are, above all else, looking for something different. The service levels at HVMG’s independent hotels are high, but guest expectations are also high, he said.

“We activate all the things we can to create that experience that separates it from the cookie-cutter brand type of approach,” he said.

There can be a bit of full-service creep into the select-service space. Many of Pacifica Hotels’ select-service properties have some additional services or amenities more traditionally found at full-service hotels, said CEO Matt Marquis. In some cases that could be F&B, valet parking or even a resort or property fee that covers extra amenities, he said.

“Sometimes it’s a necessity or other times there’s a perceived value there,” he said.

Historically, properties have stripped out their F&B operations, but over the last 10 years, F&B has become a big perceived value, he said. Instead of having a giveaway breakfast that guests didn’t actually like, Pacifica has been switching over to what Marquis called the “Starbucks model” and sell alcohol in the evening, he said. Making this switch turned an operation that cost $150,000 to $200,000 into one that breaks even, which created millions in value, he said.

“Those are the kind of things (where) you will see select-service look like they are operationally close to full-service, but it saves money and helps me push my topline,” he said.

The big question is when select-service properties take on these extra services or amenities because guests of independent properties can at times expect more from an indie select-service property than a branded one, can that hotel sustain those when times get tough, Marquis said.

“How many more experiential hotels are going to provide that same experience?” he asked.

Challenges in the space
Independent select-service properties are competing against their branded competitors that have powerful central reservation systems and booking engines, said Jan Freitag, SVP of lodging insights at STR. That means they either have to play more with online travel agencies or Google to build a better funnel to help guests find them, he said. STR is the parent company of HNN.

This property type needs to differentiate themselves through décor and service, he said. Another selling point is the general culture and vibe in an indie hotel that might not be present in an older branded property, he said.

Soft brands helps indie hoteliers get people in the door, he said. They are hooked up with the central reservation system and part of the loyalty program, he said. On top of that, they generally get to retain the indie feeling they had before joining.

The indie select-service space is getting crowded, Marquis said. The brands have noticed their space and they have created their own boutique, experiential brands, such as Marriott International’s Moxy and AC brands, he said. Having stayed in both, he said they still “feel brand-y, but they’re getting closer to it.” Soft brands are also invading the space, he said.

“The independent select-service space is getting muddied,” he said. “It’s not as dramatic as wolves in sheep’s clothing, but they’re making brands in that experiential space.”

At the same time, soft-branding is a tempting option, Marquis said. As a player in the independent space, soft-branding is something his company looks at all the time. A soft-brand might pay for itself by stabilizing better through tumultuous times in the market, he said. That might also help through refinancing or even a sale, he said.

“I’ve sold enough independent hotels to know you could have an A-plus location, but if there’s no brand available, you lose a certain amount of buyers,” he said.

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