Back on the chain scale
21 AUGUST 2015 7:39 AM
Here’s a breakdown of chain scales to help you understand how each segment works within the larger hotel industry.
NASHVILLE, Tennessee—As a hotelier, understanding what chain scales mean goes hand in hand with understanding your place in the larger landscape of the industry.
Chain scales were devised as a method to better group and compare branded hotels with similar actual average room rates using STR data. They have grown into a vital portion of understanding where a hotel stands in relation to its competition. (STR is the parent company of Hotel News Now.)
To that end, here’s a quick refresher course on hotel industry chain scales, provided by STR Senior VP of Operations Bobby Bowers at the 2015 Hotel Data Conference.
What are the chain scales?
There are six chain-scale segments, ranked from highest average daily rate to lowest: Luxury, upper upscale, upscale, upper midscale, midscale and economy.
The largest chain scale in terms of existing rooms globally is upscale, which includes brands such as Mercure, Radisson, Hilton Garden Inn and Courtyard. It is followed closely by economy, which includes Homeinns, Extended Stay America, Red Roof Inn and Days Inn.
The smallest chain scale by room count is luxury, including Shangri-La, Fairmont, Four Seasons and Ritz-Carlton.
The largest brand on the globe, based on room count, is Best Western, which falls under midscale, along with such brands as Ibis, Candlewood Suites and Quality Inn.
Upper upscale includes brands such as Le Meridien, Embassy Suites, Hyatt and Marriott. Upper midscale includes Golden Tulip, Holiday Inn, Hampton Inn and Fairfield Inn.
According to STR census data, brands are most prevalent in North America, where 66% of hotels are branded and 34% are independent. The highest proportion of independent hotels exists in Africa, which has 38% branded versus 62% independent.
U.S. chains have steadily grown their room supply share over the past 25 years from 56.5% in 1990 to
69.6% in June.
Upper-upscale hotels saw the most rooms revenue over the trailing 12-month period ending with June, collecting $26.7 billion, followed by upper midscale ($22.8 billion), upscale ($22.4 billion), economy ($9.5 billion), luxury ($9.2 billion) and midscale ($8.3 billion).
For the same period, occupancy has been at its highest in luxury hotels (75.2%), followed by upscale (74.2%), upper upscale (74%), upper midscale (67.2%), midscale (59.2%) and economy (58.2%).
What determines placement in the scales?
Average room rates play a big role in determining where chains fit into chain scales, with Bowers stating that brands’ placement in scales is reviewed based on their ADR on a yearly basis. He said new brands are initially placed in a scale based on how the companies behind them see them competing in the marketplace.
“It’s based on how the company is positioning it,” Bowers said. “We don’t know what they’ll be until we get them. But say with the Moxy brand: It’s going to an Economy Inn type hotel with a boutique-y flair. Then that’s going to be put into economy. And once we have the data, we take a look at it and say ‘OK, what is it actually?’”
If that initial assessment doesn’t reflect reality in the long term, or if there’s a change in a brand’s performance, it will be reevaluated and placed in a more appropriate scale, Bowers said.
Not surprisingly, the economy scale had the smallest ADR for the 12-month period ending June, at $57.59. ADR climbs steadily up the scales with midscale at $81.58, upper midscale at $106.76 and upscale at $130.84. That metric makes its biggest jump from upper upscale ($172.53) to luxury ($313.09).
The birth of classes
When looking at chain scales, independent hotels, which represent 47% of the global room supply, are viewed as a single block. But to better recognize the variety within that segment, STR created class segments, which provide independents delineation in the same fashion as branded hotels.
These classes function almost identically to the chain scales and carry the same classifications: luxury, upper upscale, upscale, upper midscale, midscale and economy. Independent hotels are assigned a class based on how their ADR compares to others in their geographical area.