Hotel supply in the U.K. is dominated by two value-oriented brands in Premier Inn and Travelodge, but experts say that gives wise investors an opportunity to find niches with different brands.
MANCHESTER, England—The United Kingdom hotel landscape is dominated by two brands—Premier Inn and Travelodge—at least in terms of footprint, a state of affairs that opens up opportunity to investors wishing to give guests more choices and build more niches, according to sources.
Speaking during a session at the Annual Hotel Conference meant to emulate a political debate, David Orr, CEO of Nadler Hotels, started the “mudslinging” by saying hoteliers can get credence from investors by being independent.
Orr, whose company has four hotels and one in its pipeline, said independents remain in touch with guests. He added that is harder for brands, which come with more complex cost structures, legacies and a larger number of properties and owners.
Graham Craggs, managing director of Europe, Middle East and Africa hotels at JLL’s Hotels & Hospitality Group, said there is room for growth in both branded and independent hotels.
“We’re supportive of brands for investors wishing to maximize returns, but our questions on a deal-by-deal basis would refer to track record and appetite for risk,” Craggs said.
It is because of those more complex financing components that brands really come to the fore, said Karan Khanna, managing director of the U.K. and Ireland for InterContinental Hotels Group.
“With us on board, there is help to get through those financial and planning hurdles,” he said. “Added to that is the day-to-day help we provide in operations.”
Cris Tarrant, CEO at BVA BDRC, said a lot of these arguments were by the by when the magnifying glass is aimed at the guest.
“Customers are lazy,” he said. “We are all intellectually lazy, and we use brands as shortcuts, so, thus, brands are necessary. But as hoteliers, hoteliers can use your own name, which is still a brand. Your brand is all you do.”
Innovation and benchmarking
A new brand can be the best thing since sliced bread, but investors will peel away if relevancy dwindles and returns are slow, Tarrant said.
“Innovate or die; it is simple,” he said. “The brand must always be on the run to remain relevant and compete in a changing environment. Brand companies have both the resources and the need to be on top of change.”
Khanna agreed that it’s a brand’s responsibility to stay ahead of the curve.
“(Chains) have to innovate across the entire value chain,” he said. “At IHG, we did a huge renovation across our Holiday Inn and Holiday Inn Express (brands), and that has taken five years, which you might argue is slow.”
Craggs noted that mindset can be attractive to some investors.
“I’ve seen many cases where investors are eager to work with new initiatives, for first-mover advantage and to see where the market is moving,” Craggs said.
Khanna said the beauty of the industry is that there is space for all.
“If you want full control, franchising is what you want, and that is our strength; if you are a (real estate investment trust) and do not want that risk, there is a model for you, too,” Khanna said.
Orr disagreed, noting online travel agencies continue to seize control over inventory.
Ultimately, Tarrant said hoteliers need to make sure their ideas are working for them. Similar to how they seek a return on investment, they must also measure for a return on ideas and insight.
“Always act like a challenger brand, even if you are not one,” Tarrant said.
For those investors not so interested in the operations and customer-facing aspects, Craggs said increasingly in the U.K. there has been a rise in white-label operators.
“A school of thought of the move to franchising is that brands are less interested in the operations, so there is an opportunity for white-label management, although that is a dangerous message for brands to give,” Craggs added. “There needs to be a careful balance between meeting profit and guest expectations.”
What guests do not want, some panelists said, is to stay in cookie-cutter hotels. And while some panelists hinted that’s exactly what brands are, Khanna disputed that point.
“I used to lead (IHG’s) design team before my current role, and we know limited-service guests are not going to settle for limited-service design. Brands do have a framework, but there is scope to design within any location,” Khanna said. “You have to be careful not to have a painting-by-numbers approach.”
Tarrant said good design, regardless of the hotel’s brand status or otherwise, is often subliminal in the effect it has.
“But never have design for the sake of design,” he said. “Good design can nudge guests into certain behavior.”
Craggs disagreed, noting brands often deserve the reputation of being too alike.
“I am not convinced the big brands are great at demonstrating they are investing as much as they say or should do,” he said. “They follow brand standards too slavishly.”
The important thing is to have consistency of experience, not a consistency in where the lamp is in the room, Khanna added.
The final argument the “politicians” issued concerned staffing.
“People are your brand, so have a better idea of what your talent thinks of your brand,” Tarrant said.
Craggs said he is unsure how many investors are truly aware of the problems of staffing and retention in the U.K.
Khanna said it’s hard not to worry about labor at the moment.
“What keeps me up at night is do I have the right people, do they understand the brand and can I retain them for any length of time?” Khanna said.