News for the Hospitality Executive
Brands are proliferating rapidly,
offering more choices --
|by Robert E. Braun, Hotel Lawyer, Partner, JMBM Global Hospitality
Group®, September 2008
Recent years have seen an explosion in the number of hotel brands; since 1980, the number of brands reported by Smith Travel Research and PricewaterhouseCoopers LLP in Hotel Business has increased from 81 to 324. In recent years, established hotel companies have introduced new brands, while newcomers have developed their own concepts.
New hotel brands create both opportunities and pitfalls for hotel developers and owners seeking to brand, or re-brand, hotel properties. With so many new choices, owners have a greater variety of potential choices, but also need to understand what they are getting.
Old Company, New Look
When an established hotel company introduces a new brand it has some distinct advantages. They don’t have to learn on the job; they have “done it before,” and can apply their experiences to a new brand. The have reservation systems, standardized procedures, the money to establish the identity of a new brand, and most importantly, bench strength -- they can draw upon human resources that can only be developed through years of experience and training.
However, the resources of brand companies are not limitless. Brands within a family of brands naturally tend to compete with each other, not only for resources within the company, but for guests. For example, there may have been a time when it was clear that a limited service hotel would not compete with a full-service property. But now, the lines between different concepts are often blurred and can result in heavy competition.
New Company, New Look
New brands developed by new hotel companies present different benefits and challenges. A new hotel company can be more focused on the success of a single brand. Because new brands are likely to be more dependent on the financial success of a smaller number of properties, their goals may be more in line with the goals of owners. There is a greater opportunity for flexibility, giving owners greater say in the design and operation of the property, and a greater willingness to address unique issues of location, size and design.
However, these benefits are also weaknesses; new hotel companies do not have the same systems and resources as do seasoned hotel companies. New hotel brands are unlikely to have the same economies of scale as existing brands; often, sharing costs “equitably” among a very small group of hotels will put a large burden on each hotel. Additionally, one of the advantages of a new brand – flexibility – might make it difficult to create and maintain a consistent brand image.
A caveat - newly established brands often try to gain additional leverage by “acting as if” they were established brands. Owners should be aware that simply because a hotel anticipates competing with W doesn’t mean that it actually does compete with W and can demand the same terms.
What Brand is the Right Brand?
Matching the right brand and operator with the hotel project determines, possibly more than any single factor, the ultimate success of the project. The right brand — and the right management or franchise agreement — can add, or subtract, as much as 25% of the value of a project. Because of this, owners need to evaluate, systematically and realistically, what each brand brings to the table. Owners need to ask some key questions:
Most hotel owners and developers don’t negotiate with brands on a day-to-day basis. The best, most effective way to get the right brand is to engage an expert consultant who does. As hotel lawyers, we at JMBM's Global Hospitality Group® serve that function by investigating the owner’s goals, the specifics of a project and its market fundamentals. From that, we identify an exhaustive list of possible brand and operator candidates. Working with the hotel developer or owner and other team members, we review and prioritize choices, and compare the different terms the brands demand.
We have come to this approach through lessons learned over the last two decades -- the JMBM Global Hospitality Group® has represented clients in more than 1,000 management agreements over the years. Asking the critical questions before selecting a brand adds significant value to the management agreement.
We also recommend that the owner actively "sell" the merits of the project to the brand candidates, and explain this is a great project that they want to have in their family of hotels. The owner can clarify its vision of what distinguishes the project, how it will be successful, and why it may be strategically or financially important to their particular hotel company.
Asking brands the 5 critical questions -- and presenting the merits
of their properties -- can result in achieving successful strategic relationships
that are a "win-win" for both brand and owner.
About the author:
|Also See:||Hotel Management Agreements - Indemnification Provisions / Bob Braun & Jim Butler / August 2008|
|Helping Hotel Owners Strike a Fair Deal: 5 Milestones Marking The Road To Success For Hotel Management Agreements / Jim Butler and Robert Braun / March 2007|