|by Rick Swig - 1998
The 90’s is characterized by the continued development of branding either through franchising or chain management. Structures of mega-chains bolstered by the likes of Cendant (born HFS), Marriott, and Holiday Inn dominate the United States hotel market.
The mega-chains have expanded their coverage with tiers of branding thresholds from economy to luxury, extended stay to all suite, and 50 rooms to thousands of keys. The critical mass of brand affiliated hotels has established new waves of distribution channels plus contemporary marketing strategies through frequent guest programs and other incentives. Selling hotel products has taken the basics of selling over night stays to new levels of spindoctoring with sweepstakes, discounting, and other customer incentive opportunities. Selling hotel rooms feature tactics more like Proctor and Gamble home products than ever before.
As the branded field has crowded and gained ground, the squeeze has been put on independent hotels. Smith Travel Research, the leading calculator of hotel business trends, has reported a great movement in the ratio of independent to branded hotels. Since 1991 the number of independent hotels has decreased by over 5.5%, and in 1991 two out of five guest rooms in the U.S. were independent, while today less than one out of three rooms enjoy that status. Since 1991 the chain premium over independents in percentage of occupancy has risen from 2.5% to over 4.2%.
The trends in the growing dominance of the chains were clearly fueled by the lending community of the 80’s and then again in the 90’s in conjunction with Wall Street conduits. Developers and acquiring investors have little flexibility in bucking the brand trend, even if they wanted to, as lenders are hesitant about lending in support of hotel projects without the support of a credible chain management group or recognized affiliation.
Has the time come to say good-bye to the tradition of independent hotels? Is the future of independents restricted to specific market segments, hotel types, or geographic elements? Can a hotel maintain its independence and compete effectively? Are independent hotels viable investments?
The rumors of the death of the independent hotel segment are probably over exaggerated and definitely premature. Independent hotels are surviving, and thriving throughout the country. Prominent independent hotels maintain their positioning by providing the expected basics of cleanliness, service, and security, generally coupled with unique characteristics. A wide customer segment demands something beyond the cookie cutter stereotyping of many brands.
Branded hotels base their product superiority on familiarity and consistency. The entire premise of Holiday Inn was based on a formula to provide security to the traveler who was subject to the unknown irregularities of hospitality along U.S. thoroughfares in the 1950’s. That tradition has been retained by not only the originators but both by upstarts from the limited service (Hampton Inn) to the full service segment (Ritz Carlton).
Although consolidation and acquisitions have branded many traditional independents, such as the St. Regis or the Stanford Court, there are still the great historical independent hotel heroes, like the Hotel Del Coronado, Boca Raton Hotel, and Watergate, which continue to carry the gauntlet. In addition, consumers are responding to hotels with themes targeted to specific demographics. Although eco-tourism outlets are still pioneering in the wilderness, there are emerging urban examples of alternative products surfacing in New York, San Francisco, Los Angeles, Seattle, Miami, and Chicago, where companies, such as the Kimpton Hotel Group, Ian Schrager Hotels, Joie de Vivre, and Manhattan East hotels have created new models and distinctive products for demanding market segments.
Additionally, independent hotels located in peerless cities (New Orleans, Charleston, and Washington, D.C.), as well as resort destinations (beach, mountain, and special interest areas) are profitable staples. These hotels capitalize on their unique locations and associated amenities to identify with their targeted demand generators. Their non-branded status does not prevent owners from building successful and dominant businesses.
Chains have used technology to achieve domination in part due to the development of progressive distribution networks, which allow customers to purchase rooms inventory. Along with central reservations offices and automated systems, national and regional group sales are systematically linked to hotels throughout a brand portfolio. These links have provided customer databases for valuable marketing information, as well as the capacity to sell product from multiple outlets within one chain.
Technology is also the great equalizer. Traditional independent hotel marketing organizations, such as Preferred Hotels and Resorts, Leading Hotels of the World, UTELL, and Lexington Hotels, are now utilizing comparable, if not the same system software as chains, to complete the same distribution and database tasks. Additionally, group sales companies, such as Associated Luxury Hotels and the Krisam Group, fill much of the void for direct group sales activities.
As Rob Cornell, Senior Vice President of Preferred Hotel and Resorts, states “An independent hotel today has access to their own form of brand affiliation, marketing and global distribution.”
As micro-breweries have come to share the shelf with Anheuser Busch, independents will carve out profitable niches by: