There has been a fair amount of discussion over the years about the ever increasing number of hotel franchises and the propensity for brand layering among many of the franchise companies, raising concerns about consumer confusion and erosion of
customer loyalty. At the same time, we have heard many of the major franchisors announce strategies to increase their portfolio of hotels in Canada by quite remarkable numbers, while a few new brands attempt to gain a presence. While there would appear  to be an abundance of franchise options, I would argue that the constant demand for the best brands is start-ing to create a situation that could possibly see shackles placed on our industry supply growth.

There have been several instances recently when I have been asked to help developers and owners consider what chain affiliation they should consider for their hotels. In one instance, the developer wanted to build a fairly large, full service hotel; in another, the owner of a mid sized, full service hotel in a solid suburban market wanted to upgrade and reposition his hotel. The issue as to which franchise options might be suitable started off with the normal process of identifying the character traits of the property and matching them to a list of appropriate franchises, and then looking at what brands were already present in the market in order to remove them from the list. It was at this point, in both cases, when the developers and I came to the realization that the lack of appropriate brand options might, in fact, jeopardize the development of their respective hotels even though the hotels were appropriately conceived and well allocated in markets that were performing extremely well.

In the case of the large, full-service hotel, the development site was in the downtown core of one of our major cities. The property was clearly best positioned as a first- class hotel, and its size, location, competitive market and other factors suggested brand affiliation would help in its performance (regardless of the lending world's almost inflexible requirement for hotels to be branded before mortgage financing will be considered). A review of the primary competitive market showed that the major
Canadian and U.S. brand names most commonly associated with this type of
hotel was already present. Secondary options, including less well-known U.S. brands and European brands, were not deemed appropriate as the lack of recognition in this market would lead to poor reservations delivery and would not be cost justified. Discussions were held with the major franchisors to determine if there was expected to be any turnover of franchises for failure to meet property standards or other such issues, but the responses were negative. At this point, we decided the franchise options that could truly add value to the properly were just not available, and reverting to a secondary franchise option could jeopardize the performance of the hotel. The risk of moving forward was sufficient to curtail any further progress in the development plans and the project was abandoned.

In the second case, the owner of an existing, but under performing hotel, wanted
to upgrade the property, and reposition it in the market. However, as we went through the upgrading plans and repositioning options, it became evident that the best brands associated with the optimum market positioning of the hotel were already present; we now had a predicament of the brand availability dictating the type and market positioning of the project. Again, in this particular market, the alternative repositioning options associated with the available brand names were not deemed appropriate for the subject hotel and the owner is currently examining the option of converting the hotel to alternate use.

While these are just two examples, I believe that within some of the Canadian markets, we have cause to be concerned as to the availability of valuable brands. We generally have a reasonable variety of franchises, certainly not as many as in the U.S., but there is increasing desire by owners and developers for the 'good' brands - brands that are associated with high market recognition, generally good product quality, and strong reservation delivery. Look at recent events in downtown Toronto where Marriott, long recognized as one of the best hotel names in the corporate market, increased its presence from one hotel to four, and now represents about 15% of the room supply. At the same time, Bass Hotels & Resorts, Choice Hotels and some of the other major franchising companies, are being confronted by constant requests for those brands that truly deliver positive market recognition, create hotel demand and enhance hotel performance. We see property owners regularly seeking out the same half dozen or so preferred brands. with the result that there are increasing impact issues, while the 'non-preferred' brands are struggling to make headway.

Does this mean that we are likely to see a reduction in the number of brands? Clearly not, because the trend towards branding will continue and territorial restrictions will require more brands rather than less. Will the new and alternate
brands be able to increase their presence in the Canadian market? Absolutely. There will be plenty of opportunities to convert from independent to brand and from brand to brand; however, these companies will need to focus on growing the brands that do add value, either because of the good quality image of other hotels in the portfolio, the brand's ability to enhance hotel performance, or their fee structure. They will have to demonstrate that the brand name carries value - more value than its competitors and a meaningful benefit to the property owner.