Independent hotels are gathering collective strength in a market traditionally dominated by hard-branded chains. David Churchill examines the state of the independence sector
When the century-old Reichshof Hamburg reopens next month (July) after a €30 million renovation, it will be the first European hotel to become part of Hilton Worldwide’s new Curio Collection brand for independently-owned luxury hotels.
The Reichshof Hamburg features 280 rooms, 11 meeting spaces and an impressive ballroom suitable for large conferences. Hilton has already signed up five hotels under the Curio banner since launching the brand last summer. It is not alone among the major chains to recognise that offering independent hoteliers in key locations the benefits of using its distribution and marketing facilities can extend Hilton’s global footprint at little extra cost.
Marriott, for example, launched its Autograph Collection in 2010 and has already brought it to London with hotels such as Threadneedles in the City and St Ermin’s at Westminster. Choice Hotels International offers ‘one-of-a-kind’ hotels in its Ascend Collection of independently-owned boutique and ‘historic’ properties, which debuted in 2008.
GOING UPMARKET
Then in April, Starwood Hotels and Resorts became the latest global chain to target the upmarket independent hotel sector, when it launched Tribute Portfolio, its first new brand since 2008 and its tenth overall. The first independent hotel to join Tribute will be the Royal Palm Hotel in Miami, a popular conference hotel.
Tribute Portfolio represents what Starwood describes as the “upper upscale” segment of the four-star hotel market. “Nearly 50 per cent of upper upscale hotels in the US are independent and, likewise, 60 per cent of four-star hotels globally are not affiliated with a brand flag,” explains Dave Marr, Starwood’s global brand leader for Tribute Portfolio.
The decision to launch Tribute was taken by new Starwood CEO Adam Aron who replaced Frits van Paasschen in February. Aron says the new brand is aiming for 100 Tribute hotels by 2020, initially focusing on North America and Europe.
The new brand is not Starwood’s first foray into this sector – it formed the Luxury Collection in the late 1990s to house the five-star properties it acquired at the time from ITT Sheraton. Since then, the Luxury Collection has continued to grow with over 100 independent hotels worldwide under Starwood’s marketing umbrella.
UNIQUE SELLING POINTS
In hotel marketing jargon, these ‘collections’ of independent hotels are known as ‘soft’ brands which give their owners greater freedom over hotel standards and operations than if they were in a ‘hard’ brand – the cookie-cutter, one-size-fits-all approach of a franchised Holiday Inn or Marriott.
But the main appeal for independent hoteliers is access to the chains’ booking systems – they offer an extra distribution channel as an alternative to online travel agents (OTAs) that charge up to 25-30 per cent commission (though of course, collection properties are also sold via OTAs, which means two sets of fees).
The soft brands typically charge an initial fee to the hotelier and then take a percentage of the gross room rate (GRR). Hilton’s Curio, for example, is understood to charge an initial fee of US$75,000 and up to 9 per cent of the GRR in royalty and marketing fees.
The move by the major global chains into this market – although Intercontinental Hotels Group has so far declined to follow suit – masks the simple fact that while the big brands get all the attention, the reality is that there are significantly more independent hotels worldwide than hotels in branded chains.
Globally, the split is estimated by Jon West, UK managing director at hotel booking specialist HRS, at 70 per cent to 30 per cent in favour of independents over chain hotels. “But in the US it is the other way round,” he adds, reflecting that America was first to develop branded chains as its interstate highways spread across the country.
On room numbers alone, the split is similar. According to international hospitality research group MKG, of the 19.5 million estimated hotel rooms available worldwide last year, only some 7.85 million were in branded chains. MKG also found that 27 per cent of the 6.6 million hotel rooms across all of Europe – including the UK and Russia – are in branded chains, with the rest coming from independents.
INCREASING CHOICE
Increasing the number of independent hotels under a chain umbrella should be good news for corporate travel buyers, who traditionally have focused on dealing with the branded chains, because it increases choice and locations for them.
However, most independent hotels are just that – outside the chain system – and these offer good value, according to HRS’s West. He argues that the chain hotels’ drive for global growth means they incur higher marketing overheads than those for independent properties.
“Independent hotels [in the HRS system] tend to be 15 per cent cheaper compared to chain hotels based on similar location, star rating, user reviews and amenities,” he says. BBT recently reported on a deal that saw HRS add around 70,000 hotels to Travelport’s global distribution system, and HRS also has agreements with Sabre and Amadeus.
Opportunities for independent hotels to make inroads into the corporate market are also growing, he believes, as a result of user reviews becoming more relevant and trusted. “With improved availability of content online the buyer has more choice of hotels, which in turn leads to better adoption and compliance, as there is less leakage from the programme,” West says.
But finding good independent hotels in the right location can be an issue for buyers. Jef Robinson is a global travel buyer at Citrix Systems. He says his priority is to “leverage global and regional chain relationships wherever possible, so they are used where best suited to local offices”.
But he points out that “many of our offices are situated in locations where there are no partner hotel chains in the immediate vicinity to service our needs. In such circumstances, we make a judgment call on finding accommodation – prioritising quality of service, safety and convenience – as well as value, which means we do have a number of independents in our transient hotel programme”.
A travel buyer for a leading company in the European aviation sector also points out that the “existence of global contracts with the major chains will always include corporate deals, so that alone encourages us to use them over an independent”.
The buyer also notes that “better adherence to our travel policy is helped by the chains’ reward programmes, which are very popular with our travellers, making it more unlikely for them to want to use reward-free independent hotels”.
So not all travel buyers feel a need to use independent hotels. Peter Macey is facilities and central purchasing officer for legal organisation the Medical and Dental Defence Union of Scotland (MDDUS). Macey says he uses chain properties in Glasgow, London and Manchester.
He has direct arrangements with three key hotels in those cities or, if they are full, uses either MDDUS’s Premier Inn Business Account or goes through a hotel booking agency. “The key reason is that since our travel is based on specific locations there is no compelling reason to seek out independent hotels,” he says.
But it’s not just global hotel groups wanting a piece of the action offered by independents. Retail giant Amazon recently launched a hotel-booking service, called Amazon Destinations, initially featuring around 150 properties in the US. It says its commissions will be “competitive” compared to other OTAs. This small but significant step could signal a game-changer for independents – and the wider hotel booking sector.
DECLARING INDEPENDENCE
While the emergence of soft brands is really only a niche market for the global chains at present, they cannot expect to have it all their own way for long. Traditional hotel marketing consortia are also reinventing their game to take account of changing market conditions, from the emergence of the Millennials (aka Generation Y) to the way travellers are willing to embrace new mobile technology.
These consortia – such as Leading Hotels of the World, Preferred Hotels, Small Luxury Hotels of the World, and Relais and Chateaux – provide marketing, distribution and branding services to their memberships of upmarket independent hotels. Although leisure travellers are these consortia’s traditional base, they are also increasingly targeting business travellers and groups, especially for their MICE offerings.
Relais and Chateaux, for example, recently launched a dedicated Unique Corporate Retreats programme for over 100 of its hotel members for discreet high-level board meetings and other small events aimed at senior executives.
Best Western International (BWI) is the hotel industry’s biggest consortium with more than 4,000 mainly mid-market independent hotels around the world, including over 280 in the UK. It recently decided to fight back against the global brand chains encroaching on its territory by launching its own soft brand, called BW Premier Collection. The first to join earlier this year was the Hotel Master Johan, a renovated 68-room independent boutique hotel in Malmo, Sweden.
BWI chief executive David Kong believes the new brand will help such upscale hotels to “reduce their reliance on online travel agencies and improve profitability while maintaining their independence”.