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September 2022, Virtual
September 29 2022, Virtual
Rebranding is becoming a key trend for British hotels and their owners - but Is It good news for travel buyers?
Frequent business guests at the 172-room Jurys Inn Chelsea can be forgiven for doing a double take when they next visit the mid-market hotel in London’s SW6. It is now (since May this year) known as the Doubletree by Hilton Chelsea.
Their confusion may be enhanced by the fact that the general manager, Dubliner Anthony Barrett, and his 63-strong team, who were at the hotel when under the Jurys Inn banner, are still working there. It gets even more complicated: Jurys continues to own and operate the hotel, even though it’s now bearing the name of rival Hilton’s fast-growing Doubletree brand.
Guests at the Chelsea property will not be the only ones confused. The Jurys Inn Islington is also converting to a Doubletree this summer, while the Jurys property at Heathrow is being switched in December to another Hilton brand – Garden Inn – also owned and operated by Jurys.
What is going on? Jurys CEO John Brennan says the reason behind the rebranding is to “leverage the prime locations” of three of its London hotels. This strategy is designed to capitalise on Hilton’s global brand identity – and crucially its extensive distribution channels and corporate deals. The rebranding does not come cheap: Jurys is spending some £20 million on the project, including refurbishments.
The name game
Yet such rebranding is not unusual and, in fact, is fast becoming a key trend in the London and UK regional hotel markets. Recent figures from hospitality consultants BDO revealed that over 6,500 UK hotel rooms last year were rebranded under a different name, double the number that took on a new identity in 2012.
In most cases ownership was not affected by the rebranding, suggesting that hotel owners – sharing similarities with the billionaire backers of Premier League football clubs – increasingly appear to believe that changing the name over the door (or bringing in a new coach) can also change fortunes for the better.
There is perhaps some justification for this belief, in hotels as well as in sport. As with most aspects of the commercial world, the pace of change in the hotel business is accelerating as the market becomes increasingly dynamic. From new technology to changing demographics, the agenda is being reset for the UK’s hotel sector, affecting everything connected to hospitality – from booking via smartphones to creating a branded niche to target a new breed of travellers.
But pressure is also coming from investors who, not surprisingly, are seeking the best return for their money. Property agency Savills reports that nearly £1 billion was invested in UK hotels in the first quarter of the year, mainly from private equity firms and Asian investors. “There is the potential to beat last year’s transactions total of £3.9 billion, the highest since 2007,” says Savills’ director of hotels, Michelle Webb.
Investor interest in hotels, moreover, is a direct result of the ‘asset-lite’ strategy adopted by most of the major hotel groups, led by Marriott International and Intercontinental Hotels Group, since the early years of this century. They decided it was more profitable to own and develop brands than tie up their funds in actual hotel assets, selling these to investors while still in most cases managing the properties to protect their intellectual brand investment.
But the strategy created a new class of active investor/owner, demanding top performance and willing to take action if they felt this falling short. So there has been pressure on hotel groups to come up with ever-more innovative new brands, predominantly – but not exclusively – in the budget sector. According to stats from consultants HVS, the UK budget sector already accounts for some 36 per cent of the market – the largest single segment – with 50 per cent of rooms set to come on stream this year also in the lower ranking/price categories.
“While current activity lies mainly in the budget, boutique and luxury ends of the market, the three-star sector has been squeezed in the middle and failed to reinvent itself sufficiently well to attract investor interest,” says HVS director Tim Smith.
Even Whitbread, Britain’s biggest hotel brand operator with Premier Inn, has been forced to change: in September it is opening the first of a new sub-brand, called Hub by Premier Inn, in London’s St Martin’s Lane. Hub offers smaller rooms and lower prices, and hi-tech features (such as pre-selecting room temperature and light levels via smartphone) aimed at appealing to the young traveller looking for a budget room with some style. Whitbread is planning to open some 1,700 Hub rooms over the next two years, with London and Edinburgh the first two cities targeted – latest sites signed up include a 66-room property in St Swithin’s Lane in the City, and a 300-room Hub in Shoreditch.
Marriott is targeting this lifestyle/budget market with its Moxy brand; and also crowding into this emerging segment are new operators with contemporary brands, such as Citizen M and Z Hotels. Dutch-owned Citizen M is targeting three further UK hotels to add to existing properties at London Bankside and in Glasgow; while Z Hotels was due to open two new hotels last month (June) – in London’s Piccadilly and Glasgow, to add to its three existing hotels in London and Liverpool. Tune Hotels, another budget newcomer, is set to open a 104-room property in Newcastle in October, to add to its existing four hotels in London and one in Edinburgh.
The cost of re-branding
Yet there are some concerns that actual room rates for this wave of newcomers may turn out to be higher than expected, especially in London because of the current strong market in the capital. Re-branding costs money and owners obviously want the best returns, but there is a clear danger of being too greedy by chasing higher rates/returns rather than occupancy levels – the main post-recession strategy.
The power of brands, however, can sometimes trump rate issues with buyers. “A branded hotel is generally better for a corporate due to the leverage that can be achieved from volumes in different hotels under the same brand,” says Jef Robinson, global category manager for software company Citrix. However, he adds: “Ultimately, we find that what dictates the selection of preferred hotels is simply location and quality of the actual property.”
Other travel buyers also agree there are a number of factors when choosing hotels that are non-price, and branding helps identify these. “One of the key elements of a brand is that it’s fairly clear to us what is on offer, so it often comes down to location and availability for the dates we want,” said a travel manager for a leading mobile phone company, speaking to Buying Business Travel. “But we still want to deal on rates, and that can be satisfied by the volume of business we can offer a branded hotel group.”
Another buyer, from an industrial concern with plants around the UK as well as the continent, suggested loyalty programmes can be more influential with travellers than brands. “I think most of our business travellers do not overly concern themselves with all the brand names, but it can be they want to stay in a particular brand hotel because of the reward points it offers,” he said. “But our default position is to book hotels in our preferred programme.”
State of independents
Independent hotels, which are among the main losers from the growth of brands in Britain, can still have some clout with buyers, suggests Citrix’s Robinson. “There is a tendency for independents to be slightly more flexible when it comes to negotiating corporate deals, although some individual branded properties also have autonomy to do so,” he points out. “While it could be argued that independents can offer better deals through not carrying branding costs, in reality this isn’t always the case, as chains can reduce costs through their volume leverage against many overheads.”
Branded chains also have the advantage of a “better understanding of the corporate market potential”, says Ryan Johnson at FCM. But there are some potential pitfalls with brand-wide corporate deals. “There are limitations to what chain hotels can offer, and we do sometimes come into difficulty when the hotel owner or manager’s plans differ from those of the chain overall for a client rate, which undermine otherwise successful agreements,” Johnson says, adding that in locations with more than one hotel of the same chain, “there are potential conflicts of interest and hotels are restricted in being able to undercut each other, inhibiting competition.” But he feels that independent hotels can sometimes “be more creative, making decisions that suit them and our clients”.
Yet there appears to be no stopping the growth of branded hotels in Britain over the next decade. At present, the leading branded groups account for almost 50 per cent of the 600,000 or so UK room stock, although veteran hotel consultant Melvin Gold believes that “60 per cent of the UK hotel industry will be corporate-branded by 2030”. But don’t be surprised if that happens much, much sooner.