Advantages of hotel chains = disadvantages for the independent hotel. The material on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with the prior written permission of Bright Business Media LLC. The hospitality sector is vast and made up of a multitude of accommodation offerings. There are more constituents in a hotel investment than there might be in many others, and there is no durable revenue stream, as we learned to our chagrin again in 2020. What is the difference between a room rate and a rack rate? In other words, the unique features of hotel assets are myriad; but dont get overwhelmed. You will have to do all the marketing and brand building yourself. Lack of a lengthy corporate structure and guidelines allow boutique hotels to offer a personalized experience. Due to the degree of independence of subsidiary hotel brands, it's sometimes difficult to distinguish between a boutique property that's owned by a large company and one that is truly independentfinancially and otherwise. One of the differentiating aspects of hotels that every expert LoopNet spoke with agreed upon is the amount of work they require. We apologize, but the feature you are trying to access is currently unavailable. Startup Costs and Franchise Fees Expensive startup costs and ongoing fees are some franchise disadvantages that can make it harder for you to get started as a business owner as well as to operate profitably. Due to the degree of independence of subsidiary hotel brands, its sometimes difficult to distinguish between a boutique property thats owned by a large company and one that is truly independentfinancially and otherwise. The action you just performed triggered the security solution. Some of them are scaling up faster than others, but I think, ultimately, were going to see as they scale up, and if theyre successful with scaling up, theyve got to become more standardized and more bureaucratic, and the creativity factor is going to start to diminish. Dev (2015) concurred that two factors drove the financial results for hotels that changed brands - the strength of the brand (60%) and fit between the brand and the property (40%). Cornell Hospitality Report, 15(21), 3-11. Those flags are going to get me more revenue per room, he said. Agreements : a large booking platform accompanied by agreements with agencies, tour operators and OTAs, constitutes an impressive commercial force. Barton also noted that lenders will want to see a clear management plan in place, and will even give particular consideration to investors that choose to literally sleep where they eat, often showing a preference for owner-occupied hotels. Volume: hotel chains, due to their standard and extensive offer, benefit from economies of scale due to the expansion of their business and the reduction of costs for bulk purchases and management. A hotel owner needs to assess the benefits and costs of affiliating as well as compare various affiliation alternatives against each other (Carlbck, 2017). Sign up to our monthly newsletter for industry insights, product news, partner updates and more. Theres fixed costs and variable costs in operating a hotel. 3099067 Freitag described the relationship between these entities as a triangle between the owner, the management company and the brand. On the other hand, Patel noted that in an independent hotel, you dont have someone looking over your shoulder, which offers an investor more flexibility, particularly with regard to reducing expenses; a consideration that becomes particularly critical during turbulent economic periods, such as the one the industry is currently experiencing. I think with a smaller hotel, you may do well with a local lender in the area, he said. But what exactly is the difference between these two types of structures? The cookie is used to store the user consent for the cookies in the category "Performance". International Journal of Contemporary Hospitality Management, 18(5), 398-413. doi: 10.1108/09596110610673538, Hua, N., ONeill, J., Nusair, K., Singh, D., & DeFranco, A. Hotel as Chain or Independent The Advantages and Disadvantages of Hotels Affiliating with a Brand Dev, Chekitan S., James R. Brown, and Zheng Zhou Kevin. It is a type of hotel that does not have an affiliation with any particular chain. Independents vs. chains - advantages and competitivness - Amenitiz The Pros, Cons of Independents, Brands and Soft Brands - CoStar Your growth rates year over year are going to look really, really strong, Freitag said. When deciding to open a restaurant, you can choose between starting your own independent restaurant or purchasing a franchise from a well-known chain. A case for being independent. Patel concurred with that assessment. Stone (2018) posited that the operating model that will satisfy all hotel owners did not exist. Multiple factors account for this decline. Everything you need in one beautiful print and digital magazine. The decision-making process is longer. The study found no consistent advantages in all segments for either affiliated or unaffiliated properties. a. What Are the Advantages & Disadvantages of an Independent Restaurant Hotel brand conversions: What works and what doesn't. Retrieved from https://skift.com/2017/06/27/dont-expect-hotel- companies-to-stop-launching-new-soft-brands-anytime-soon/. People also read lists articles that other readers of this article have read. These lease terms provide investors with a certain degree of security, even if markets take a downward turn. With a franchise, it can be easier to find potential buyers since the chain's brand is well known and has a proven value. Most days, you will spend your day walking, running errands for your business, and performing a multitude of tasks. To begin with, theres the duration of tenancy. Conclusion. At the same time, though, you'll need to be patient, know where to find help and be able to handle the challenges of having full responsibility of your restaurant. Owners can change interiors or upgrade amenities when they see fit. Building and managing your brand. The brand companies franchise their brands to the hotel owners. Is being independent a weakness? That is to say, independent hotels might use technology to create a seamless guest journey, enhancing the guest experience and being able to offer service 24/7. "Global Brand Expansion: How to Select a Market Entry Strategy." Cornell Hotel and Restaurant Administration Quarterly 48.1 (2007): 13,27,8. Assets that have long-term leases might not feel the impact to cash flow for 6, 12 or 24 months after the onset of an economic event, whereas hotels feel it on day one., As Barton observed, Typically this industrys had eight- to 10-year cycles, and in the down years, it can be a tough couple of years., Kelso echoed this view. One of the ways different hotels can be sure that they are offering a one-of-a-kind service is by carrying out a competitive analysis. According to the STR report, from 2003 to 2007which saw more than three dozen hurricanes, in places such as the Gulf and Atlantic coastal regions of the United States1,000 independent hotel properties faced a permanent closure. Analytical cookies are used to understand how visitors interact with the website. This website is using a security service to protect itself from online attacks. With an independent restaurant, you might run into some hurdles if you want to sell. The main con is typically over-standardization. A comparison of the performance of brand-affiliated and unaffiliated hotel properties. Carlbck (2017) posited that affiliation is necessary when a business is focused on growth and development. The remaining insurance companies are using the situation to their advantage and raising premiums. This cookie is set by GDPR Cookie Consent plugin. It does not store any personal data. Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures. The LoopNet service and information provided therein, while believed to be accurate, are provided "as is". The biggest challenge in our business is getting and keeping the best people for the job, as we believe that there is nothing worse than . The identity of Independent Hotels is unique. LoopNet disclaims any and all representations, warranties, or guarantees of any kind. Independent vs chain hotels: advantages and disadvantages You are not the first one. Example: an employee for 50 reservations instead of 10 is more profitable. The resources needed to create a digital presence are significant and ones that not all small, independent hotels have. Cash flow volatility. He said that investors should be ready to manage more employees, and be ready to understand that payroll is a big component of a hotel, and that you will have to be involved in operations to make it successful.. Consider both the advantages and disadvantages of hotel ownership as a franchisee to decide if it's right for you. We use cookies to improve your website experience. The Cornell School of Hotel Administration on Hospitality. Error occurred with your registration, please try again. And once you cover the fixed costs, the margins on the variable costs become very attractive. Fixed costs include taxes, insurance and financing; variable costs are items such as food, room supplies, guest amenities and labor. In the modern hospitality landscape, brands rule the day. 2. Both studies found that unaffiliated hotels had higher average daily rates (ADR), and affiliated hotels had higher occupancy rates. Learn about hotel management companies, including advantages and . Disadvantages include full accountability, more time needed to become profitable and resale difficulties. That is to say, they strive to offer a unique and authentic experience at every hotel. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. Independent hotels have higher average daily rate and rooms revenues per available room than branded hotels during the same time period, according to the results of the study. Independents need a simple-to-use solution that enables easier adoption and employee training. A boutique hotel is a small, upscale, luxury hotel that has a distinct personality, intimate experience, and personalized service. Make your property remarkable with an ecosystem of hospitality solutions that maximize revenue and enhance the guest experience, The control centre for front office and back office staff with smart automation, A connected guest experience thats memorable as well as modern, Make every payment fast, secure and automatic, Tools for better understanding your business, Hospitalitys biggest marketplace of apps and integrations, The power to easily connect your tech to Mews, One size does not fit all. Remember passwords are case sensitive. To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy. Disadvantages include full accountability, more time needed to become profitable and resale difficulties. These cookies ensure basic functionalities and security features of the website, anonymously. Please contact Customer Support at 1-800-613-1303. O'Neill and Carlbck (2011) and Carvell, et. Ultimately, Patel said that it all comes down to RevPAR (revenue per available room), one of the hotel industrys key metrics. 5 Advantages of independent hotels over franchises - QloApps This cookie is set by GDPR Cookie Consent plugin. According to Sachin Patel, managing principal of Shiv Properties, which is a stakeholder in 11 hotel properties, banks in the last four to six years have been reluctant to finance independent properties. On the liability side, there are insurance carriers getting out of the business, due to the pandemic, Patel said. Independent hotel brands have two major disadvantages, which of the most common is lack of capital to invest in marketing and business development, and the other is not being able to attract or retain top talents which makes marketing management a lot more inefficient compared to what international brands can do. The objective is to know very well the business that is being managed and to know how to identify (and differentiate) the pros and cons. Because many of the elements that make hotels a sometimes challenging real estate asset are the same features that make them a compelling opportunity. Flexibility : the managers reactivity supposes an almost instantaneous decision-making power that limits monetary losses and increases profitability. Its great to be creative, but we like to make money, he said. All hotels under the ensign of a hotel group are referred to as a chain hotel. According to Butler and Braun (2014) unbranded hotels lose benefits of brand support systems (operating manuals, training, access to best practices, etc. Retrieved from https://scholarship.sha.cornell.edu/chrpubs/47/, Holverson, S., & Revaz, F. (2006). Its also a sector that has been particularly impacted by the coronavirus, which has produced both distress and opportunities. For example, Franchise Direct reports that starting a KFC location can run anywhere from $1.4 to $2.7 million in initial investment costs, while Domino's looks for a net worth of $250,000. Independent hotels - independently operated properties. Independents vs. brands vs. soft brandsPanel moderator Patrick Mayock, senior director of research and development at HNNs parent company STR, asked each panelist to start the debate by explaining the advantages of being an independent, brand or soft brand. Thus, the decision to affiliate or stay independent should be hotel specific as it can benefit one property, and another hotel could perform better without affiliation. What are the advantages of an independent country? For example, in Barcelona you might find a chain on the famous Ramblas Street, whereas a smaller property would look for a more singular location. Please include what you were doing when this page came up and the Cloudflare Ray ID found at the bottom of this page. Click here for Desk booking system for hot desking. What are the differences between independent and chain hotels? Disadvantage: Missed marketing opportunities. He has also previously held positions as an adjunct professor, music critic and editor-in-chief of an online arts and culture publication. Soft brands of international hotel companies are taking over. Its fair to say that while every commercial real estate (CRE) asset type has its idiosyncratic features, as well as distinctive attributes and challenges, hotels are particularly unique. Disadvantages include full accountability, more time needed to become profitable and resale difficulties. There is no independence. Even multifamily properties, which have more frequent turnover than their commercial counterparts, typically offer one- to two-year leases. That being said, chains tend to have a less personal touch, focusing on their brand standards rather than what each individual guest wants. 24 Pros & Cons Of Starting A Chain Hotels Business (2023) Most commercial assets, whether youre considering office, retail or industrial product, operate with long-term leases, anywhere from three- to 15-years in duration. So, lets get started. There are disadvantages to staying independent (unbranded). Were seeing a large increase in insurance premiums, on the general liability side and on the property side. He estimated that general liability premiums had increased by approximately 18% to 20%, while property insurance had increased by 10% to 16%, year over year. As Freitag noted, Theyve been there and done that, right? In some instances, the owner and the management may be the same, but its very common that the brand is a third party.. American Airlines AAdvantage MileUp credit card review - CNN 10 Tips to Improve Your Housekeeping Operation, 22 Aug 2022 Booking platforms, frequent traveler points programs, and the like are offered by them. Los Angeles: JMBM Global Hospitality Group. Running an independent restaurant has its perks: You can change your menu at any time, use whatever slogans and logos you want and avoid some of the costs and risks of franchise ownership.