When two or more hotel brands share operations, staff, amenities or common spaces, how do you negotiate an arrangement that results in a win-win situation?
Co-branding (also referred to as dual- or multi-branding) might not be a wholly new concept in the hospitality industry, but it’s one that has increasingly gained greater interest and adoption.
With today’s hotel development costs and labor costs at an all-time high, co-branding is more prevalent than ever before, and hotel flags are introducing new iterations, such as Marriott’s new tri-branded property in Nashville, Tennessee.
Its simple definition is when two or more hotel brands share one property footprint and some combination of back-of-house operations, executive staff and amenities or common spaces. Typically, the hotel brands involved draw from slightly different traveler demographics at different room rate levels, and the primary benefit is that owners and the hotel brands gain exposure to a wider pool of potential guests and have the ability to optimize revenue per square foot.
Additionally, co-branding can expand each brand’s market reach and provide both brands added validation or endorsement from another market leader. In hotel management, co-branding is the logical progression of hotel complexing, or shared resources among hotels in the same city or region. While this tactic has long been part of our industry model, co-branding itself is still a relatively new approach that requires thoughtful agreements, smart use of space and staffing and diligent management.
Co-branding can improve operational efficiency and increase revenues by maximizing market share, but it must be done well to meet those objectives. Before entering a co-branding arrangement, there are three key indicators for owners to consider:
- How co-branding can maximize the density of your site: Can a lobby, pool, fitness center or restaurant be shared? Different brands have different space requirements, so it’s important to evaluate how much space could overlap, along with other factors such as pairing brand A’s larger guestroom footprints with brand B’s smaller ones. Density should be a critical consideration during the planning and underwriting process.
- Understand the market drivers of the location: Does your location appeal to both extended-stay guests and short-turnaround business travelers? Lay out how a co-branded property will allow you to optimize market share at that specific location by allowing the hotel to penetrate multiple segments.
- What resources the two (or three) brands can share: Will your property achieve cost-savings by sharing one general manager, sales and marketing staff, housekeeping and engineering, laundry facilities and back-office operations? Sharing overhead can be the greatest benefit of co-branding, but it can also be the trickiest to accomplish and requires recruiting the right management.
Avoiding the biggest pitfalls
It is crucial that a co-branded property finds natural branding alliances that complement each other and have the potential to achieve the right balance between benefiting investors and enhancing the guest experience.
When properties share staff, front desk or other common spaces, guests should know where they can go to check in, ask questions, work out or eat breakfast. If a guest steps into your lobby and doesn’t have a clear path of where to go, it can overshadow their whole experience.
In addition to the physical plan, staffing is critical to ensure guests come away with a good feeling about the whole property. This is an opportunity to introduce guests to another brand in the portfolio that they may select for a future trip or in another location.
Because co-branding is a relatively new practice, finding talent with this type of experience can be challenging. Shared sales and marketing staff must be able to market to different customer segments or you may not see the rate differentiation you anticipated.
Utilizing experienced asset management
Strong asset management can navigate the nuances of the brands involved in a deal and can apply them to a property to minimize deviations from the original operating plan. Additionally, an asset manager serves as an intermediary with the brand office to negotiate variances from standards to achieve efficiencies. For example, if one brand typically offers a buffet breakfast and the other offers a specialty a la carte menu, a compromise must be reached so that one restaurant can serve both brands’ guests. If a co-branded property isn’t meeting its revenue or shared cost savings targets, or struggling with rate differentiation, an asset manager will identify problem points and help put the asset back on track with its performance goals.
Co-branding can be a smart strategy for owners and brands, which we anticipate will continue throughout 2019. The approach can even benefit the guests themselves—when the co-branded property offers an elevated experience. But what can look good on paper requires planning, specialized underwriting considerations, cooperation and negotiation between owners, the brands and knowledgeable management to execute successfully.
Andrea Grigg is executive vice president and head of Americas Asset Management for JLL Hotels & Hospitality.
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