BERLIN—In the swirling back-and-forth relationship between brands and owners, many questions often bubble to the surface.
Should the owner be passive or active? Should they expect the brand to do all that needs to be done to maximize return on investment? Are brands service providers? Or business partners? And how do you maintain a good relationship during the course of a 20-year management agreement?
The answers are often fraught with tension and conflict, although in the end both parties want the same thing: a successful and profitable hotel, said a panel of experts during last month’s International Hotel Investment Forum.
The key, they told attendees, is to align those interests and ensure each partner is contributing a fair share.
At Pandox AB, a Stockholm-based owner and operator with 118 hotels in its portfolio as of 31 December 2011, CEO Anders Nissen prefers to take an active role.
“Some call us demanding, and we like that,” he said. “... We invest 100% of the money. I think it’s quite clear that we have to be in the driver seat.”
Pandox works with 20 brands, as well as a few independent operators, though Nissen isn’t afraid to assume management if a brand doesn’t provide value. He said while brands often can add revenue, they’re also expensive and can be difficult to work with. Furthermore, he said, because they don’t have much skin in the game, they’re often weak operators who yield low productivity.
Kingsley Seevaratnam, executive VP, Europe, at Westmont Hospitality Group, gives operators of the company’s 96 hotels in Europe a bit more leeway.
“A lot of the onus is with decent managers,” he said. “What we try to do is not second guess them.”
Shopping for brands
Though Seevaratnam is more hands off, he and the Westmont team spend an incredible amount of time on the front end determining which brand is the best fit for each property and then works with that brand to develop a clear, detailed business plan.
IHG’s Angela Brav (left) discusses the relationship between brands and owners as Hilton Worldwide’s Simon Vincent looks on.
That’s where many owners can make a mistake, said Angela Brav, the recently appointed head of InterContinental Hotel Group’s Europe division.
“Every relationship requires different things. It’s like a marriage. What am I getting involved in? What is this brand? Who am I as a company? Do I need more or less?” she asked.
Owners have to really understand who they are and know what they want before they begin courting brands, Brav said. Without that understanding, disappointment and tension will inevitably follow.
IHG had 612 hotels open and 98 more in development in Europe as of 31 December 2011.
Who knows best?
One major point of contention, the panelists agreed, is when brands rollout new brand standards or test other initiatives, essentially with owners’ money.
When owners choose a brand, Brav said, those owners often think they’re buying it. That’s not the case. The brander—in this case, IHG—owns the brand. Owners are actually buying a set of promises made to the consumer through that brand.
That means the product must be consistent, she said. Each owner thinks their insights are stronger than the overall insights of the brand as it pertains to their particular market.
“(But) at the end of the day, the brander owns the brand,” she said. “We have to be responsible for driving that consistency.”
Panel moderator Frank Croston, founding partner with Hamilton Hotel Partners, said that’s precisely why franchisee and owner committees are so important. They provide feedback and help steer the brand’s decision making. And when those decisions work to their benefit, those franchisees can become champions for the brand’s changes.
But Nissen wasn’t as easily swayed. The hotel industry is the only major industry in which the brands don’t own and operate their products, pointing to the auto and fashion industries as counterpoints.
“In our industry, they’re just a brand,” he said, adding that’s where the conflict lies.
Hotel brand companies need to be more actively involved in the process, Nissen said. They need to invest and be part of the operation, he added, of the end product. Ultimately, that’s the only way to ensure the consistency Brav said is so important.