Smaller brands allow owners to find success without M&A
Smaller brands allow owners to find success without M&A
16 FEBRUARY 2017 8:40 AM

As the world obsesses over megadeals, megamergers and megachains, owners outside of North America said small hotel companies allow for more flexibility, a better environment to allow staff to grow and a far closer relationship with hoteliers.

ABU DHABI, United Arab Emirates—The hotel industry’s push toward megacompanies and megabrands is modeled after U.S. business practices and structures, and that leaves room for global owners to concentrate on medium- and small-sized brands.

There is room for both, although these companies’ intentions of pushing scale will increase competition across all segments, according to sources at last week’s Gulf & Indian Ocean Hotel Investors’ Summit.

During a panel titled “Can medium-sized brands still provide a competitive alternative for owners in the age of megabrands?” Guy Hutchinson, COO of Rotana Hotels, said the space afforded medium-sized brands is growing due to their concentration on regional geographies and owners.

Panelists agreed that medium-sized brands will be successful by concentrating on design, concept and being far closer to capital.

François Eynaud, CEO of Mauritius-based Veranda Leisure & Hospitality, said hoteliers and owners trading in this space need to continue to focus on what they know best, which will allow them to outperform all others in regards to revenue per available room and bottom-line revenue.

“In some destinations, we’ll sharpen the pencil and be more aggressive,” Hutchinson said.

The other priority for smaller brands is that their hotels are closer to owners, panelists said.

“The megabrands essentially have an American business model, and a franchise model for the Americas does affect the life of assets in other geographies,” Hutchinson said. “Regional, medium-sized brands have a different relationship with owners. Equally, megabrand conversations ends with operating profit, while our bread and butter exists below that. The third thing is baseline financial performance, where, for medium-size brands, there is a far straighter line between how we make our money and how owners make their money. We’re both incentivized on the bottom line.”

People power
Zoltan Kali, chief asset management officer at Omran Hospitality, said the emphasis on the word “brand” often means owners missed their most important component: their staff.

“How often is it true that (brands) become part of the social fabric?” Kali said. “We work with so many brands, so for us, it is not the brands that come to the fore. It comes down to the people. Which of these megabrands allow their people to grow, especially in this era of being asset-light? (Megabrands) talk about distribution, not people.”

Taras Ettl, VP of development for the Middle East and Africa at InterContinental Hotels Group, said larger hotel companies are still able to be flexible and provide owners with the best business scenarios to drive profits. But he admitted flexibility would most likely not translate into being able to relax fees charged on reservations and distribution.

Guy Hutchinson (center left), of Rotana Hotels, said megabrands are essentially an American business model. Also on the panel were Taras Ettl (left), of InterContinental Hotels Group; Zoltan Kali (center right), of Omran Hospitality; and Mariano Faz, of The First Group. (Photo: Terence Baker)

Mariano Faz, head of asset management at The First Group, said that degree of flexibility might not be sufficient for some owners.

“Owners need to always evaluate what they want from any investment and to analyze what weaknesses a brand has that I can cover from a revenue management perspective,” he said. “Smaller can be better in many cases, although they do not have the same reach.”

Pooling assets
Panelists said medium-sized brands are performing well by having dual-branded hotels sharing back-of-house synergies.

Rotana’s Hutchinson said that within a five-minute walk from Yas Viceroy—the conference’s host property—are six hotels that comprise two brands from three companies: Rotana Hotel Management Corporation with Rotana and Centro brands, Carlson Rezidor Hotel Group with Radisson Blu and Park Inn by Radisson, and IHG with Crowne Plaza and a Staybridge Suites.

“That can be a big value-add for medium-sized entities,” Hutchinson said.

“The concept also has merits because it can help you have different owners,” Kali said.

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