Two-pack twist makes for strange bedfellows
 
Two-pack twist makes for strange bedfellows
11 JULY 2014 6:06 AM
The “two-pack” hotel development trend is now even beginning to merge competing brands from disparate parent companies for the most improbable of alliances.

GLOBAL REPORT—The hotel industry’s “two-pack” development trend—where more than one brand exists under the same roof, sharing public facilities and staff—is starting to result in some strange bedfellows. Based on tight competitive market conditions, developers now are attempting to fuse together brands from two or more disparate parent companies for an unlikely alliance that some say is actually working.
 
The arrangement has yet to catch on, but sources say the advantages—namely, flexibility, space-conscious designs and combining the power of multiple reservations systems—make it feasible in specific instances. It all comes down to the developer and brands involved.
 
“Many of the efficiencies (of a standard two-pack hotel) are lost, but potentially what you gain on the topline is because of having two separate reservations systems,” explained Carrie Russell, managing director of HVS’ Vancouver office. “It could also be that you want to come into the market with a focus on extended stay, and you can’t do that accommodation in all (Marriott International) or all (Starwood Hotels & Resorts Worldwide) or all (Hilton Worldwide Holdings) hotels; you have to choose two or more separate brand families.”
 
That can be tricky though, because much of the economies of scale derived from a multi-branded hotel usually hinge upon sharing as many common areas as possible, like meeting space, fitness centers and sometimes food-and-beverage facilitates. That option is typically off the table when competing companies are involved, which usually dictates maintaining strictly separate public areas for each brand at the location.
 
“You’ll lose a lot of the efficiencies of the operating model when you do that,” Russell said. “That’s not to say there’s not some real upside to gain in having a two-brand system, but you likely will not be able to share the services at the same level. You’re going to probably need separate GMs on the property; you won’t be able to share a front desk; and you may have a lot of different systems within the two hotels.”
 
A working example
The strategy still can pay off in the end. Although few such competing multi-branded hotels exist, one prominent example is White Lodging Services’ Chicago/River North triplex, which features Hyatt Place, Aloft and Fairfield Inn & Suites brands all in the same building footprint, uniting franchisors Hyatt Hotels Corporation, Starwood Hotels and Marriott. It’s unchartered territory for all involved.
 
“That’s the first one we’ve done where we’re with two of our competitor brands. I think everyone’s learned a lot from it,” said Chris Walker, VP of the Hyatt Place and Hyatt House brands, which are usually paired together in Hyatt’s other two-pack settings. “The developer and owner is a great partner of ours. I think they’ve been really transparent with us, and we’ve learned a lot from how it’s going. They brought it to us with that objective of having the three brands there, and we felt comfortable doing it with them, so it’s turned out to be a good success.”
 
Walker explained that in order to get the project off the ground, Hyatt struck a balance between insisting upon strict brand distinction where it counted—mostly in the guest-facing elements of the property—and what made operational sense. The brand is confident guests there still will receive the signature Hyatt Place experience.
 
“When we were signing the deal and going through the design phase, we protected the design of our portion of the building to say, ‘If you want to put the Hyatt Place name on it, this is what it needs to deliver,’” Walker said. “But things that are less critical to the brand, or things we don’t consider signature elements or are not consumer-facing, we allowed them some flexibility.”
 
That flexibility was largely applied to back-of-house functions, where the benefits of combining operations are inarguable, and mostly transparent to customers.
 
“If you clean all the sheets together and have one laundry facility to do all of it, or if you have three laundry facilities, that doesn’t really impact the guests necessarily,” Walker said. “As long as you say, ‘This is our sheet standard, and you’ve got to meet it and deliver it,’ and they do, those kind of things can achieve some efficiency, and we can still deliver a great Hyatt Place experience to our guest and have a great relationship with that owner.”
 
Naysayers hold steady
Others aren’t as convinced, particularly major competitors Wyndham Hotel Group and Hilton. 
 
Wyndham is pursuing select two-pack deals for its own brands. Hilton is more active within the product type, with nearly 20 multi-branded hotels open in North America, and as many in the pipeline. None of those, however, feature a competing brand at the site.
 
“We’re just not going to go there right now,” said Craig Mance, senior VP of North American development for Hilton. “There’s too much business to be had within our own 11 brands, where we just don’t see it feasible to do that. I wish them all the success in the world. 
 
“I’ll never say never, but I don’t see us going that route in the near future.”
 
Wyndham executives also dismissed the possibility of doing a multi-franchisor deal like the Chicago Hyatt/Starwood/Marriott property.
 
“Our internal policy is that we would not do a split deal with any other brand other than our own, so that’s our standard,” said Keith Pierce, the company’s executive VP of brand operations. “Strange things happen in life, but in general, if we’re going to do a split deal, we’ll do it with one of our existing brands.”
 
For now, it seems the cross-branded conglomeration at the Chicago/River North triplex will remain one of those stranger things Pierce referred to. Sources agreed such a project will likely remain a rarity among future two-pack or three-pack hotels, which themselves comprise only a sliver of the overall development mix. Some feel, though, that it’s an idea whose time has begun to arrive.
 
“It’s radical stuff, but probably only in the hotel industry. I’d say there are a lot of industries that are trying things like that … branching out like that,” Walker said. “I think it’s good for us.”
 

1 Comment

  • BobSonn August 2, 2014 4:28 AM

    Just because a project gets built, that does not insure that it will be financially successful. White L. Co is huge, and can build any experiment it wants. Lets see how this does in terms of profitability...compare its operating margins to other "two-pack" projects that do share a single reservation system and do have economies-of-scale from shared operations. I predict that this concept is just a short-term "fad", and that 2-3 years from now (when the operating results are in), no one starts another one of these ever again....

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