I’m not trying to pick a fight, but this blog may pick a fight.
Like many of you probably, I read a very interesting article in The Wall Street Journal this week, headlined “Rise of new hotel brands irks some property owners.”
There’s a key paragraph near the top of the story that says this: “Five of the world’s biggest publicly traded hotel operators have launched a combined 16 new brands since 2013, including five over the past 18 months. This contrasts with past periods, when hotel companies could go years without adding a new brand.”
The companies with the most brands, according to author Aisha Al-Muslim, are Marriott International (gee, wonder how they rocketed to the top of the list!), Wyndham Hotels & Resorts, Hyatt Hotels Corporation, Hilton and InterContinental Hotels Group. Hilton has launched the most new brands since 2014, announcing seven over the past several years.
I’m not surprised by her numbers at all. According to our calculations here at Hotel News Now, 17 hotel brands launched in 2018, and we’ve tracked five new launches so far this year.
The article brings to the surface some resentment that has long simmered below the surface between hotel owners and brands, and given these rapid acceleration numbers, I bet we begin to see that bubble over more and more. I hear owners grumble about it all the time, but like with the online travel agencies, many have love-hate relationships with their brands, too. Brands give them so much—but they take a lot, too, in the form of franchise fees, property improvement plans and other costs.
Think about it this way: When big brand companies launch brands, they have three groups they have to please (and yes, in this order): their shareholders, their franchise owners and their guests.
Shareholders want market share, fee growth and net unit growth, because all those things return capital to them. Owners want options for new products that can give them rate bumps, and they want visibility and distribution. But they don’t want fee bumps and territory overlap and losing guests and busted comp sets. And guests? Guests want anything new and different that fits their lifestyle at the moment.
It’s the owners who stand to feel the pinch of new brands the hardest. They can win big with them, but they can fall hard if they lose out on distribution and new business. Owners can play to win with brands, but they pay to play, for sure.
Right now, yes, a handful of big companies control most of the pie. But savvy hotel owners know to diversify, and when they’ve struck good relationships with brands, they stick by them through thick and thin.
But I see those relationships fraying a little. Will we see more owners rising up? Maybe that’s too strong; I’m not trying to pick a fight here, I promise. But I do predict this conversation will get a little louder. Maybe a lot louder.
This prolonged recovery cycle has been a great education for many hotel owners, and we see lots of them making decisions to take brands off key assets, because as they’ll tell you, they don’t need a brand for every hotel, and if they don’t need it, why pay the fees? This is a conversation I’ve heard many times in recent months.
For example, look at the much-anticipated TWA Hotel at JFK Airport, which opened earlier this month. The independent hotel, owned and developed by MCR Development, pays no brand fees, and beyond that, it doesn’t even pay any commissions. The hotel has single-channel distribution via its own website. No OTA listings. No listings on global distribution systems.
That’s an extreme example of a true independent. Will we see others like it? I doubt very many. What we see more are owners who cut the brand ties a bit but don’t sever them completely, by affiliating with soft brands (and those affiliations are growing). Still, as those gain popularity, fees likely will grow too.
The test will be when our recovery cycle dips. Economic and cycle slowdowns often trigger a flight to brands for protection and security.
Every time the cycle turns, the brand picture changes a little bit. It’ll be interesting to see what happens at the next turn, given this recent spate of brand proliferation. I’ll have my eye on it.
The opinions expressed in this blog do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.