Soft Brands - Future Opportunities in the Canadian Market
Soft Brands Versus Hard Brands
Soft brands represent the movement of brand affiliations into the independent hotel market, bringing distinctive properties into an affiliation that expands the franchise company's audience while nurturing the creation of unique property-specific experiences for guests. By associating an independent property with a soft brand, the hotel is able to benefit from the expansive distribution channels and marketing reach associated with a brand. At the same time, the soft brand allows the hotel the freedom to define and shape the product offering. For the traditional hard-branded hotel, the core selling feature is the highly controlled, uniform guest experience across every hotel with the same name. In contrast, the soft brand allows the hotel to be special, characterized by the geography and culture of the region in which it is situated and the history of its own creation; only service standards and soft touches are maintained across all properties stamped with the same soft brand. In short, the soft brand creates a synergistic relationship between the service standards associated with a brand and the character of an independent hotel.
Through soft brands, franchise companies are expanding their product range and moving into previously untapped markets without compromising the long-established service standards that they have become expert at efficiently implementing and enforcing across multiple locations. But a growing shift in consumer needs is also driving the increasing popularity of soft brands. Soft brands are able to tap into the desire of consumers wanting a personal experience that they can document and relate to others through social media. At the same time, these same consumers prefer the ease of access and convenience that brand distribution channels and loyalty programs offer, along with the assurance of dependable service standards that a brand brings to a hotel stay.
Soft brands have become a hot commodity around the world as franchise companies aggressively move to stake territory in the independent hotel market where they previously had little presence, and expand into markets that have become saturated with traditional brands. In Canada, however, the movement towards soft brands has been relatively slow to get going. Currently, only 2,200 existing hotel rooms in the country belong to soft brands. The Canadian lodging market in many ways represents an untapped opportunity for converting independent hotels to soft brands. To effectively take advantage of this opportunity, however, one must understand not only the forces that are driving the growth of the soft-brand market in general, but also the conditions that are shaping the slow market uptake of soft brands in Canada.
Canadian Soft Brand History
In Canada, only three franchise companies currently have soft-branded hotels in the market: Ascend Collection by Choice Hotels, Autograph and Tribute by Marriott, and Best Western Premier Collection. Their major competitors—Hilton, Hyatt, IHG, and Wyndham—have yet to drive a stake into Canadian soil in the soft-brand category.
The first soft-branded hotel to enter the Canadian market was the Ascend Collection Inn on the Lake in 2009. This property, located in Fall River, Nova Scotia, was a conversion from an independent hotel. It was another four years before the second soft-branded hotel to come to Canada, when Autograph opened its first property in New Brunswick. The BW Premier Collection came to Canada in 2015, and Tribute followed in 2016. As of 2017, there are roughly 2,200 established rooms belonging to soft-branded properties, the majority of which belong to the Ascend Collection.
All the major franchise companies are actively seeking Canadian properties for conversion to a soft brand, but only Autograph Collection has confirmed properties in the pipeline: four properties with a total of 641 rooms are being introduced to the Autograph Collection name in 2017. Other soft brands, Unbound by Hyatt and Tapestry by Hilton, are expected to open in 2018; however, no contracts have been confirmed. Meanwhile, Ascend Collection is actively scouring the country for appropriate properties to brand.
The Appeal of the Soft Brand
Individuality is central to the soft-brand concept. Each property remains distinct within the brand portfolio while still representing the essential quality that is the hallmark of the brand. For the traveller, soft brands function as a risk-management tool. As Jeff Cury, Senior Director of Development for Hilton, puts it, "There are a lot of adventurous travellers that enjoy the experience of an independent hotel but recognize there's risk in that, so soft branding alleviates a lot of the risk because it's still a brand, and if there's a problem, there is brand assurance."
The hospitality industry has shifted towards being a consumer-led market in which buyers are becoming more transactional and less sentimental. In other words, travellers are caring less about the hotel and more about the collection of loyalty points. Soft brands appeal to the transactional-hungry market by offering loyalty points while also serving experience-oriented travelers.
From an owner's standpoint, independent hotels lacking the distribution capabilities of a brand often rely heavily on Online Travel Agents (OTAs) to sell their product—a costly technique. One core feature of soft brands is the access they provide to the internal functions that largely contribute to the success of a branded hotel: global marketing, central reservation systems, customer-relationship management, revenue- and yield-management support, and loyalty programs. "Soft brand memberships are all about value. Hotels are able to increase their revenue while lowering their distribution costs, resulting in higher profitability and value appreciation of the hotel," says Juan Duran, Director of Membership Development for the Ascend Collection.
The idea of a soft brand revolves around connecting independent hotels with brands without compromising the hotel's independent nature or undergoing extensive renovations to abide by traditional brand standards. In the past, independent hotels looking to convert to a brand have been rejected due to unfeasible property improvement plans and too wide of a gap between the standard brand requirements and their offerings. For these properties, soft brands are a viable option, providing a brand identity under which they are able to exist while still allowing them to keep their distinct features.
Why Aren't Soft Brands Growing as Fast in Canada?
Three main factors are causing the slow uptake of soft brands in Canada: the lack of suitable independent properties, a dearth of appropriate locations, and the current stage of market maturation.
In Canada, there tends to be a larger discrepancy between the quality of the independent supply relative to that of the United States and other countries. The branded properties are historically modular, and the independent properties that are suitable for conversion to a soft brand either have already become established with a brand or are hesitant to lose their independent status because they are already achieving success without brand support. While there are many reasons behind the limited supply of suitable upscale to luxury independent inventory, the main cause is that Canada is a risk averse market that foregrounds known yield for investors at the expense of creativity. For franchise companies, the limited supply of upscale independent properties in Canada is raising the value of the few upscale independent properties that currently exist. Many hotel investors and major brands are eyeing the same highly sought-after independent properties, making the soft brand-market in Canada highly competitive at the same time that it is severely restricted by a lack of inventory.
With the focus that soft brands have on celebrating the unique characteristics of each property's location, franchise companies are mainly looking for primary, urban, and resort destination markets to establish their soft brands. In Canada, these types of markets are few and far between, which makes the selection pool more limited, thereby increasing competition. "In Canada, there aren't as many urban destinations that would support soft brands, and the ones that do are currently being aggressively pursued, specifically major cities such as Vancouver, Toronto, and Montreal. As far as secondary and tertiary markets, as of right now they aren't a good fit for collection properties" says Michael Morton, Vice President of Owner Relations for Best Western.
Historically, Canada has lagged the United States in hotel trends. Canadian hoteliers tend to take action only after a concept has proven successful, which inevitably leads to a slower initial buildup. "The American hotel market is more mature than Canada, and historically there is a natural five- to ten-year delay in the adoption of niche segmentations," says Scott Richer, Vice President of Real Estate and Development for Hyatt. Only once concepts have a proven track record does the Canadian hotel market embrace a new product. Given that the first soft brand entered the Canadian marketplace in 2009, we can expect a boom in soft brands to take place sometime around 2020 if the pattern of the ten-year lag behind the US holds true.
Pipeline
Hotel pipeline reports are not only a strong indicator of which markets are expected to see growth, but they can also be used to see which brands are expanding along with trends that are shaping the industry, such as an increase in soft branded hotels. In Canada, the pipeline of traditional brands continues to grow, while currently, the soft brand pipeline is small.
In January 2017, Hilton launched its fourteenth brand and second soft brand, Tapestry Collection. Tapestry Collection is an upscale brand that focusses on keeping the hotel unique while providing Hilton standards and systems. As Jeff Cury, Senior Director of Development for Hilton, puts it, "Hilton gives owners the ability to be part of a hugely recognized brand, while still maintain a certain level of standard that doesn't require the hotel to be so prescriptive." Tapestry belongs to a lower scale than Curio, which is Hilton's more upper-upscale soft brand. Although neither Hilton soft brand is currently open in the Canadian market, Hilton's soft-brand presence in Canada is expected to grow in 2017.
The Unbound Collection by Hyatt was launched in 2016 but has yet to make a mark on the Canadian market. This upper-upscale soft brand was developed as an expansion of the Hyatt value proposition, creating an experience not otherwise available in the company's traditional hotel format. Each Unbound Collection property is known for its picturesque location and original identity. No announcements have been made for an Unbound Collection in Canada, but this brand is expected to enter the market by 2018.
Currently, Autograph Collection by Marriott is the only soft brand with confirmed properties in the Canadian pipeline for 2017. However, many of the major franchise companies with soft brands in their portfolios are actively seeking properties in 2017.
Expected Growth
With soft brands picking up pace in the US, Canada is expected to follow this lead and become more actively involved in this space, albeit to a lesser extent given the previously mentioned limitations. Once soft brand success is proven across the country, existing soft brands will push strongly to further increase their presence by expanding more rapidly across Canada. Moreover, brands who took a more reactive approach by not entering the soft brand market immediately will likely begin pushing their products into the Canadian hotel market.
To appeal to more market segments within soft branding, there is potential for major brands with established soft-brand collections to create additional lines that will cover the full range of chain scales. Launching additional chain scales for soft brands is a means for franchise companies to increase their reach, as a larger array of products has the potential to capture a wider range of consumers.
Conclusion
The Canadian lodging market is slow to act on new trends because the current stage of market maturation creates an environment that makes hoteliers wary of adopting untested innovations. Because of this, the soft brand concept has yet to be fully embraced in Canada, although this is expected to take place in the near future given the successful market uptake of soft brands in the United States and abroad.
In this stage of market maturation, Canada is still witnessing the growth in core brands because it is at heart a stakeholder-focussed market that places the greatest emphasis on yield for investors, leaving less room for creativity and entrepreneurial development. As the market matures and hoteliers are required to adapt to trends to stay competitive, there will be a shift from a stakeholder-focussed market to a customer-focussed market, which will contribute to the growth of soft brands.
The slow growth in the uptake of soft brands in Canada is due to the current degree of market maturation, the lack of suitable upscale independent inventory, and the limited number of appropriate primary markets that fit the soft-brand concept. As more unique properties are introduced across Canada and the soft-brand concept gains some traction, it is expected that many of the leading hotel brands will expand their product range into Canada, spurring the growth of soft brands.
