Independence for Independents? Rebranding and Rescaling

1 | Rebranding and Rescaling; Effects on Hotel Performance - A new study, featured in the August 2009 edition of the Cornell Hospitality Quarterly*, examines the effect of market realities which often force hotel owners to rebrand their hotels or to change their property from one market scale to another. This exploratory study of ninety-five hotels analyzes whether rebranding or rescaling was worth the expense in terms of financial performance. Sixty-four hotels in the sample moved downward in market scale (more than half of those from midscale to economy), while twenty-one hotels moved upward, and ten hotels changed brands but not market scale. The analysis found that on balance the hotels’ financial performance improved in the second year after they rescaled. However, net operating income diminished in the first year after the changeover, probably due to the expense of making the alterations. The hotels that moved upward in scale saw higher average daily rates (ADRs), while those that moved downscale generally saw no change in ADR, meaning that they were able to hold their rates even as they moved downmarket. Rebranding without rescaling had no significant effect on financial performance indicators.

In light of this interesting study, another branding phenomenon is occurring in the hotel industry. Two major franchise companies, one provider of reservation services and one hotel developer have created new marketing affiliations to attract independent hotels which are unique and distinct in their names, identity and personality. These affiliations enable independent hotels to keep their own name and signage while utilizing the specific identity, amenity and service resource that work best for them. The benefits include:

• Connection to the host global distribution system
• Reservation production
• Participation in loyalty programs
• Global promotion on the host platform and advertising program

*Bjorn Hanson, Ph.D., NYU Tisch Center for Hospitality, Tourism and Sports Management
Anna Mattila, Ph.D., School of Hospitality Management, Pennsylvania State University
John O’Neill, Ph.D., School of Hospitality Management, Pennsylvania State University
Yong Hel Kim, doctoral candidate, School of Hospitality Management, Pennsylvania State University

2. Ascend Collection by Choice Hotels International - Choice advertises, “When you become a member of the Ascend Collection, you’re tapping into a worldwide reservation system that delivered more than $2 billion in gross room revenue in 2008. That’s the business-building power you get from Choice Hotels. And you get it without giving up your name or distinct style. You’ll also benefit from our Choice Privileges rewards program with more than 7 million loyal guests around the globe and from our presence on third-party travel sites. Join the Historic, Boutique and Unique hotels in the Ascend Collection and make the most of your business potential.”

The Ascend Collection fee structure is:

• Affiliation fee- $375 per room, $30,000 minimum
• Membership fee- 4% of the proceeding month’s Gross Room Revenues
• System fee- 2.5% of the proceeding month’s Gross Room Revenues
• Other fees- see the April 1, 2009 Ascend Collection Franchise Disclosure Document
• Term- the standard term of the agreement is 20 years with mutual termination dates at years 5, 10 and 15 of the original date.

3. Autograph Collection by Marriott - Don Semmler, executive vice president of brand management, says “The Autograph Collection will take the innovative approach of grouping these iconic hotels according to the unique experience that guests are seeking whether it’s a resort, historic hotel, boutique arts or urban edge hotel in a dynamic gateway city. Each hotel will be highly unique and distinct with its own identity, appealing to a growing segment of our customers who are looking for an experience that an independent hotel can deliver.” So far, Marriott has not announced their fee structure for the Autograph Collection.

4. Magnuson Hotels Independent Hotel Operating System - Tom Magnuson, founder and CEO this Spokane-based company says, “Magnuson Hotels was established as a low-cost alternative to the franchise model, which can be very expensive…. We offer complete brand power to our member hotels without the costs and requirements of the major hotel brands.” Magnuson Hotels says that it has signed 400 new affiliate agreements within the last 24 months and is nearing the 1000 hotel mark. The five-year old company provides independent hotel owners with low-cost access to a worldwide reservations system, hotel supplies and medical savings networks. The company’s fee structure is based on the number of reservations it delivers to its affiliates who are not bound by long-term contracts. Customers make their reservations via the Internet and Magnuson’s Hotels computerized reservation system which is linked to 650,000 travel agents. Additionally, Magnuson offers its affiliates guaranteed priority national and international placement on Orbitz, Travelocity, Priceline and TravelWeb; priority search-engine visibility and targeted advertising on Yahoo, Google, Bing and AOL; and group tour sales and representation via the National Tour Association and other group-tour Web-sites.

Magnuson estimates that 60% of the hotels affiliated with his company are AAHOA members. Magnuson’s fee structure:

• Fees are based on reservations delivered
• No long-term agreements; get online within three weeks
• No franchise fees, royalty fees, required renovations, computer system requirements

5. Hersha Hospitality’s Independent Collection - “We wanted to be a company that built out a collection of independent hotels and then talk about it- as opposed to the other way around,” said Nareen Kakarla, executive vice president. “….It’s a meaningful trend in gateway cities for travelers to want to experience independents so long as they are comfortable and everything works and are unique to the brand experience.” According to Kakarla each property is locally inspired to offer authenticity as well as a luxury experience.

The company’s three new independent hotels are the NU Hotel in Brooklyn, the Duane Street Hotel in the Tribeca neighborhood in Manhattan and the Independent in Philadelphia. Two more are in the works in Manhattan: the Union Hotel in Greenwich Village and the 48 Lex in midtown, which will open in 2010.

Please take note that Stanley Turkel, MHS, ISHC has just published the book “Great American Hoteliers: Pioneers of the Hotel Industry.” It contains 359 pages, 25 illustrations and 16 chapters devoted to each of the following pioneers: John McEntee Bowman, Carl Graham Fisher, Henry Morrison Flagler, John Q. Hammons, Frederick Henry Harvey. Ernest Henderson, Conrad Nicholson Hilton, Howard Dearing Johnson, J. Willard Marriott, Kanjibhai Patel, Henry Bradley Plant, George Mortimer Pullman, A.M. Sonnabend, Ellsworth Milton Statler, Juan Terry Trippe and Kemmons Wilson. It also has a foreword by Stephen Rushmore, preface, introduction, bibliography and index. Visit www.greatamericanhoteliers.com to order the book.