How Do Boutique Hotels Benefit From the Rise of the Soft Brand?
By Dean Minett, Director and Founder of Minett Consulting
Have you noticed all the new brands in the supermarket lately? Words like natural, non-GMO and farm-to-table abound. It almost looks like the old guard has been replaced by modern and ethical food producers.
When you look at the rise of the hotel soft brand, you find a more expansive set of reasons. Sure, giant hotel chains want to be cool and fresh. They understand why AirBnb has become so popular, and they know there is traction in the local and unique. This is part of the reason why Marriott (Autograph Collection and Starwood's Luxury Collection), Hilton (Tapestry Collection) and Wyndham (Trademark Hotel Collection), have all launched soft brands.
But there is another big reason for this trend, and it has everything to do with independent hotel managers and owners. The power of the franchise is nothing new. If you're a hotelier starting from zero, signing up with an established brand gives you tangible benefits, now and into the future. The booking platform, legions of loyalty members, promotional savvy and brand association all carry dramatic performance advantages. Assuming an established identity, however, is a double-edged sword. It means you have real limitations on how your property looks, feels and operates.
Soft brands give the hotel operator a middle path. The functional support of a big brand is there, but the restraints on individuality are not. In the case of Marriot's Kessler Collection, a group of established luxury boutiques entered into what was described as a "marketing partnership" with the hotel giant. The Kessler Group retained all of the uniqueness of its properties and operations, whilst benefiting from Marriot's massive loyalty base and distribution channels. Because the Kessler Group was already successful, the risks were low and the promises great. This isn't the case with every soft brand acquisition, but it illustrates a new way of thinking about hotel brands.
Are hotel chains becoming OTAs?
As I reflect on the last five to ten years, it sometimes seems like we have been continually discussing the same thing over and over – what is the impact of AirBnB or OTAs on both chain and independent hotels – and nevery really quite resolving the issues or even being able to settle in one place for long. In reality, all of these groups of players are continually evolving like bacteria to penicillin and the soft brand is the latest superdrug. And, like the latest superdrug, it will work for a while until something builds up resistance and mutates into something slightly different.
One of the big benefits of a boutique entering the ecosystem of a large chain is the movement away from OTAs. When you're part of a powerful direct booking platform, you depend less on the marketing power of Priceline or Expedia and their competitors. The fees you pay to those OTAs also diminish. It's true that operators also pay to operate as a soft brand, but increased occupancy and a lower cost of bookings has been highly effective in offsetting that fee and leading to stronger performance for boutique hotels. That's why chains are able to make such a strong case to potential partners who now operate as independents.
From this angle, boutiques entering the soft brand movement are shifting away from OTA dependency and aligning instead (through finite contracts) with large hotel brands in exchange for continued independence, brand security and massive operational backing. Many of the established organizations pursuing soft brands (e.g. Preferred Hotels & Resorts) make no secret of the fact that they're seeking to grab market share from OTAs.
Where is this all leading? Will the soft brand movement expand to the point where Hilton, Marriot and other hospitality giants assume the role that Priceline and Expedia now play? This attempt to reshuffle the deck cannot be lost on OTA executives — and if soft brands can put a noticeable dent in their market share, the question is what they'll do for independent hotels to reshuffle the deck once more.
I suspect large chains will be like any good pharmaceutical company and continue to launch new products to defend against the baddies. A smart hotelier however will keep up their R&D so they know when to engage the new drug, or rely on their own ecosystem to repel the invaders!
Director - Minett Consulting