*So this isn’t my work*, but I know people like real data, periodicals, abstracts, and real professional studies rather than click-bait journalism or anecdotal nonsense from companies selling you a product. I have been furiously curious about flags, brands, soft brands, travel distribution partners, etc…. and trying to quantify the value of a flag vs pip, or soft brand vs independent.

In general, Waterford Hotels & Inns (I am a partner) is fairly entrepreneurial, and have a sense that if a hotel is run that way, with owners who care enough to put capital into the project…. independent is the way to go, long term.  I mean, are’t flags all about loyalty in an age of no loyalty? It’s dying to be sure….

But the efficacy of independent vs flag or brand is so very difficult to prove… just as it is difficult to prove and justify a flag or brand. But a brand like Marriott could be enough of a powerhouse to be more of a warm blanket – just something to stave off the fear of actually having to go independent and take the chance. Well… the upshot of this brilliant study?  Just thoughtful compilation of data that says the answer is complex, relatively even… but there are some valuable points to take from it.

When the economy is swinging up, go independent. That is as loose an interpretation that you will get from me…. but this is absolutely a fantastic read.

 

Basically NOI is similar, indies have higher ADR and Revpar during upswing, but during the downturns brands are safer.  *BUT*… the thing that would skew this is that there are so many huge, boring boxes in the middle of nowhere that have zero options but to mine for potential rewards travelers passing through town on business.  I think if you know you are in a tourist spot, or have a unique value proposition, you can absolutely knock it out of the park as an independent.  It’s just to be independent, you need to be entrepreneurial, and if you’re not entrepreneurial, it’s likely you won’t go independent because you are too scared.  Business isn’t about being scared… but rather being intelligent with someone else’s (owner) money.  So I guess, you won’t go independent because you are too intelligent with someone else’s money… which is the hallmark of why hoteliers are successful, and why they default to being relatively conservative.

NB:

Chip Conley, as well as a number of other people, have made it very clear that those hotels that aren’t employing a data analyst within 5 years are going to be left behind in the dust.

It has been something sort of scary, & getting louder.  I believe the nature of revenue management will simply evolve, like reservations managers evolved into revenue managers.  I think a lot of automation will give more time for the rev manager to learn and pilfer / read data.  But I don’t even know where to begin for independents versus box brands, etc.  If Preferred does offer some meaningful data analysis, that might be worth it’s weight in gold.  Not only are hoteliers not tech people, but we’re certainly not data experts, nor can we even understand which data points are valuable… we basically focus on about 4.  So if you brand affiliate or soft brand has some of even the most rudimentary resources to make sense of the nonsense that is “big data”, that would add significant impact to this 2010 report……

 

All below is from the study, not my words… just spreading great research!

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The PDF linked here:

Comparison-of-Branded-and-Independent-Hotels-Article from International Journal of Hospitality Management, by John W. O’Neill, Mats Carlbäck.  They are from the School of Hospitality Management, The Pennsylvania State University, & School of Business, Economics, and Law, University of Gothenburg, Vasagatan Sweden

 

 

Abstract:

“By analyzing longitudinal data of more than 51,000 hotels operating in the United States during the previous economic cycle, it is possible to draw conclusions regarding the performance of branded hotels compared to independent operations under various economic conditions. The results of the study indicate that while branded properties experience significantly higher occupancy rate during the different phases of the economic cycle, independent hotels experience significantly higher average daily rate (ADR) and rooms revenues per available room (RevPAR) during the same time period. While branded hotels are faced with various payments attributable to the brand, such as royalty payments and other franchise fees, those fees do not have a deleterious effect on net operating income (NOI) compared to NOI for independent hotels, suggesting that independent hotels are unable to bring their ADR and RevPAR premiums to the bottom line despite their savings in franchise expenses. Instead, the results indicate similar NOI for branded hotels and independent hotels during economic expansion, but significantly higher NOI for branded hotels during economic recession. The results of this study suggest that the intangible asset value of hotel brands may not be a static construct, but may vary by time. Sources of such intangible value of brands may include shared resources, guest loyalty programs, and yield management systems. These results contribute insight into the complex hotel owner decision of choosing between a brand affiliation and independent operation.”

 

 

CONCLUSION:
Our research illustrates the importance of hotel brands in general, and particularly during periods of economic recession. While independent hotels generally appear to operate with higher ADR and RevPAR than branded ones, branded hotels typically operate with higher occupancy levels. More importantly, while there does not appear to be any significant differences in NOI between
branded and independent hotels during periods of economic growth, branded hotels appear to achieve significantly higher NOI than independent hotels during periods of economic recession. Further, independent hotelsmaybe relatively riskier business ventures because in general, they have greater variance in all revenue indicators, and also, they may have greater variance in NOI during recessions. Though the Smith Travel Research data do not allow researchers to draw definitive conclusions regarding the potential for independent hotels to operate more profitably, it is plausible that with improved cost controls, they could do so. It appears that branded hotels, perhaps based on more sophisticated managerial tools, can sacrifice higher room rates during recessions to achieve higher occupancy and profitability. Brand matters, and brand seems to matter more when times are bad because brands may reduce the volatility of the business and present a less risky investment. Brand also matters as a driver of the business value itself, as the intangible asset value in terms of the brand name may be evident through this research. It appears that the intangible asset value may not be static, and this knowledge should further add to the already complex discussion of indication and assessment of intangible asset value in the hospitality industry.

 

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