How independent hotel brands can go from surviving to thriving in the new decade, by James Simmonds*…
The trend for the major international hotel chains – big brands – to continue their growth trajectory looks a certainty and we expect the battle for industry supremacy to continue unabated. Combined with the threat from online booking giants, and the consolidation of the hotel industry between a handful of global players, can independent hotel brands survive in the years ahead? At Global Hotel Alliance, we absolutely believe that independent brands can turn adversity into opportunity, and that a true marketing alliance empowers independent brands – to go beyond merely surviving – by giving them the platform to excel and realise their brand potential, without losing their independence and individuality. Following the spate of acquisitions by Big Brands in recent years, led by Accor and Marriott, the hotel industry seems to be enjoying a respite as the majors are busy integrating their new businesses (with the exception of Hilton, opting to develop new brands rather than acquire them).
Furthermore, there appear to be fewer mega-deals left to transact during this cycle, manifested by Accor recently announcing its plan to return €1 billion to shareholders. Going forward, the primary drivers of Big Brand growth are likely to be organic pipeline growth, coupled with acquisitions of small- and medium-sized independent brands and, significantly, a renewed focus on customer acquisition, experience and retention through loyalty programmes. Selected acquisitions and investments by Big Brands Indeed, we see the Big Brands deploying their substantial marketing resources on “owning the guest relationship” through their loyalty brand primarily, and their actual hotel brands secondarily. For example, Marriott’s strategy appears to be enrolling millions more guests as “Bonvoy” members as the umbrella loyalty brand, and to market the underlying 30 hotel brands to the Bonvoy member as a secondary objective. Notably, in the three years since merging the Marriott Rewards and SPG loyalty programmes, the number of Marriott’s loyalty members has increased from 76 million to 137 million (at a compound rate of 22%).
As a consequence of organic pipeline growth, combined with more industry consolidation, Big Brand market penetration will continue to rise, potentially resulting in fewer independent brands and hotels remaining towards the end of the 2020s. In European markets, brand penetration (dominated by Big Brands and large domestic chains) has now reached almost 40% of total room inventory – whilst this is still far below the US market (with over 70% brand penetration), the trend is likely to continue in Europe with the gap narrowing in the years ahead. In the Asia Pacific region, the level of brand penetration is similar to Europe and independent brands face increasing pressure as the competition intensifies.
And beyond Asia, domestic Chinese brands are now challenging the western Big Brands – and independent brands alike – as they expand internationally. Following Jinjiang’s acquisition of Radisson, their combined loyalty programmes total 170 million members globally, and the recent acquisition of Deutsche Hospitality by Huazhu, brings Huazhu’s member base close to 140 million. In parallel with the ongoing battle of the industry titans, of course the Online Travel Agents (OTAs) are actively looking to own the guest relationship through their loyalty programmes instead – with the aim of the guest becoming indifferent to the choice of brand where they stay, and commoditising the guest experience.
Expedia’s flagship rewards programme under Hotels.com has increased from 27 million members in 2016 to 50 million in 2019. Bigger still, the threat from Chinese OTAs will be felt across the global hotel industry, with Trip.com (formerly Ctrip.com) boasting over 300 million members. With literally billions of dollars being spent by the Big Brands and the OTAs in the battle to “own the guest”, where does this leave the hundreds of independent hotel brands – how can they compete on the global stage, with much more limited resources, while playing to their individuality and authenticity? Perhaps the answer lies in working together to compete, by harnessing independent brands’ strengths and uniqueness as competitive advantages.
Working at Global Hotel Alliance (GHA) gives us a unique industry perspective talking to independent brands around the world, with many facing similar daily challenges to compete. These range from reducing their reliance on OTAs and taking back ownership of their guest relationships, to competing with the Big Brands to maintain market share, and raising their own brand profile in a crowded universe of brands. Allied to that, independents are grappling with distribution challenges and rising costs, whilst trying to navigate technology and data management pitfalls. Underpinning many of these challenges are the fundamental business strategies of what it means to be an independent hotel brand today.
In general, many independent brands begin as owners and operators of their hotels, however the marketing side of the business has disaggregated – with different business models and hybrids evolving. Typically, we see independent hotel brands that have adopted one, or a combination, of the following strategies:
1. Going it alone – being truly independent and, in the perfect world, selling their rooms directly to guests, owning their guest relationships, and not relying on third-party intermediaries, such as OTAs. In the luxury segment, these brands include some of the world’s most well-known and iconic hotels. Individual hotels within these brands enjoy high repeat guest rates, although guests often overlook the actual brand, resulting in low cross- visitation between sister hotels. These brands also find it challenging when expanding into new markets, where they lack brand recognition, and have to build a new customer base.
2. Outsourcing their distribution – potentially giving away the guest relationship and control of their distribution to expensive OTAs, or tour operators and wholesalers in the case of resort brands. By relying on intermediaries (selling between 50% and 100% of the brand’s inventory), this undermines the brand’s efforts to build their own distribution capabilities and brand awareness, and risks losing the guest’s loyalty to the intermediary – reflected by low repeat stays by guests booking through OTAs.
3. Signing a marketing affiliation – partly to combat the risks of relying on expensive thirdparties, or individual tour operators, we see brands seeking representation and marketing muscle by signing one or more of their hotels under the marketing affiliations (or “representation companies”). However, the cost-benefit of these affiliations varies considerably by property and location, resulting in hotels tending to “churn” through the different affiliations over time. While General Managers favour the increased exposure and sales network that affiliations bring to their hotel, this does not necessarily benefit the brand itself (with legal ownership of the guests’ data often being lost to the marketing company).
4. Signing a soft brand franchise – to accelerate their market penetration as well as acquire more guests into their loyalty programmes, Big Brands offer franchises for independent brands that wish to “soft brand” individual hotels within their portfolio. However, this is a more rigid form of agreement, bringing much higher costs and promoting the soft brand over the actual brand of the hotel – resulting in the guest relationship (and legal ownership) shifting to the Big Brand entirely, further undermining the brand’s own marketing efforts, CRM campaigns and brand awareness. In summary, most four- and five-star independent brands that we talk to fall between going it alone and outsourcing their distribution (with upwards of 30% of their room nights through OTAs), and occasionally sign a marketing affiliation for some of their hotels – often with mixed results.
For many years, this has been the limited range of business strategies open to independent brands. That is until Global Hotel Alliance was formed and the concept of a multi-brand loyalty programme, DISCOVERY, was launched in 2010 based on our unique technology platform – presenting a fifth option for independent brands to join the Global Hotel Alliance. Since GHA began in 2004, most of the member brands that have joined are familyowned but also include private equity investors, seeking to enhance their financial returns.
Interestingly, two-thirds of GHA member brands are owner-operators, which is why DISCOVERY has been developed as an owner-friendly loyalty solution, and not a typical free nights programme. Built on the simple premise of independent brands working together through a collaborative marketing alliance, by helping small- and medium-sized hotel groups pool their resources and customer bases, GHA adds value by marketing all 570 hotels in the alliance to a shared database of guests enrolled as DISCOVERY members – boosting their repeat guest rate (by offering an attractive, global loyalty programme), and encouraging guests from hotel brand A, to book at brand B, and vice-versa.
The concept has proven so successful that the alliance will soon exceed 40 member brands – with all of their hotels participating in DISCOVERY as a brand-wide solution. Importantly for independent brands, and unlike the marketing affiliations and soft brands, DISCOVERY is marketed to guests as the brand’s own loyalty programme (for example, Kempinski DISCOVERY, or Pan Pacific DISCOVERY), building guest loyalty to the member brand first and foremost, rather than to a third-party loyalty programme. Furthermore, the brands in the alliance legally own the data for the guests that they enrol; GHA simply has the license to market to these guests (noting that GHA does not favour one member brand over another, and also one brand cannot tap into DISCOVERY to market their brand to another brand’s guests).
Because GHA member brands own the data for guests that they enrol, they are incentivised to enrol their guests into DISCOVERY – meaning they capture much more guest information, and better quality data, for their own operational, marketing and CRM efforts. By capturing, maintaining and sharing clean guest profiles (interfacing technology at central and PMS level), DISCOVERY enables brands to personalise and enhance their guest experience. In turn, guests are more likely to enrol and return since DISCOVERY is more attractive to them as a loyalty programme – giving guests global choice and the same recognition and benefits when staying at any alliance hotel worldwide.
In addition to driving incremental room revenue as a low-cost channel, and boosting the CRM efforts of our member brands, other benefits of joining GHA include giving brands exposure through global marketing campaigns (that would otherwise be cost-prohibitive), and supporting our brands’ growth efforts, with DISCOVERY in their development toolkit, when pitching against Big Brands for new hotels. Ultimately, GHA enables independent brands to build and capitalise on their own brand equity, creating significant brand value and intellectual property for their ownership in the process.
As awareness of GHA has increased, more independent brands have joined the alliance, with Campbell Gray Hotels, Capella Hotels & Resorts, Divani Collection Hotels, Fauchon Hospitality, Nikki Beach Hotels & Resorts, Sun Resorts and The Sukhothai Hotels & Resorts all joining in 2019. Many independent brands have realised that GHA is not a representation company and therefore they are free to work with marketing affiliations (if they wish to) and with GHA, since we offer complementary services and are not mutually exclusive; GHA’s strengths being superior scale, unrivalled technology and a world-class loyalty solution – based on a low-cost commission model with no fixed fees.
DISCOVERY has already surpassed 16 million loyalty members – making DISCOVERY the largest loyalty programme for independent brands in the industry – with our member brands enrolling over 200,000 new guests each month. With new brands to be announced in the coming months, the DISCOVERY member base will continue to grow significantly, and with it the powerful room night production for our member brands will go from strength to strength, creating a genuine win-win for all brands in the alliance. In view of the increasingly competitive landscape that the hotel industry faces over the next decade, the rationale for independent brands to work together and mutually-benefit through GHA – enhancing their own guest experience, brand loyalty and global brand awareness, whilst retaining their individuality and authenticity – is more compelling than ever.
*James Simmonds is Chief Development Officer, Global Hotel Alliance