Moments of levity are rare during panel sessions at a hospitality industry conference. That’s just the way it is when discussion bends toward cap rates, multiples, basis points and other terms that have come to define the hotel industry’s workings. Imagine my surprise, then, when one panel I attended, at January’s Americas Lodging Investment Summit, in Los Angeles, turned downright snarky.
It came during a rather subdued panel concerning the topic of hotels of the future and what they might look like. At one point, the moderator, Bob Alter of Seaview Investors, posed this question to Lauren Chewning, VP of customer insight and growth at Marriott International: “What will a hotel look like 15 years from now?”
Alter’s seemingly innocuous question wasn’t intended to lay a trap, but Chewning took the bait with her response: “15 years,” she said, “is a little bit too far from now.” That’s when Alter, a hotel investor, took the opportunity to throw some shade back: “But you ask me to sign a 30-year franchise agreement!” he said.
The audience guffawed at the rejoinder—myself included (in my head I said, “Daaammmnnn, she got told” like I was back in high school, in the nineties).
This anecdote does not exist in a vacuum: hotel brands and hotel owners have a symbiotic relationship where both sides need each other to survive. But the relationship comes with a dollop of rancor and acerbity.
Hotel owners have a lot to say about brands, but their on- and off-the-record comments are miles apart. One owner I spoke to recently compared hotel franchisors to the world’s oldest profession. Nice.
I’d say it’s not the brands’ fault as much as it is their preferred business model. Publicly held hotel companies, from Marriott to Hilton, IHG to Wyndham, are out of the real estate game. They are largely franchisors and their revenues are made off fees; the only way to generate more fees is to open new hotels at a high clip. Like a shark, they must always move forward.
That oftentimes comes at the expense of hotel owners, who get vexed when they see a glut of new hotels opening on their block— especially within the same brand family. (This is more noticeable now that Marriott has acquired Starwood.)
Still, hotel owners aren’t about to say goodbye to brands. Like Jerry Maguire, “You [brand] complete me [owner].” While owners oftentimes malign brands, they love the scale their parent companies provide; their robust reservation engines and loyalty programs. Because… the one thing hotel owners resent more than brands is online travel agencies. Paying one fee to the brand is enough; they don’t want to pay what amounts to an even higher fee per booking to an OTA.
But one of the issues of being a franchisee of a company with more than, say, 5,000 hotels is that not all those 5,000 hotels are up to snuff, which is why, in 2018, many hotel companies will jettison those hotels they feel don’t typify the brand. That’s a win for hotel owners that have either opened new hotels or reinvested in their properties to bring them up to snuff. Like Steve Belmonte, CEO of Vimana Franchise Systems, recently said in a column he wrote: “Many believe they have to be a part of a system with 300 or more hotels. However, if of those 300 hotels, a large percentage are substandard, what good does that affiliation do the hotel owner? He or she could end up alienating a huge percentage of the traveling public who probably had a bad experience with that brand no matter where they stayed.”
There will always be disagreement between brands and hotel owners, but they will never quit on each other. The advantages outweigh the drawbacks because the alternative is going at it alone as an independent, which can oftentimes end up being more costly and profit eroding. But a more equitable relationship can and should be reached that benefits both sides because one thing is clear: Brands don’t get built without developers and developers can’t build more hotels without brands (try getting bank financing without one).
Let’s work it out.