A number of new hotel brands have popped up over the last year—and the growth doesn’t show signs of slowing down. Recent launches from the major hotel companies in the past few years include Spark by Hilton, IHG’s Garner, Hyatt Studios, Marriott’s StudioRes, Sonesta Essential, ECHO Suites Extended Stay by Wyndham as well as sbe and Wyndham’s “smart lifestyle” brand under the working name Project HQ Hotels & Residences.
With the surplus of brands out there, how are owners and developers deciding what brand to cultivate?
“The biggest factor I make when advising on a brand is what the market dictates,” said Bryan Tubaugh, Aligned Hospitality Management CEO and founder. “Does it have demand for a lifestyle brand vs. a corporate traveler brand? Does the market have too many of a certain brand vs. another, and how has that brand contributed to the market vs. another? Markets always dictate the first decision, and then things like brand contribution and fees come into play. Relationships are also key in when deciding what brand to use; you want to trust your brand partners.”
Many factors are associated with the choice of brand for a new development or conversion, all of which need to be considered to maximize returns for owners, said Joe Viglietta, COO of Dimension Hospitality. These factors include brand/flag availability, demand generators/market mix, brand contribution, available brand incentives and historical rates of return/exit opportunities.
“In many markets throughout the U.S., especially those which enjoyed the cyclical boom from 2010 to 2019, many or even most brands have already been spoken for—in such cases, we consider site selection as it relates to proximity to the closest such brand, as well as identifying and ultimately prioritizing a list of available flags,” Viglietta said. “In markets where there are few hotels and options are abundant, deliberation must be granted upon potential absence of an entire family of brands which may yield a compelling narrative.”
Regarding demand generators and market mix, consideration must be given to what drives demand in a given market. If there is a proliferation of SMERF business on weekends, double queens are a necessity, as is a complimentary breakfast. “If there is strong extended-stay business in the market, we evaluate price elasticity of current/future accounts in determining the best possibly option given that most parent companies now have multiple scale options in this space,” Viglietta said.
Depending upon the stage in the product life cycle for a given brand, available brand incentives may provide monetary considerations in the form of up front key money or temporary fee relief in order to augment unit count and gain penetration into a desirable market, Viglietta said.
Historical rates of return/exit opportunities includes construction costs, as some brands are simply far more expensive to build than others, and said costs directly impact levels of returns for owners. Should the owners have an exit plan or strategy in place, the brand and corresponding franchise duration can have an impact on selling price.
“While I believe it makes sense from a purely business perspective to increase unit counts (which I believe to be the primary basis for parent companies' spike in brand creation over the past several years), we must be prepared to temper expectations in some cases, especially when the introduction of new supply in the form of new brands into an average or less-than-average market could create demand cannibalism, thus diluting individual property contribution and value,” Viglietta said.
Being great partners for business is key, said Tom Nolan, COO of New Castle Hotels & Resorts. “We are certainly in an interesting time, but with the changing travel dynamics requested by different ‘Gens’ and the search for curated experiences, new brands allow for more choices. More choices also create complications as you look towards the medium and long term demands of the brands and the markets in which they operate.”
Tubaugh is a huge supporter of more brands. “No two people like the same thing when traveling, and the variety of brands allows us to showcase our great industry,” he said. “It also allows a traveler to experience different levels of travel depending on what they’re traveling for and caters to their needs. It’s hard not to find something that will assist in your specific need to travel anymore.”
This article was originally published in the May edition of Hotel Management magazine. Subscribe here.