Soft-brand collections: The new norm?

Soft brands are not new to the hotel industry. While such collections as Preferred Hotels & Resorts, Leading Hotels of the World, Small Luxury Hotels of the World and the like have helped pave the way for soft brands, many in the industry credit Choice Hotels International’s launch of the Ascend Hotel Collection in 2008 as the beginning of the race for what we know today as soft brands, defined as a collection of independent hotels that join a major brand’s platform while retaining their own names and branding.

“The simplest definition is a hotel backed by a brand whose name does not appear on the building,” said Robert Rauch, CEO of RAR Hospitality. “It’s one where the customer does not know the name of that brand; they only know the name of the hotel.”

Rauch said that once Ascend came to the market, other major brand companies began to realize the value of these collections. The biggest reason? “They have run out of locations to put the same brand right next to another in the family,” he said. “You can’t keep adding Hiltons and Marriotts to the same neighborhood. It’s not because there’s not enough demand, necessarily, but because owners will get angry.”

Additionally, he said this type of product that shies away from brand standards has become a favorite for a new kind of traveler with a “millennial” mindset. “The mindset came to fruition about five years ago because millennials are just not as brand-conscious as baby boomers or Gen Xers. The soft brands allowed the core brands to expand and at the same time to offer product in sync with the millennial mindset,” Rauch said.

At the end of 2018, there were 342 hotels with 57,810 rooms in soft-brand collections in the United States, according to The Highland Group’s “The Boutique Hotel Report 2019,” which tracks lifestyle hotels, soft-brand collections and independent boutique properties. At the end of 2018, hotel guestroom supply for the total U.S. rose 2 percent, while soft brands increased their room count 31.6 percent, according to the report.

That supply figure will only continue to grow as brand companies continue to announce new launches. Kim Bardoul, partner at The Highland Group, said the reason big brand companies continue to introduce new collections is clear: The flexibility they offer to developers is attractive. “Soft-brand collections are more flexible in design, and a lot of them are conversions or adaptive-reuse projects, which makes them unique,” she said.

Rauch agreed that flexibility is key when adding value. “The brands create an onerous situation for managing a hotel because they are basically saying you need to do your [property improvement plan], telling you what changes to make even though you might not see it the same way,” he said. “As a franchisee, you may not agree with everything the brand is coming out with because you’re an operator and the people who work for the brands are not, so operators have a better grasp than someone at corporate. If I’m a soft brand, I don’t have to do what everyone else is doing.” At the same time, soft-brand hotels get the benefits of being backed by a big brand, he added. For example, online-travel-agency fees are lower when an independent hotel has a brand behind it.

“And you’re going to get reservations at a much higher rate through the brand’s system than you would if you were an independent. If you go at it alone, you’re going to spend much more on marketing,” Rauch said. “The brand is an insurance policy.”

That insurance comes in handy during recessionary periods, said Rauch, who noted that he has been through five recessions during his time in the industry. “Recessions affect independent hotels much more than brands. Brands have the resources to keep business flowing,” he said. “When independents join soft brands, they can narrow the gap to help survive the next recession at a better clip than in the past.”

But, of course, that risk mitigation comes at a cost. “It’s a plug-in, and you pay for it,” Bardoul said. “If you can pull off being an independent alone without a brand, then it will obviously be better for your bottom line.”

Bardoul also noted that food and beverage is a critical component that drives financial performance at soft-brand hotels—but that F&B outlet can’t be a run-of-the-mill offering. “Almost everyone is adding a rooftop component, for example. But what happens when there are five rooftop bars in the market? Your F&B really has to be a standout,” she said, adding that many properties partner with well-known chefs, hone in on the local clientele and/or offer a tailored concept such as farm to table. According to the Highland report, luxury and upper-upscale soft-brand hotels in the sample achieved occupancy of 75 percent with 31 percent of revenue coming from F&B.

All told, sources said that soft brands will only continue to grow in favor with consumers, developers and brand companies alike. “It appears as if soft brands will be the new norm,” Bardoul said, adding that she doesn’t think the audience for core brands is likely to disappear either. “But you will see more soft-brand collections because consumers want them.”