Pierre Verbeke Senior Consultant Switzerland
We were working on creating a table of differences between brand A, B or C for an owner that wanted us to assist him in his choice of brands.
The owner, a successful businessman for many years, with clear ideas of what has worked or not, was disappointed by part of our work, namely that we could not really convince him of the brand to go for, of a name to put on his hotel. Meaning, we were unable to make clear differentiation between brands.
It all boiled down to costs, distribution channels, percentages, commissions, fees, ….
This started a reflection that is unresolved to this day. In fact is becoming more and more of a blury picture.
Indeed, what hotel brand to choose? Which operator to choose.
And there is a clear difference between the perspective coming from the hotel brand owners and the perspective coming from the guest or even the hotel owner.
1. As seen from a hotel operating companies perspective
When prompted the hotel operators will do their very best to try to explain to you the different brands and the different experiences that they offer.
Indeed the first axis of communication by some hotel operators is about the number of brands they have.
Reading a recent press statement from a worldwide hotel operator, the 3rd sentence (after head office location and years of trading) was about the number of brands they propose.
They all mention customer experience, delighting the guest, delivering the wow factor, providing a good night’s rest and more.
They will explain that the target audience is the 30 year old frequent traveller, or the east European family or the middle-east family and kids. Throw in the tourist from Asia or the businessperson from South America. There is a brand for everyone.
And how this or that brand meets the needs of this individual or meets the needs of this typical family.
These different brands come with different signage, different internal designs, different FF&E and probably different glassware and cutlery. One more expensive than the other.
Sometimes you will have different guest programmes and different reward programmes.
I understand the trend today is for individualism and the industry needs to cater to that.
Looking at the travel industry a hard lesson was learnt with the demise of Thomas Cook. As some other companies in the past, the inability to see or anticipate changing customer patterns (online personal booking is cited as one important reason) has made the model obsolete, unsustainable.
Having different brands is rather an easy discussion when you have a greenfield project but when it’s an existing hotel, it’s a different ball game. You then get the “conversion brand”.
Basically meaning : one size fits all…
Why the big difference? Suddenly identified guests do not seem to matter all that much.
Reasons for this must also be found in owners’ willingness (or not) to comply with the brand standards and the heavy costs some of this compliance entails.
How many of these guest promises are sacrificed on the altar of cost saving?
The brand promise says one thing, but investors have quite a different understanding and the operating companies with them.
Clustering, outsourcing, economies of scale and more reasons why there could be a gap between the brand promise and the real experience.
When you add in that equation that over 90% of the hotels are franchised, you will understand
2. As seen from the customers’ perspective
Different customers have different needs.
This is marketing mantra and something we all believed. But is it true?Most certainly to a certain extent.
We also know that different customers have different expectations. Their personal experiences, their cultural environment, their spending patterns are different and that therefore drives the fact that they have different expectations.
Different generations also have different needs, because they have different behaviours.
I was fortunate to actively participate in multiple greenfield projects in the last 10 years.
What was frustrating though was the fact that many of these projects, hotels mainly, were only targeted to people over 50 years old.
Big brands lack the nimbleness for rapid change, owners are scared to move away from existing solutions. Indeed the investment cost and the operational cost are such that mistakes can be costly.
We’ve seen some great concepts like CitizenM, MamaShelter, H25. Also lifestyle concepts or brands like Aloft, Moxy, Edition, W are exciting and more geared towards the customer of tomorrow.
The bathroom design is the same in most hotels, you still find a writing desk in the room, all with too much stuff on it. I see technical recommendations by some brands that still require telephone with answering machines or VOD entertainment in the rooms.
Some of this lethargy is driven by the authorities and the hotel classification in some countries.
I loved it when I saw a Premier Inn in the UK where there were no telephones anymore in the room, just a panic button.
In this hyperconnected world, where most travellers have smartphones (more than 1), why would we still have anything more than an internal phone system in hotel rooms. Or replace all of it by a hotel app.
We can continue to reflect on this, but what about customers’ expectations?
Are different customers really wanting different things?
We’re very much convinced that first and foremost you need the get the basics right. Go back to the fundamentals about what drives people to go to hotels.
The primary purpose of a hotel is to offer a place to stay, in a clean, safe and restful environment.
All brands seem to promise this, which is a good thing. But between the brand promise and reality, there is the occasional gap.
Numerous hotel studies and customer satisfaction surveys have shown that the number one complaint in hotels is about noise, closely followed by cleanliness.
Which to us means that despite all the brand promises, most customers still complain about the basics.
One could try to dismiss these complaints by saying that these surveys include private hotels and that this does not relate to the bigger brands. We beg to differ.
And isn’t it therefore a genuine question to ask why so much money is spent on all these differentiating factors and not enough money or attention is spent on these basic issues?
I’ve seen some new hotels, where the brand specifications accepted 80dB sound insulation in the room, whereas some city authorities will allow 65dB only for ambient noise in the streets at night. These measurements are seldom done in real life conditions, i.e. with customers at 12pm noisily wishing each other a good nights’ rest (and awaking all others) in the corridors and then proceeding to walk all over their room, with a nice wooden floor, with their shoes on.
I’ve seen new projects where the walls were plasterboard and where TV’s on the other side of the wall were as loud as the one in the room, not mentioning the connecting doors.
Plasterboard walls are cheap but rarely offer good sound insulation.
And talking about main reason people go to hotels : to sleep.
How many hotels, from high luxury to budget, save on matrasses and bed linen? Or do not replace them on time.
Decorators and owners will spend lots of money on decorative plaids and pillows yet the pillows to sleep on are only occasionally of really good quality.
One must ask how clean these decorative items are.
Knowing hotels operations, I can assure you that the decorative items is a room are not routinely cleaned, certainly not after every guest.
3. As seen from the owners’ perspective
Having talked and worked with many owners in various parts of the world, on both greenfield and brownfield projects, the question of brand promise is a delicate one.
An owner will look first and foremost at the investment and the profitability of that investment.
Owners’ reputation also plays a role in some parts of the world, sometimes more so than the return on investment.
But let’s look at the former first.
It is increasingly difficult for an owner to understand the added value of one brand vs another in terms of investment and return.
It keeps surprising us that the operators that we’ve been talking to, without exception, would not readily share their business projections with the owners. We’ve been working on projects in Africa, in Europe in the CIS of late and none of the operators shared their business projections with the owners.
And when they did, it was only under severe pressure and when the property was in high demand in select locations.
Maybe that is also the reason that operators refrain from guaranteeing any sort of return to the owner. We only saw this in select, mature locations.
What we have noticed is that owners would get a simplified stable year P&L showing the EBITDA or net profit and every brand would obviously show the highest number as possible.
Owners are often led to believe that for a very small (generally underestimated) pre-opening cost they could expect a very high (generally overestimated) return.
The discussions we conducted were first and foremost based upon the distribution channels, the perceived ability of the operator to reach as many customers as possible and to fill the hotel as much as possible.
So the question, for an owner, seems to be first about distribution and only on a second place will the actual brand play a role.
In many destinations, and especially for greenfield projects, it will be the operating company that will drive choice of the brand, tied as it will be with exclusion zones within the same destination and for other projects.
On conversions, the question is more difficult, as there aren’t that many conversion brands out there and an owner will have less choice in that matter.
Having looked at many contracts, franchised as well as managed in various forms and for various operators, we marvel at the complexity of some.
We all know about the base fee, the franchise fee, the marketing fee, but then come all the obligations by the operator.
The mandatory photoshoot, the obligation to work with this or that consultant, the imposed fees for design consulting although the design is already done, the mandatory purchase, by some, of operating equipment that the customer doesn’t even see.
Ultimately, all these amount to much more than the 4% or 6% that you initially thought of.
We must also consider that owners, to a certain extent, do not want to go all out when they’re going for a brand or an operator.
Some operators have learned this and have made their contracts 300 pages long in order to protect the brand and the brand customers as much as possible.
However, we must concede that the distribution market is, still, dominated by the big operators and that they are (still) doing an excellent job.
But we also see players on the market, both in distribution and in operations, that try to rattle this reality.
Some hotels, mostly smaller ones, go without brand or without distribution.
Some concepts like Meininger, 25H, CitizenM know how to appeal to customers and to owners on a simplified message.
Simplified concepts, simplified contracts…
So where does this lead us?
We need to understand that the perspective for offering and buying a brand can be diversified and the match isn’t always perfect.
The operator want to sell this or that brand largely because of other previous obligations or imposed restrictions stemming from other contracts.
The customer really wants the basics in various levels of luxury, only after that does the customer look for additional, for the non-essentials.
The owners, most of them, want a profitable operation first and the brand only comes second. This does not mean that the owners have no preferences or that they do not understand the value of the Operating Company.
Is there a perfect match? There certainly is but one cannot fail to notice the multiplicity of brands and the fact the choice has become so much more complicated, despite the consolidation of the operators’ market of late.
Pierre Verbeke Senior Consultant Switzerland
Pierre Verbeke, Senior Consultant from our Lausanne office, is a long time professional in hospitality. He has deep knowledge and expertise in hotel operations, in hotel openings. In his role at EHL Advisory, he also guides clients in business planning and team management. Prior to joining EHL advisory, Pierre was Area Director for Rezidor, responsible for new projects in different countries, mainly Europe, North Africa and Eastern Europe. Before that, he was general manager in different hotels in Belgium leading passionate people towards achieving result. He was also president of the Hotel association of Brussels and has an in-depth knowledge of the hospitality world and the challenges that face it. He started his career in the catering department of an airline. A graduate of the Ecole Hôtelière de Lausanne, Pierre is also a certified LOTS coach for business planning. Born in Belgium, Pierre has lived in London, Brussels, Moscow and Lausanne. He is fluent in German, French, English, and Dutch.
Areas of Focus