Even though independent hotels consistently make the news, the concerns of the owners and managers of independent hotels are often overlooked. Many cite consolidation, low margins, distribution, loyalty programs, rising operational expenses and technology as some of their key issues. How are independent hoteliers meeting these challenges?
With capital flush and entrepreneurs eager to enter the new peer-to-peer economy, the rise of fresh ventures has created a breadth of innovative, stimulating options for independent hoteliers. This is an exciting time for hotel owners who are ready and willing to embrace the changing landscape.
Last year and early this year have been a banner period for deal-making for buyers and sellers alike. What’s curious is how attitudes differ on whether it is time to buy with plenty of upside or time to sell for fear of oversupply and a pending recession; opinion is truly split. Also, many are rumbling about a hospitality technology bubble in the brewing. In this low-margin business, we have already seen large consolidations among OTAs, so one may say that is a natural progression in brands, management and tech companies to scale.
But the naysayer may counter, “How will they maintain the culture or loyalty program?” or “Why was that really necessary?” Could it be that as brands, they are suffering and direct bookings are down? Could the brand be delivering less? Look at the monthly bills and line items and it’s clear which bookings came from GDS, OTAs, meta and brand.com/CRO. A recent review of one such bill was very interesting: After stripping out GDS, OTA and meta, what was left that was truly owed to the brand.com was minimal.
Now that independent hoteliers have an ever-increasing array of options to drive GDS, OTA and meta bookings – and, of course, the recent Google book direct – hoteliers are less reliant on brand.com’s lengthy contract with its expensive fees and its restrictions, especially in light of the easy and just-as-effective alternatives through either soft brands and/or collections.
What does a brand, soft brand or collection do? That depends on its capabilities and experience, but the shared core is a backbone to support the hotel with brand or brand-like benefits, along with reservations.
There are companies that build and own their technology and companies that rent it from someone else. The world of integrations makes this a very gray area. It is important for independent hoteliers to be aware of the large-scale proliferation of firms claiming they have something to sell that is actually a white label, or reseller, agreement regarding someone else’s product or service. One hotelier recently shared a story about how he found out the hard way that a cloud-based PMS sold to his hotel was actually not a PMS the seller had built but one it had purchased long after its initial development, making it hard to build out some missing functionality. That was such a disappointment, especially since that arrangement should have been disclosed upon sale. Should we really allow this rampant white-labeling to occur without disclosure?
What is still puzzling, however, is the impact of large brand consolidations. They have the loyalty programs, they have hotels, they have large guest files with retargeting. What are they missing? Could it be a technology platform? Do they face large licensing fees because they never made the investment in integrated systems so they are paying massive pass-thru fees? What about revenue management systems? Are they cultivating and reacting to smart data and guest-specific data?
Much as in the greater economic picture, reservations come from distribution channels and demand. Many believe distribution channels should be allocated and open according to net rate to the hotel owner to maximize the hotelier’s total RevPAR. Where does the demand come from? Outside of brand.com and OTAs, it is largely due to salespeople, Google/meta searches and repeat business – the cheapest business.
Of course, the cheapest way to cultivate repeat business is through repeat guests and email marketing. This is also where it gets tricky, as brands with loyalty members and OTAs don’t share guest emails with the hotel. So a hotel is either forced to break into its own system and scrape that system to capture that information or make a h3 effort to capture email addresses at check-in. Both are good options, but of course what is even better is driving reservations through a loyalty program such as InnDependent InnCentives or Google or a collection that shares full guest information easily and ensures that future repeat business is at a zero-percent commission to the hotel.
What about operating expenses? Many independent hoteliers claim they feel like they are operating on an island. Many feel they have to call four or five vendors every time they need linens to ensure they get the best deal. What about food and beverage in breakfast? The fact is now there are programs such as Source1 that give independent hoteliers as good or better pricing than their branded counterparts, but they are still hard to find and largely word-of-mouth. It is even harder to find one that is free to join and still saves the hotel owner over 5 percent per month just for signing up to be part of the buying group.
ack to the current marketplace. Independent Hoteliers are coming up with ever-fewer solutions to combat the accelerating costs of operations and face squeezed margins due to high cost of distribution and reservations*. One is labor, but most hotels run about lean as possible and many didn’t increase their workforce in proportion to recent occupancy gains. The second “solution” is system integrations to cut down on the monthly fees for services bolted onto the PMS or CRS. The third key is getting full guest information to drive repeat business. If you don’t have a cost-effective behind-the-scenes technology platform that integrates PMS, CRS, Channel Manager, Meta, Google, Wholesaler and Revenue Management with purchasing buying group power on operating expenses all in one, you will end up paying more and your bottom line will suffer. In addition, if you don’t succeed in getting full guest information, you will force your guests back to the top of the search funnel and trigger commission after commission forever.
Hoteliers that belong to organizations such as the Independent Lodging Industry Association and hotel-centric groups such as IBC are giving hoteliers the tools they need to drive total REVPAR.–Pamela Barnhill
This article initially appeared in Hotel Business Review