Hotel Chains Add Brands to Boost Revenue

Hotel Chains Add Brands to Boost Revenue

What are your thoughts on hotel chains creating new brands? As you do your research on hotels, you will find that Hilton and Marriott are creating new hotel brands to boost revenue and make a different experience.

As reported in Wall Street Journal on May 28, 2019 by Aisha Al-Muslim:

Rise of New Hotel Brands Irks Some Property Owners

Major hotel companies are introducing new brands at a rapid pace, a strategy that can boost revenue but one that risks confusing guests and alienating hotel owners.

Five of the world’s biggest publicly traded hotel operators have launched a combined 16 new brands since 2013, including five over the past 18 months. This contrasts with past periods, when hotel companies could go years without adding a new brand.

The rise of new brands reflects a push by the big lodging companies to boost their top line with new products they can market to hotel owners and collect fees from them.

Some of the new brands feature sleeker designs or lower room rates in an effort to attract millennial travelers. Others are aimed at groups of friends and families. Hotel companies hope the new offerings boost the number of loyalty-program members and, in some cases, compete with home-rental companies such as Airbnb Inc., which has entered the hotel-room booking business.

Hilton Worldwide Holdings Inc. has been developing new brands to close “a number of gaps in the brand portfolio that were holding us back” and forcing customers to go to our competitors, said Chief Executive Christopher Nassetta.

But new brands can spark conflict with hotel owners. Most of the big chains manage hotels or franchise but aren’t themselves big property owners. New brands can cannibalize existing brands and lead to battles over territory and loyalty points, causing tension with property owners, industry analysts, travel experts and hotel owners said.

“When a new hotel opens down the street, you are going to lose 15% to 17% of business,” said Mike Marshall, president and CEO of Marshall Hotels & Resorts Inc., which manages 65 hotels under various brands and who personally owns about half a dozen of those properties.

Mr. Marshall said he has protested when another hotel opens close to one of their locations. It has been a source of frustration, he added, because hotel companies rarely back down.

With hotel analytics firm STR estimating that there were nearly 1,100 hotel brands world-wide as of March, guests can have a hard time keeping track of all of them. STR gives brand status when a chain hits a certain minimum number of open properties.

“I’ve been involved with the hotel industry coming on four decades and I can’t keep up with all the new brands being introduced,” SunTrust Robinson Humphrey analyst C. Patrick Scholes said. “I can only imagine what the average traveler thinks.”

Marriott International Inc. ’s flagship brand, along with Sheraton and Westin—which the company inherited when it acquired Starwood Hotels & Resorts Worldwide Inc.—strike some hotel analysts as quite similar.

The three full-service brands are primarily big-box designed conference hotels, and they offer similar value, quality, services and facilities, according to Sanford C. Bernstein analysts who said they stayed at nearly all of Marriott’s hotel brands.

An activist investor recently criticized Marriott for having too many brands. The firm, Land & Buildings Investment Management LLC, privately urged the hotel company to consider culling its 30 brands to focus on those that are fastest-growing and better align itself with competitors, The Wall Street Journal previously reported.

Land & Buildings asked for a seat for its founder, Jonathan Litt, on the Marriott’s board, but later withdrew its nomination after the company said it would accelerate plans to return capital to shareholders, the Journal reported.

Marriott CEO Arne Sorenson “has repeatedly stated that we don’t have too many brands,” a Marriott spokeswoman said. “We want to offer our customers a breadth of choice under our loyalty umbrella and the broader the choice, the more likelihood that they will stay with us.”

Despite putting brands to potentially vie against each other for guests, don’t expect the proliferation of new brands to slow any time soon. Introducing new brands, particularly midscale and high-end brands, can help get hotel developers excited, thereby boosting room counts, said Bernstein analyst Richard J. Clarke.

Hilton, which celebrates its 100th anniversary this week, has launched the most new brands of the major companies, with seven since 2014. Those include smaller-room brand Tru by Hilton, hostel-inspired Motto by Hilton and meetings and events-focused Signia Hilton. The first Signia and Motto hotels, which took up to two years to create, are expected to debut in 2020.

For the most part, franchisees take on the chance on a new hotel brand by investing capital to build the properties.

“There is some risk in being the first owner to try a brand, but brand companies do significant amounts of market research, and being part of a giant system like Hilton isn’t really that risky,” Bernstein analyst David J. Beckel said.

Hotel chains are adding new brands to target millennials and also families. Is this a good or bad idea?

Interested in learning more about branding? Check out these branding blogs:

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