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Brand proliferation is the buzz word these days as the lifestyle hotel phenomenon is pairing up with a blistering hotel business to create the potential perfect storm for the development business. While some of the fundamentals for increasing revenue may be peaking, the real action is starting to take place in the battle to dominate this emerging sector.
At stake is the next generation of customer loyalty, the real danger of muddled brand clarity and the fear of impact issues for existing hotel profit margins. According to PricewaterhouseCoopers, there were a total of 24 new hotel brands launched domestically during 2005 and 2006, which is the largest number of brand introductions in a two-year period since 1989. New hotel brands are out in full force to attract Gen-Xers and Millennials, who are representing considerable spending power. Gen-Xers now outspend baby boomers on hotel stays.
A discussion of these tangled issues was highlighted yesterday at the Hunter Investment Conference here in Atlanta. Here, the annual president’s panel highlighted the sometimes conflicting points of view held by owners, developers and financiers.
Steve Schwartz, Chairman & CEO, First Hospitality Group, LLC, believes a predominating factor for the increase of new brands is the emergence of Gen-Xers and Millennials. “[These groups] were ignored until three years ago,” said Schwartz, nothing the franchise companies need to have new product to sell because it gives them a greater chance to grab market share in increasingly crowded markets.
Tony Berger, COO Wyndham Hotel Group, said that the rapid proliferation of new brands could lead to problems for some. “From a brand stand point there is increasing overextension. The industry by virtue of the sheer proliferation of brands runs the risk of being overextended,” he said. Berger explained that unlike other businesses that require putting an entire infrastructure in place, the barrier of entry relative to other industries is low. Berger also predicted some brands will not succeed and to survive they must offer clear differentiation and a strong value proposition.
Part of the problem causing the heightened brand proliferation problem, especially in crowded markets, is developers “giving the brands too much of a free pass on unit growth,” said Neil Shah, President/COO of Hersha Hospitality Trust. “We have to choose brands we want to work with; those that protect their licensing. You have to vote with your feet sometimes and the message will get across.”
Schwartz also urged owners to communicate with franchisors because when there is no communication the franchisors don’t realize there is a problem stemming from their actions. “It’s critical your voice is heard at this time to make sure the brand is going in the direction you feel it should go in,” said Schwartz.
Mukesh Mowji, who just finished his term as Chairman of the Asian American Hotel Owners Association and Principal of the recently formed Penta Hospitality, thinks there are too many brands flooding the marketplace. “There needs to be some level of consolidation,” said Mowji. He does think the new lifestyle hotel trend is an interesting concept, which he said finds in roots in stylish European boutique style offerings. And while he sees room for these properties, he does not believe it will work on a mass market basis.
At Keystone Hotel Group, CEO Subhas Patel believes these new brands fill a need in densely populated areas that are already saturated by many of the established flags. “It provides opportunities for people locked out of markets,” said Patel.
No matter how successful these new entrants become Franc Isaac, Development Services said companies like Marriott and Hilton will “continue to be the predominant leaders.”
He also thinks the entire industry will benefit from these new brands are a hit. He has already looked at doing projects with the emerging brands Hotel Indigo and Cambria Suites, products from InterContinental Hotels Group and Choice Hotel International respectively.
Schwartz admitted franchise companies are doing a much better job listening to licensees and dealing with impact issues. However, he believes overbuilding is likely because the same companies are not thinking of the long term. “There is a lack of any coherent development. Their agenda is unit growth because they are serving a different customer’ Wall Street,” he said.
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