A decade’s worth of data reveals dual-branding hotels may not be beneficial in the long run
by SUSANNA DANIEL
Although dual-branding has been around for more than a decade, there’s still a lot to be learned about which brands work best together and how to maximize efficiencies and reduce redundancies while enhancing brand identity. It might be years still until the recipe for a maximally profitable dual- or multi-branded hotel solution is finally perfected, but there’s a lot we know now about what works and what doesn’t.
According to Robert Mandelbaum, Director of Research Information Services with CBRE Group, it’s become increasingly difficult for U.S. hotels to actually profit from increased revenue. This is mostly due to slow growth in daily rates, more competition from new supply, increased utility costs, and non-labor costs like technology, complimentary food and beverages, franchise fees, insurance, and credit card commissions. In 2017, Mendelbaum reported, these costs increased at a greater pace than did revenue.
DOES DUAL-BRANDING DELIVER ON ITS PROMISE?
In the face of narrowing bottom line, some seem to believe that dual branding might hold the key to unlocking greater profit margins, but so far, owners haven’t seen the returns they’d expected. A four-year CBRE study tracked 23 hotels in three dual-branding configurations: 1) limited-service and select-service, 2) select-service and extended-stay, 3) and limited-service and extended-stay.
Overall, the study found no significant efficiencies in operated department expenses reservation systems, check-in, and management. In fact, in many cases, operated department expenses were greater than in a one-brand hotel. Rooms department efficiencies were found only at select-service/limited-service hotels.
Any increase in profit margins seen by the dual-branded hotels included in the study, across all three brand categories, were due to the increase in operating efficiencies.
“Our research has found that the majority of operating efficiencies within dual-branded hotels have been achieved in the back-of-the-house areas of hotels – administration, sales and marketing, accounting, maintenance, and human resources. Two hotels can easily share these support services,” Mandelbaum said.
HOW FLEXIBLE IS YOUR BRAND?
Still, the dual-branding hypothesis hasn’t yet proven true. What’s keeping the efficiencies scarce and redundancies in place? The answer is: brand identity.
Strict brand standards can keep costs up. So, the question for owners looking to launch dual- or multi-brand hotels is how to maintain brand identity and translate back-of-house profit margins to the front of the house.
Atlantic Hotels Group has been grappling with the same issue. Chief Financial Officer Arzu Molubhoy reported the group found two check-ins, while one way to keep brand identity distinct in a shared situation, is redundant. Last year, Atlantic Hotels tested this theory by shutting down one check-in desk at a dual-branded hotel, and found that guests were no less satisfied but often less confused.
The group found streamlining back-of-house operations like housekeeping and laundry, and maintenance is only half the battle: sharing reception and management is key to maximizing efficiency. Mandelbaum, too, recommends a single check-in as integral to increasing the profit margin in a dual-branded hotel. Brand identities can still be kept distinct by having discrete corridors and rooms, and by training staff to escort guests to their chosen brand after checking in.
WHAT DOES YOUR MARKET REQUIRE?
That said, Mandelbaum believes market needs, not efficiencies, should be the main driver behind the decision to develop a dual-branded hotel. If the market needs a variety of property types or price points, then those needs should, he said, determine whether a project is feasible.
There’s more to maximizing margins than shared check-in, management, and facilities. Efficiency starts at the design stage. Since a dual-branded hotel is a custom enterprise, it’s essential that designers maximize efficiencies right out of the gate so that the entire property is set up from the start to most effectively utilize the shared space. Designers must work from the start to build in efficiencies, such as shared fitness facilities, laundry, elevators, pools, and other amenities. Reservation systems and other technology systems offer more opportunities to reduce duplicated costs, especially if efficiency is the priority from the start.
Rather than play defense with brand identity, owners might consider how to maximize brand flexibility and strengthen a guest’s brand loyalty through the dual-branded experience. Ideally, guests might experience a streamlined check-in process, a quality experience with the brand of their choice, and an enhanced familiarity with the other brand or brands represented in the hotel, which could potentially strengthen the customer’s relationship to more than one brand at a time. A dual-branded hotel offers a guest more flexibility in pricing and experience in one location, which can not only encourage repeat business but create new business that wouldn’t have existed.
Where profit margins are concerned, the more that’s shared in a dual-branded hotel, the better, which calls into question the kinds of brands that might most successfully join in partnership. If the two brands are too distinct, they might not be able to fully maximize opportunities for efficiency. If they’re too similar, they might risk diluting their discrete identities.
Dual branding may very well reach its full potential. Each brand must meet a need not otherwise met and offer guests a unique experience the other brand doesn’t offer. The brands must provide an experience the guest might need or want in the future, while at the same time minimizing redundancy at the front of the house and maintaining cost savings at the back of the house.
“If dual-branded hotels prove over the long haul not to generate the operating efficiencies they’re designed to provide, that will mute development activity,” Mandelbaum said. “But the initial decision to have multiple brands should be driven by market needs, not assumed operating efficiencies.”
Perceived benefits of dual-branding
- Doubled reservations systems, which potentially attract greater numbers of guests
- Flexible price points and experiences
- Enhanced ability to maximize
- Back-of-house efficiencies, including shared staff
What’s in a brand?
Mandelbaum recommends that hotel owners get a clear understanding of brand standards by considering the following questions:
Can you share a front desk?
Can employees wear the
Do you need discrete entrances and elevators?
Can you share amenities like a pool or gym?
“The answers to these questions will have a significant impact on the operating and development efficiencies you are able to achieve,” Mandelbaum said.
What the data actually says
No significant efficiencies in operated department expenses reservation systems, check-in, and management
Operated department expenses increased in dual-branded properties
Efficiencies found in only select-service/limited-service properties
All increases in profit margins of dual-branded properties due to increase in operating efficiencies
“I urge all owners to negotiate with the brands,” AAHOA Vice Chairman Biran Patel said at HX: The Hotel Experience Powered by AAHOA on the panel Understanding the Opportunities of Dual- and Tri-Branding. “To save costs, you should ask brands to have front-of-house that’s common, not separate, with each brand.”