Recent brand buildup by global hotel giants has caused some analysts to caution against brand cannibalization, but the coronavirus downturn isn't likely to change the push for more flags.
Coronavirus travel fears have temporarily shuttered many hotels around the world. But when those doors reopen, the trend of rampant hotel brand expansion seen in recent years may take on a different look.
With the rise of alternative accommodation competitors like Airbnb, hotel companies began to add brands that appealed to different price points as well as different tastes. Marriott wound up with 30 brands following its 2016 merger with Starwood. Hilton launched its 18th brand, the “affordable lifestyle” Tempo, earlier this year. Accor operates 39 different hotel brands around the world.
IHG CEO Keith Barr cautioned against brand buildup becoming brand bloat. Analysts said the trend would be vulnerable in a downturn. The current coronavirus downturn is greater than almost anyone could have predicted, but that doesn’t necessarily mean the industry is on the cusp of a wave of brand extinction.
“A hotel company is going to have to look hard at how to recover all those brands,” said Makarand Mody, a marketing professor at Boston University’s School of Hospitality Administration. “That said, the decision to lose a brand is still a big one.”
Finding Identity Through a Downturn
With occupancy at many of the world’s hotels in the single digits, hoteliers and major hotel companies today are focusing more on survival than looking ahead. But once travelers begin to return, major hotel companies will have to reassess their brand portfolios and recalibrate what each flag stands for.
Brands with uncertain futures like W Hotels and even Marriott’s planned rejuvenation of Sheraton could be particularly vulnerable in the current downturn, Mody said. Marriott de-flagged five W Hotels in two years before coronavirus impacted the hotel industry, and the hotel giant wasn’t far along in its planned brand overhaul to Sheraton properties.
But long-term contracts with hotel operators make shutting down an entire brand arduous for major hospitality companies. Instead, the company could decide to cool off on introducing new brands or extend the timeline given to operators to invest and adapt to new brand standards.
“The amount of effort and investment put in to creating a brand, especially one of scale like Sheraton, creates a scenario where, if you do decide to retire the flag, the big danger is all your franchisees are now out on the open market,” Mody said. “Operators would have no obligation to stick with you as Marriott. They then become open for poaching by the IHGs or Hiltons of the world. That could be why a company is hesitant to retire a brand.”
Marriott did not respond to Skift’s request for comment, and IHG and Hilton were not able to comment in time for publication.
Rather than run the risk of a brand shakeout leading to a further loss in operations, hotel companies could decide to reflag over de-flag.
“You may see some collapse of brands into each other simply because it will be more efficient to market, promote, or re-launch that brand,” said Flo Lugli, president and founder of travel consulting firm Navesink Advisory Group. “Brand leaders might say, ‘This is a Westin today, but here’s a list of 100 Westins that aren’t meeting the brand standards, so let’s reposition them down into Sheraton.’”
It is still a costly investment to change a flag affiliation, as everything from signs to bedding and restaurants need to change to meet the requirements of the new flag. But the parent brand is likely to see it as a better choice than losing an operator to a competitor.
“If there are lead brands and owners can’t comply with standards or planned refreshes, then there could be an option for them to go under a new flag rather than retire an entire brand,” Lugli said. “The objective is not to lose any of those hotels but reposition them into another brand where they can get the desired average daily rates based on the property’s condition and location.”
Most analysts interviewed for this story don’t expect a mass hotel brand retirement to result from the coronavirus downturn in travel, especially if the owner is happy with the brand and continues to make timely franchise payments.
“In the initial recovery, I’d expect new supply would come from only the strongest brands,” said Linda Canina, professor at Cornell University’s School of Hotel Administration.
Travelers (And Brands) Stick to What They Know Best
Hoteliers may find brand affiliation to be beneficial during the hotel industry’s recovery, especially as guests seek familiarity in their initial foray back into business or leisure travel. If the trend sticks, that could be enough for hospitality giants to double down on adding more brands.
“The best goal is for a company to make sure they have something for everybody, which is why they would want many brands,” said Anne Lloyd-Jones, a senior managing director at hospitality consulting firm HVS. “This event doesn’t change that need.”
Brand affiliation can drive occupancy on the upswing, as global hotel companies’ reservation systems, loyalty programs, and marketing budgets can easily lure travelers making their first trips after coronavirus-related precautions subside. But that initial run to familiarity could also curtail the launch of any new brands in the works.
“This is a question of risk aversion and what is the appetite of risk for owners in the upside,” STR Senior Vice President of Lodging Insights Jan Freitag said. “What is the appetite to put up a brand flag that doesn’t exist yet compared to one from a stable with a long track record in a recovery environment where group and business travel isn’t rebounding sharply?”
Photo credit: Global hotel companies are likely to use the coronavirus downturn in travel as an opportunity to shuffle flag affiliation at select properties. BrendelSignature / Wikimedia