What's driving the recent wave of new hotel brands? Does the industry suffer from brand bloat? Here are some answers.
Editor’s Note: Skift Senior Hospitality Editor Sean O’Neill brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry.
Hotel companies have been launching new brands again. Hilton Worldwide said on Wednesday it had created its first hotel brand in the economy segment, Spark by Hilton. Accor, the owner of the world’s most hotel brands, said last week it had reorganized itself around its brands. Marriott International, Wyndham Worldwide, Hyatt, Kerzner, and Best Western have created or bought hotel brands in the past several months.
The flurry of activity raises some big-picture questions, such as what drives the creation of hotel brands — and whether there are too many.
To find answers, I spoke with Chekitan Dev, who literally wrote the book on Hospitality Branding. Dev, a distinguished professor at Cornell University’s Nolan School of Hotel Administration in the SC Johnson College of Business, is an internationally renowned expert who has testified in numerous hospitality-related lawsuits including multiple cases involving hotel owner–brand relationships. What follows are my questions and his answers, edited for brevity.
Are there more brands than there used to be?
Thirty years ago, there were a few dozen hotel brands. Now there are more than 1,000, as covered by Smith Travel Research (STR). Managing brands profitably has become the central organizing principle of most hospitality organizations, guiding every decision and action.
How should we think about brand proliferation?
A good way to think about brand proliferation is to calculate the ratio of brands to hotel rooms, something I refer to as a “brand coverage ratio.”
At first glance, it may seem that the global hotel industry is overbranded. For example — and these are rough estimates only intended to be illustrative because no one has exact numbers — in 1990 there were about 10 million hotel rooms worldwide and about 300 brands. At first glance, that seems like a brand coverage ratio of 0.03 per 1,000 rooms.
In 2020, there were approximately 17 million rooms and about 1,000 brands for a coverage ratio of 0.06 per 1000 rooms. So the ratio seems to have doubled in 30 years!
However, if we dive deeper and refine this calculation, only about 20 percent of all rooms worldwide were branded in 1990, meaning roughly 2 million rooms. That gives us a brand coverage ratio of 0.15. In 2020, about 40 percent of all hotel rooms worldwide were branded, so about 7 million rooms — giving us a brand coverage ratio of 0.14.
So, by this refined calculation, the brand coverage ratio has held roughly steady worldwide over the two decades. By this measure, the hotel industry is not overbranded.
Is there “brand bloat”?
If we define “brand bloat” by the number of brands stepping into each other’s “swim lanes” and confusing the customer, then there definitely is brand bloat. The “sea of sameness” that brands are swimming in is only getting more bewildering for consumers.
However, there’s light at the end of the brand bloat tunnel.
For some time now, the hospitality brandscape has been undergoing a shakeout, creating tremendous opportunities for brands to define themselves better (e.g., Sonesta making a big push to become better known), reposition to a better “sweet spot” in the market (e.g., Hyatt Place becoming more homelike), merge with “adjacent” brands to build market power (e.g., Etap and AllSeasons merged with Ibis), kill some brands that have outlived their useful lives (IHG phased out Holiday Inn Select), and create brands for which whitespace exists (e.g., SH Hotels & Resorts’ Treehouse Hotels).
Why do hotel groups add brands?
The “branding” of the hospitality industry is a global phenomenon for several reasons, the principal ones being the customer’s desire for a predictable product and service experience, economies of scale in advertising and distribution, and bargaining power in negotiations with buyers, suppliers, owners, and distribution channels.
More specifically, what factors drive brand creation?
On the “demand side,” hotel brand proliferation is partly driven by unserved or underserved market gaps, such as wellness (e.g., Even), eco-luxury (1Hotels), hi-tech self-service (FlyZoo), and glamping (e.g., Firelight).
On the “supply side,” one factor driving the rapid proliferation of brands is that some brands have given up their market rights to owners in particular geographic locations. As a workaround, global hotel groups sometimes try to penetrate a local market further by introducing other brands.
A case in point: P. T. Karang Mas Sejahtera owned Ritz-Carlton Bali Resort & Spa from its opening in 1996. The owner had signed a contract with Ritz-Carlton, which had agreed not to compete with or assist the competitors of a property being managed under agreements within that Ritz Carlton Bali’s competitive market set. In 1999, Marriott International bought The Ritz-Carlton Hotel Company. The owner later accused Marriott of doing an end-run around the hotel management agreement by launching a new brand, Bulgari Hotels and Resorts, in Bali. P. T. Karang Mas Sejahtera, assisted by Professor Dev, sued Ritz-Carlton for breach of contract, and a jury took the owner’s side.
Not all contracts give hotel owners such strong legal rights — sometimes called an area of protection (AOP), or radius, clause — to protect their territory. In those cases, launching additional hard and soft brands can sometimes enable large hotel groups to expand into markets where they already have some presence.
New market areas, such as the Hudson Yards multi-use development in New York City and Bangkok’s Marché Thonglor project, can create openings for new brands, such as Equinox, because they’re newly built “greenfield” projects without established hotels.
Is distribution, or channel management, a driver of brand proliferation? Do hoteliers add brands to command more “shelf space” on the virtual storefronts of online travel agencies, the way cereal makers will create 10 versions of the same cereal seemingly to command more space?
Hotel companies that have assembled expansive brand portfolios (e.g., Hilton with 19, Marriott with 31 once it adds City Express, and Accor with 43 lodging brands) are doing so for at least three reasons:
1. to command “total shelf space” that accrues to the brand portfolio on any distribution platform so that they can capture more than their fair share (e.g., Accor).
2. refer business to another brand in the same family if one happens to be sold out (e.g., Marriott).
3. cover any “gaps” in the portfolio (e.g., Signia by Hilton to appeal to convention planners, HuaLuxe by IHG tailored for the Chinese market).
Do hotel brand launches tend to come in waves?
If we look at the brands worldwide over the past 30 years or so, yes, hotel brands have come in waves.
Not surprisingly, hotel brand development closely tracks the business cycle: a buoyant economy creates fertile ground for the emergence of new brands, and hard economic times put a brake on new brand development, sometimes causing brands to merge or be discontinued.
What advice do you have for hotel owners and brand managers considering “flagging,” or branding, a new or existing hotel?
Hotels owners who cheat on their branding by violating the key provisions of a successful brand strategy are often vulnerable to rebranding or even debranding.
Brand managers who co-locate a newly branded hotel close to an existing hotel of the same brand, or another member of the brand family, are vulnerable to lawsuits by the incumbent hotels on account of brand rights infringement where an ‘entrant’ hotel may be sued for unfairly stealing market share from an ‘incumbent” hotel or already existing property belonging to the same brand or hotel group.
I always read tips and feedback. Contact me at [email protected] or through my LinkedIn profile.
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