On May 21st, the Canadian Hotel Investment Conference organized a round-table with four Canadian hospitality CEOs: Accor, Marriott, Choice, and Oxford Properties. The comment that struck me was “unbranded hotels will learn the importance of using one of our brands”. Yet survey after survey shows that Millennials seek authenticity, the antithesis of operation standardization signaled by brand names. But brand-standardization post-pandemic could be the new normal, and here is why.
As tourists slowly shed their pandemic cocoons, a new world will emerge before their eyes. Immediately visible will be the social distancing and the masks. But visible only over time is the world of increased mergers, consolidations, and recognized hotel brands. Large corporations with lots of cash and strong lobbies are the best equipped to survive. The hotel brands that license their names and operate globally are powerful actors in national hotel associations which are lobbying each sovereign government for assistance and relief. Paradoxically, the global groups with the strongest voices rarely own the jeopardized local real estate property. Choice Hotels, for example, is 100% franchise operations. Choice does not own a single property and is proud to be considered in the “brand management business” where franchise fees can be 6% to 10% of operations. In addition to these brand managers, there are management companies such as Crestline which administer properties but do not own any brand names. Marriott combines both: brand and property management. The top managers come from the management company while those below the highest echelons are local hires. These brand and management companies are extremely profitable while taking little or no risk. They can charge 5% of total revenue plus a percentage of net operating profit. As times got tough, upper management furloughs excess local hires who then access enhanced employment assistance achieved by the national hotel associations lobbying the government at the highest levels. In the meantime, the property owner scrambles to negotiate with their creditors while the risk-free management companies assess heightened hygiene standards.
Post-Covid, standardization may outweigh authenticity because these hotel operators used this hiatus to investigate and implement detailed sanitary procedures that would bring reluctant guests back through the doors. They also command a broad range of communication strategies to ensure that potential guests are keenly aware of their efforts. Millennials, who will be the first to travel post-pandemic, may err on the side of caution preferring the hygiene standards of branded hotels and save the authenticity for the daylight hours. Meanwhile, unbranded, locally-owned, and operated hotels may face strong competition and learn the hard way “the importance of using one of our brands”. If you are committed to supporting small and local businesses, and authenticity, do not confuse a myriad of brands with a myriad of corporations. Accor alone operates 38 brands from the uber-luxury to the backpacker-budget.