58% of Soft-Branded Rooms Affiliated With a Management Company
By Dana Miller Hotel News Now July 12, 2021 | 9:18 AM
Third-party hotel management companies with a focus on boutique and lifestyle properties are noticing an uptick in soft-branded hotels seeking their services.
According to The Highland Group's Boutique Hotel Report, soft-brand collection supply has increased 19% over the past decade. Kim Bardoul, partner and consultant at the Highland Group, said out of the 69,500 soft-brand collection rooms in the U.S., there are an estimated 58% affiliated with a management company.
"Whenever these types of properties get together under a management umbrella, it provides them with a larger platform for customized marketing, reservation tools and that identity that makes you different and unique from the traditional hotel," she said. "The management expertise of these companies are really honing in on what it takes to keep a hotel individual. More and more, I think you're going to find those soft-brand collections going to those management companies to help them compete."
Michael Cady, vice president of marketing at Charlestowne Hotels, said almost 50% of requests for proposals in 2021 have been soft-brand related. In 2019, that percentage was 20%. More often than not, he said, owners are asking his team to run two different performance insights — one for a soft brand and one for an independent.
"They're wanting that because they want to evaluate all the expenses that signing up with a brand entails," which also depends on market, segmentation mix and competition, he said.
Even when the market and segmentation mix favors an independent hotel, Cady said owners sometimes feel more secure with a brand.
Thom Geshay, president of Davidson Hospitality Group, said in an email interview that Pivot, a lifestyle operating vertical of Davidson, has underwritten more soft-branded scenarios for acquisitions or management deals over the past several years.
"However, it should be noted that the number of soft-brand options has also grown over this time period as brand companies have moved aggressively to follow the trend of more lifestyle-centric hotels," he said.
Consistency used to be key for brands; now, the brands seem to understand that consumers are looking for more unique and individual guest experiences, he said. Brand companies have responded to that demand by creating more soft-brand options, leading to more opportunities in the space.
John Caparella, president of Evolution Hospitality, a wholly-owned subsidiary of Aimbridge Hospitality that operates lifestyle hotels and resorts, said in an email interview the proliferation of soft brands the hotel industry has experienced over the past decade — including Autograph, Tribute, Curio, Tapestry, LXR, Unbound, Voco and more — has led to an increase in requests for service.
Will Soft Brands Continue To Grow?Geshay said soft-brands collections, which were first launched and proved successful during the last downturn, will continue to grow across the industry.
There's still a strong consumer craving for unique lodging facilities, and the brand companies will continue to deploy teams to grow their brand collections, he said. "During periods of economic disruption, like the one we are currently experiencing or the Great Recession, property owners and managers want to deploy as many tools as possible to ensure the success of an asset," he said.
That often includes adding a brand distribution system to align with a larger frequent traveler audience to help drive demand. Soft brands, he said, are a great way to execute that strategy, while maintaining the individual character of a hotel.
"I believe that is why you see soft brands surge during economic downturns. However, each property and market has their own set of unique circumstances," he said. An analysis should always be done to compare outcomes of independent and soft-branded strategy, he added.
Caparella said in a more challenging hotel financing environment, having the safety net of a brand tends to be more palatable to lenders, resulting in higher proceeds at lower rates.
"Brands were also flexible during the downturn, pushing back [property improvement] deadlines, waiving [furniture, fixtures and equipment] reserve requirements, etc.," he said.
Cady said as guests continue to want more experiential lodging experiences, the soft-brand market is becoming crowded, which can be a problem because experiences like that can't be mass multiplied.
"The big brand companies seem to be creating a new soft brand almost every month, so most of these soft brands are already losing the feel and experience of what they aimed to be at conception due to volume and lack of control," he said. He predicts in the future only one or two soft brands will really prosper.
"I think what's going to happen, and it's already starting, is that the curated independent brands that begin to duplicate and expand slowly with very clear intent actually will have some momentum in years to come," he added.
Bardoul said she anticipates a lot of conversions will take place due to the business impact from COVID-19. Some independent hotel owners fell on hard times due to not having significant backup for their closed rooms.
"You're going to see some distressed properties that are in financial struggles, and when they get bought by a soft brand, that's going to cause a spike," she said. Engaging Boutique-Focused OperatorsThe benefit of partnering with an independent-focused, third-party management company is the amount of attention that can be given to an asset, with a more entrepreneurial mindset, Geshay said.
Independent and soft-branded hotels require more creativity, skill and effort to be successful, as well as a personal brand, savvy marketing and a variety of channels that will drive demand, he said.
"That's really hard to accomplish at a large scale. It just takes too much effort to be really great as an independent operator. However, all third-party managers are not created equal," he said. "At Pivot, we have a portfolio of less than 50 properties, and we've built a sizable team with discipline and specific skills that can touch each [hotel] on a frequent basis."
A third-party operator with mostly select-service, branded hotels or one with hundreds of hotels cannot effectively curate each asset to maximize value, Geshay said, noting the choice of a management company is crucial in the independent, lifestyle space.
Caparella said there's a fear that once a hotel is affiliated with a major, global brand, it will lose the unique personality and sense of place that makes it special.
"That's why it's crucial for operators of soft-branded hotels to understand that these are bespoke, lifestyle properties, each with their own DNA and identity," he said. "All of Evolution's soft-branded properties leverage not one, but two, marketing managers from our in-house marketing firm."
He added one firm is focused on website and e-commerce and the other on creative/marketing campaigns. Turning An Asset AroundThird-party management companies have a science for taking over a soft-branded or independent hotel that might be struggling and turning the asset around, Caparella said.
"This is where our in-house branding team plays a huge role," ensuring all stakeholders are fully aligned on the story the hotel is trying to sell and its target demographic, he said.
Evolution's branding team work with owners and the operations team to facilitate a process, which includes perceptual mapping to understand the market and its niches as well as more creative exercises like, "if a hotel was a car, what would it be?" he said.
Cady said Charlestowne, which has an in-house marketing team, will start immediately with branding, messaging and visual design when creating a hotel's story.
As an independent management company, Charlestowne covers all aspects — from concepting food and beverage to interior design, programming, music and scents.
The company has a full in-house revenue team as well, allowing it to focus more on each asset and create a revenue strategy for each property, Cady said. The goal for Charlestowne is to grow organically and not become too large, he said.
"I can tell you our company is not as profitable because we pay a lot of attention to every single asset, but in turn it also garners organic leads — they just come through word of mouth," he said. "We feel like it comes back on the other side."
Geshay said Pivot embraces the challenge of turning a failing asset around and is often called upon by its investors for help.
"At Pivot, we have a team of specialists that are experts at customizing the guest journey to match the authentic story of the hotel," he said.
Pivot also has a dedicated revenue and sales team and in-house marketing team that helps direct each hotel's marketing efforts, along with a vice president of operations, innovation and performance, who heads some of these efforts.
"And we have Davidson Restaurant Group that has the knowledge to concept and execute virtually every type of drinking and dining experience," he said.