The competition between the independent and chain hotel is growing and each of them is trying to survive in the economy via redefining the guest experience thereby attracting more guests (millennial and business travelers) towards their respective hotels. There are different types of strategies that are used by independent as well as chain hotels. An Independent and chain hotel operates in an environment which is competitive and has a number of layers.
Nowadays, the hospitality industry has truly become an international industry & is speedily becoming a global industry! In terms of size as well as global influence it ranks second. The hospitality industry is a sector where there are comparatively low barriers to entry & also there is a limited scope for economies of scale. The world of hotels is generally divided into different types but they are broadly classified into independent hotels & chain hotels.
What is a Independent Hotel?
Independent Hotels: An independent hotel is a hotel that is independently owned and run! It doesn’t allow any other proprietors to use its name/brand. Independent hotels are likely to operate in single or limited number of market probably may be with limited services or product. They have a large number of debtors owing to the fact that they are more likely to extend credit and thus may be seen more vulnerable to cash flow problems.
Number of independent hotels has a multifaceted range of accommodation, food, beverage & leisure products, with a variety of price bundles & relatively large number of employees. These hotels deliver heterogeneous marketing offers & so it would be very difficult to provide an unconditional guarantee. Independent hotels are likely to face greater uncertainty regarding market. Some revered hotel pundits also argues that even if independent hotels are unlikely to invest in research, they are more likely to respond to the niche market.
For example, few industry experts have pointed out that, the financial constraints which are imposed on these hotels implies that the strategic options are circumscribed by the availability of capital. Independent hotels mostly attempt to narrow down the purpose of their activity in a single short statement that represents the ‘vision’ or the ‘mission’ of the organization. Few best independent hotels of the world are- Zoku in Amsterdam, The Old Clare in Sydney, Elements of Byron in Byron Bay, and more.
But a question never fails to enter our mind whenever we are talking about chain and independent hotels and that’s which one performs better than the other? So, let’s try to find out- When it comes to the luxury segment, the occupancy gap between chains and independents continues to widen. Luxury chain hotels have reached prior peak occupancy levels—and then some—while luxury independents are about 0.1% off from prior peak occupancy levels, according to STR.
What are Chain Hotels?
Chain Hotels: A chain hotel is a hotel that is part of a series or of a group of hotels operated by the same company or owner. Opposite of an independent hotel it is a ‘chain-affiliated’ hotel. Hotel chain is an enterprise that administers, through a unique management a number of hotels located in different areas. They can be total or partial owners of the hotel and they manage their administration, marketing and promotion. The global hotel industry is dominated by hotel chains. It is about a third (over 5 million) of world hotel rooms were controlled by to 300 hotel chains and 3.9 million hotel rooms were controlled by the top ten hotel chains.
“The chain properties have surpassed prior levels by almost 2%,” Culbreath said. However, luxury chains’ average daily rate premium over luxury independents is tightening. In 2017, average ADR (Average Daily Rate) for chains was $375 compared to independents’ $219 (or a $156 difference). In 2018, average ADR for chains was $465 compared to independents’ $308 (a $157 difference).
Eminent industry experts have said in the upper-upscale segment, chains yield higher ADR than the average ones. However, upscale independents have the higher ADR premium. Year-to-date June, upscale independents’ ADR was $133, while chains’ ADR was $124 (a $9 difference).
Saying all these, now let us see what are the major differences between a chain and independent hotels.
Performance: Last year, independent hotels saw strong gains in performance metrics. At the Hotel Data Conference hosted by STR and Hotel News. Now, it was highlighted how upscale-luxury independent hotel market performance was much higher than the total U.S. average. Even though the occupancy gap between luxury chain hotels and independent hotels is widening, the gap in ADR is tightening; and overall, upscale independents continue to hold the ADR premium. These are great developments for independent hotels during the upswing of the hotel industry!
Distribution: Chains have been known for a long time to have an impressive distribution network compared to independent hotels. Luckily for independents, the rise of the internet in the last decade and growing distribution/marketing possibilities has greatly improved their ability to reach a greater network of consumers. A challenge still exists in that independents tend to pay higher commissions to OTAs. Nevertheless, as a hotelier you need to consider that OTAs also greatly rely on independent hotels as their main revenue source, and hotels should be able to leverage that power. It will continue to be important to diversify one’s distribution channels with smaller OTAs which may charge lower commissions. A good thing to keep in mind once mentioned by Paulo Salvador, executive vice-president, EMEA at WorldHotels, is that “over 60% of guests – if they find what they are looking for – still prefer to book via the supplier’s own website”.
Standards: It is often overlooked that independent hotels actually have their own standards and best practices in place as do chain hotels; the only difference is that the standards of a chain are to be followed across all of its properties. A positive thing to consider is that independent hotels have greater flexibility to change these standards or policies when necessary to smoothly adjust with changing market needs.
Customer Loyalty: Loyalty programs are a great asset for chains since they can be scaled across a wide portfolio of hotels and brands, providing lucrative offers for their members; this is something that independent hotels are not able to exploit. However, we believe the status of loyalty programs is experiencing a shift in today’s times. Millennials are becoming a greater proportion of the traveler market, and this demographic is not yet generally known to be loyal to any specific hotel or brand, since they are constantly seeking new experiences in new environments.These days, Chain Hotels have started using the Blockchain Technology to drive customer loyalty programs.
Evolving Consumer Preferences: As mentioned in the previous point, it is clear that consumer preferences are shifting towards authentic, localized, unique engagements in their travels. This is also why the whole hype on lifestyle hotels has started, driven by millennial needs, with even the big chains getting involved. Interestingly enough, a whopping 59% of millennials stayed at independent hotels last year, which is 20% more than baby boomers according to travel & hospitality marketing firm, MMGY. As Jim Merkel rightly points out in predictions for 2018: “The millennial traveler will continue to send shockwaves across the industry, and the hotels of five years from now will all feel like independents, even if they’re branded.”
So, now you know the major differences between a chain and an independent hotel!Whether you are an independent hotel or hotel chain,it is very important to differentiate your hotel from competitors by providing a unique experience to your guests and engaging them with a personalized touch. Wondering how to redefine guest experience? Schedule a trial with us and we will give you insights and new ways of guest engagement.