Analysis: Why rebranding is the name of the game for hotels

13 Feb 2016 by BusinessTraveller
Within the next few months the Jurys Inn Custom House Dublin, a 239-room waterfront hotel close to the Irish capital’s financial district and convention centre, will almost overnight change its brand name from Jurys Inn to the Hilton Garden Inn – the first of this mid-market Hilton Worldwide brand to open in Ireland. The re-opening under a new flag – scheduled for May - will follow an extensive floor-by-floor refurbishment currently under way to improve air-conditioning, upgrade bathrooms and add safes and fridges to the rooms. A gym is also on the cards. The rebranding is part of the strategy set in motion last summer by US private equity group Lone Star when it brought together some 89 UK hotels it owned to create a new hotel business, called Amaris Hospitality, with a market value of about £1bn. Amaris operates these hotels under several brands, including Jurys Inn, Mercure, MGallery, Ibis Styles, Hilton, DoubleTree by Hilton and Hilton Garden Inn, and is spending £100m this year on rebranding 23 of the properties (see news October 6, 2015). Such rebranding is becoming increasingly common in the hotel world, although primarily in the US and UK which both have a majority of branded chain hotels versus independents (60 per cent - 40 per cent in the UK, 70 per cent - 30 per cent in the US) compared with most other countries, according to data from industry tracker STR. Moreover, a study published last December of the extent and impact of hotel rebranding, carried out by Cornell University’s School of Hotel Administration in Ithaca, New York, said that about a third of all US hotels have been rebranded at least once during their lifetimes. Cornell associate professor Chekitan Dev, one of the main authors of the study, says hotel reflagging has now become a widely used tactic, describing what is currently happening as a “wave of hotel conversions”. The study cites the example of DoubleTree by Hilton, the chain that offers every guest on arrival a warm chocolate chip cookie, which has become one of the fastest growing hotel brands over the past decade. DoubleTree has doubled its room stock to nearly 180,000  since 2007 by focusing on attracting hotel owners to convert from their current brand, offering them greater flexibility and lower financial costs for regular refurbishment of their properties. In the year to last September, moreover, some 96 per cent of the 4,406 new DoubleTree rooms  added (net of closures) were the result of conversions from other brands. Hilton is also targetting DoubleTree expansion in the UK. The Glasgow City Hotel, owned by Amaris and described on its website as ‘an affiliate hotel of Jurys Inn’, is to become a DoubleTree in the spring after a refurbishment. And the former Ramada Hotel and Suites at London Docklands, close to Excel, has also recently rebranded as a DoubleTree. Hilton’s success with DoubleTree has now persuaded rival Marriott to up its stake in the brand conversion game. Last year it paid US$135m for  a small (37 hotels) Canadian chain, Delta Hotels, with the aim of developing it as the ‘go-to’ conversion brand for hotel owners in the US. The first one opened in Orlando in December. The surge in hotel rebranding owes much to the structural change in recent years in the way brand owners operate. The leading hotel companies no longer feel the need actually to own the hotels that trade under their brand names, adopting what has become known as an ‘asset-lite’ strategy. And just as owners of Premier League clubs respond to poor performance on the pitch by changing managers, so the investors who actually own the hotel seemingly have little compunction in switching out of underperforming brands (for them) into others that offer better terms and rewards. The Cornell study, one of the most comprehensive ever carried out on the rebranding issue, offers some support for this point of view. Hotels that rebranded saw occupancy levels increase by just over a 6 per cent, along with a near 4.5 per cent rise in revenue per room and just under a 3 per cent hike in gross operating profits per room. But there are dangers for hotels that switch brands. The study found that hotels that moved upmarket with their new brand ran the risk of upsetting regular guests, primarily business travellers, because of “the perceived difference in quality or value between the old  brand and the new”. Moving downscale is less risky for hoteliers, the study finds. Yet those business travellers bemused – or irritated - by the  seemingly irresistible desire of hotel owners to switch brands so readily should not expect any slowdown in the near future. With 981 (and counting) chain hotel brands available worldwide, according to the latest STR database, this merry-go-round looks likely to be a never-ending story. David Churchill
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