Building one strong brand has long been a basic rule in running a successful hotel – but some operators are now looking to improve margins by running two brands on the same property.
Late next summer a new dual branded hotel is due to open in downtown Denver – even if many of the guests who stay there will be unaware of what makes it rather special. Just over half of the 495 rooms will be part of the full service Le Méridien brand while the remainder will operate under the select service AC Hotels flag. These two brands were owned by separate companies, Le Méridien by Starwood and AC Hotels by Marriott, before their planned merger was announced back in November 2015. The 18-storey Denver hotel will be the first ground-up constructed hotel with the AC and Le Méridien combination.
The two brands will have separate food outlets, lobbies and entrances but some of the behind-the-scenes functions will be operated by the same staff. Inside the building, the AC Hotel areas and rooms will reflect the “simple, clean and crisp lines” of its European origins – while Le Méridien will offer its usual standards of luxury, a full service restaurant, 24-hour fitness facilities and a business center and meeting space.
The operating organization bringing these two brands together is White Lodging, which runs numerous hotels for both these parent companies and several others around the U.S. White Lodging is involved in other dual brand operations including the Aloft and Element hotels due to open in the same premises in downtown Austin in 2017. Aloft and Element are part of the same parent company, Starwood Hotels & Resorts.
However, as new alliances form in the dual branded hotel market, could we soon see future combinations bringing together organizations which have no connection with each other and which are competing as rivals in the market?
The year of interesting marriages
Lauro Ferroni, Senior Vice President in JLL’s Hotels & Hospitality Group in the US, has been following the dual brand trend develop since it started some four or five years ago. “2016 will be the year of the announcement of more interesting marriages,” he says. His team calculates that about 3,000 rooms are being developed or converted in dual-branded developments in at least ten U.S. cities including New York, Chicago, San Diego, Houston and Dallas. A common formula is to combine two select service hotels which serve different demand segment such as extended-stay guests with short-stay business and leisure travelers.
The concept is also starting to take hold in the UK – where InterContinental Hotels plans to open a Holiday Inn/Staybridge Suites development near Heathrow Airport in 2018 – and in India. In the sub-continent, the trend has been embraced at the highest levels – with the civil aviation minister inaugurating the Pullman/Novotel development from AccorHotels at Delhi Aerocity in November. AccorHotels is constructing another dual brander in Chennai, Lemon Tree Hotels is planning one for Gurgaon and Marriott International has just launched a Courtyard/Fairfield Inn development by the commercial IT hub at Bengaluru.
Certain locations are particularly suited to the two brand approach – downtown locations, airports and convention centers, for instance. The two brands catch customers from different segments of the market and lower the traditional risks involved for the hotel operator. “Putting large inventory of the same category in one big land parcel is a big challenge,” Jean-Michel Casse, senior vice president-operations of AccorHotels in India told the Economic Times. “So, once you map the market and look at the potential customers and business feasibility, you need to split the risk in two different brands and different positioning.”
Lower labor costs
The dual branded concept can lower labor costs by anywhere between 10 and 30 percent, Patu Keswani, chairman of Lemon Tree Hotels, tells the Economic Times. The same staff can provide security, administration and backroom services while one set of facilities can be used for deliveries, laundry and catering.
Despite the attractions, brands are wary of confusing guests who are loyal to one particular hotel chain. “Where brands are going to be cautious is in making sure that the experience is not diluted,” says Ferroni. Not all locations will be suitable. Even when they are, operators have to think through how they keep the two categories of guests separate from each other at breakfast time, for instance – especially if one brand offers a more up-market option than the other.
But in cases where dual branding is likely to be effective, Ferroni sees strong potential interest. Lenders and investors would be more enthused about lending to a combination where one brand has a strong track record than to a small local operator on its own. Already, there is one triple-branded development in Chicago and another announced for Nashville. Ferroni predicts that the combinations “will get more and more interesting” and with future developments even featuring a traditional hotel brand with a unique independent lifestyle hotel.
He believes that the way that the Indian market has taken off could be used a model for elsewhere. “Be creative,” he recommends. “Think of different combinations and think of doing this in cities outside the U.S. which have traditionally had a more expensive, full service approach to hotels.”