Competition in Britain’s boutique and lifestyle hotel sector is heating up as international operators continue to invade what has traditionally been the territory of the independent hoteliers.
Marriott International is among the chains tapping this sector having teamed up with Ian Schrager to launch the Edition brand which debuted in London on September 12 (see full interview with Marriott CEO Arne Sorenson and Ian Schrager here). Meanwhile, InterContinental Hotels Group (IHG) already operates numerous UK properties under its boutique brand Hotel Indigo, with more to come.
Starwood Hotels and Resorts, one of the early adopters of this trend with W and Aloft, has so far been reserved in its roll-out of its two lifestyle brands in the UK. However, last year CEO Frits van Paasschen revealed plans to open more properties in the country under its W and Aloft brands.
And out of Hyatt’s nine Andaz boutique hotels, two are located in London. Hilton was also heading in this direction when it launched Denizen, until it became embroiled in a legal battle with Starwood over trade secrets — keeping the potential competitor off the streets to date.
While some industry experts have argued that the global roll-out of a brand contradicts the boutique hotel concept, which is all about individuality, the short of it is these chains are targeting, successfully, the same customers as the independent boutique and lifestyle hotels.
“We’ve already had an interesting evolution of the major hotel companies wanting to do more in this space and they’re going after the same customers [as the home-grown brands and independent hotels] and that’s important. The chains can play in this game because the customers are now expecting it,” says hospitality consultancy HVS — London chairman Russell Kett.
IHG vice president brand management — upscale & luxury brands for Europe Tom Rowntree says that in the US Hotel Indigo is traditionally competing with brands by other international chains, but Europe is a different story.
“For us in Europe, this sector is a major opportunity, but also has challenges. The sector is absolutely new and there are some great domestic brands doing it extremely well. We were one of the first movers in the UK branded boutique space, and in terms of competition, we are really competing with some of the independents and some of the domestic brands,” he says.
Home Grown Hotels CEO Robin Hutson has witnessed the growing number of global brands entering the market in the UK, but says the product tends to vary: “Obviously Starwood has been in the game for quite a long time with W and I think it can work.
“There have been some very innovative and interesting designs over the past few years, but where I fall out with it is where it’s about the design and not about the service and the guest experience,” adds Hutson, saying the brands do not always achieve the personalised service associated with this sector.
However, branded boutique hotels do have advantages, such as global booking channels and loyalty schemes.
Proof in performance
According to STR Global manager for marketing and analysis Naureen Ahmed, the UK hotel market is split 60:40 global chains to independently-operated hotels — including small domestic hotel chains — respectively.
“Chain hotels are showing higher occupancy levels than independents, but on the other hand the chain hotels are achieving a lower average daily rate (ADR) than the independent hotels,” observes Ahmed.
Independent hotels achieved a year to date (YTD) June 2013 revPAR of around £75 while chains achieved around £50 for the same period.
A closer look at hotels in London specifically, shows a greater discrepancy between the performance of chains and independents. London independent hotels achieved revPAR of around £140 for YTD June 2013, compared to £100 revPAR achieved by chain hotels during the same period.
Looking at regional UK — all areas outside of London — revenue achieved is much lower for both hotel types and the difference between the two is less; revPAR of £50 was achieved by independents YTD June 2013 and around £40 was earned by chains in that period.
“How London performs is different to the rest of the UK,” explains Ahmed. “London is very much an international market, I’d say about 80% of hotel guests will be international and the rest domestic, where as it’s almost the opposite for the other regions.
“It was interesting to look at hotel performance during two major events in the last two years; one was the royal wedding in 2011 and one was the London Olympics in 2012,” says Ahmed.
“The revPAR achieved by hotels during the Olympics was higher for independent hotels than chain hotels, and it seems to be the same case during the royal wedding in 2011.”
Independent hotels achieved revPAR of £168 during August 2012, the month of the Olympics, compared to £110 in August 2011. The chains achieved revPAR of around £85 in August 2011, which grew to around £125 during the month of the Olympics, August 2012.
“The rate of growth was higher for the independent hotels in London in revPAR terms, driven primarily by ADR increases,” explains Ahmed.
During the royal wedding, independents achieved revPAR of around £125 in April 2011 — the month of the wedding, compared to £105 in the same period in 2010. Chains achieved a slightly lower rate of growth, achieving revPAR of £95 in the month of the wedding, compared to around £85 in April 2010.
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Looking ahead, existing supply is already skewed towards the chains and the upcoming hotel pipeline shows that chains will continue to dominate the market for the foreseeable future.
According to STR Global, just over half (51%) of the active UK pipeline is in the chain category, the other 49% is currently unaffiliated with a brand — so these hotels are either yet to be assigned a brand, or will open as independent hotels.
So should hoteliers running independent properties feel threatened by the continued growth of chains in the boutique and lifestyle sector? HVS’ Kett says: “An independently-operated hotel doesn’t have to fail just because some impressive competition is coming down the line but if you ignore what’s happening around you and just do what you’ve always done you might find your traditional customer is going elsewhere.
“So everyone has to work hard for the business coming through the door — being an independent hotel is not an excuse to fail,” he asserts.