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Some brand commentary from our private company contacts

Incentive misalignment:

  • Given that most US incentive fees are so “out of the money”, brand management companies seem more interested in growing the top-line where they collect a percentage of revenues instead of focusing on the bottom line
  • Almost all of the programs offered by brands are focused on growing the top line vs. achieving cost savings

Marriott:

  • Still the premier brand company in North America
    • High brand integrity
    • Best reservation system
    • Strongest exposure to corporate travel
    • Marriott hasn’t been that aggressive in raising fees since they have a lot of large franchisees and operators that would give them strong pushback
  • Salesforce One hasn’t been viewed as particularly successful by owners who complain that it’s more expensive than doing the selling of meeting business themselves and that MAR doesn’t necessarily have maximizing their profits as a top priority
    • Program has not been popular with franchisees who have chosen to opt out for the most part as they see little upside in sharing their convention contacts with MAR
    • Property owners where MAR is the operator complain that they have yet to see results from the shared services model but are hopeful that things will improve as group business revs up in the coming years
    • We’ve heard that once MAR hits incentive targets, they shift business to other properties to maximize their fees

Starwood:

  • The best brand portfolio internationally but isn’t the top dog in North America
  • Perception that Aloft and Element are failed brands in North America. While Aloft does reasonably well in urban and high volume corporate travel markets, there are too many Alofts in suburban markets where the product doesn’t do well.
    • Complaints that the materials they use are very cheap and the walls are thin
    • Lenders refusing to lend on new Aloft developments
    • Many of the ADRs in suburban markets are $80 or less
    • HOT may come out with an Aloft refresh to salvage the brand in the next year or so
    • Little interest in Element:  no new openings in 2011, 1 in 2012 and 2 scheduled to open in 2013

Hilton:

  • Really jacked up royalty fees since the Blackstone deal
  • Increased fees from 4% in 2008 to 6% in 2012
  • Lots of onerous kickback deals in their contracts like forcing franchisees and owners to buy internet from them at 3x the price of getting it from a competitive source
  • Able to get away with the fee hikes given the strong performance and locations of their brands, high brand integrity, and a fragmented ownership base
  • Higher leisure exposure though so MAR is still preferred by many owners who believe that it will be a long time before leisure travel returns to 2008 peak levels

IHG:

  • Brands are on the decline
  • Little brand integrity.  One franchisee referred to IHG as a brand “prostitute” allowing applicants through the door and being indiscriminate about what gets a IHG flag
  • Older product base.  Aside from the Holiday Inn Express brand, they are viewed as having a weak brand portfolio and little group loyalty amongst their customers.

Hyatt:

  • Working very hard to compete head to head with HLT and MAR
  • Hyatt has good reputation amongst owners and is often a second or third choice for owners who can’t get a MAR or HLT flag

Wyndham:

  • Strategy is to be the conversion brand portfolio of choice
  • When HLT, MAR, HOT kicks hotels out of their portfolio after the initial license term expires or if they fail to meet brand standards, WYN is waiting in the wings to convert those hotels. 
  • There are many that think WYN will grow faster than HLT or MAR over the next few years with limited new construction in NA

Choice Hotels:

  • Quality Inn is their go to conversion brand. The majority of Hampton Inns that lose a flag become Quality Inns and a decent percentage become Best Westerns
  • The standard of renewing a license that expires from its initial term of 20 years is much higher than that of maintaining a flag during the license term.
    • Many owners try to sell their hotels a year or 2 before the license expires
    • A hotel with a good flag will usually sell for almost twice the price per key as an unbranded hotel in a suburban location.
    • It’s not easy to get approved for a high quality flag since there are a lot of conformity hurdles
    • Some investors look to buy the old full service Holiday Inns at $20k/key and turn them into Courtyards which sell close to $100k/key