Some Do’s and Don’ts
Don’t:
- …make your hotel investment decision just because you own a particular plot of land, it might be better used for other purpose than tourism.
- …appoint an architect who has never planned a hotel before. A hotel is a living business and not an immobile real estate.
- …make gut decisions, but do make your research, demand and supply analysis and feasibility studies.
- …start shopping around directly with hotel operators as they take it as a sign that you are not supported by a hotel consultant, and they will quote higher rates.
- …get emotional about a particular hotel brand and don’t commit yourself too early as operators look after its own interest before anything else.
- …be over-confident to start negotiations alone as there are over 60 important criteria to evaluate which may not be all familiar to you.
- …venture alone in hotel development without a knowledgeable hospitality consultant.ve been handled by GHS and its associates.
Do consider:
- …that you are about to enter into a business relationship of 10, 15 or more
years with a hotel operator. Look well before you leap. - …that you give up substantial rights to the manager, so safe-guard yourself
against foreseeable risks. - …own brand and self-managed versus self-managed with franchise and third-party management agreements including all its ramifications.
- …that branding has become such a specialization that decides the success or failure of your business.
- …hiring a lawyer who knows the tricks of the hotel trade and not just your trusted company lawyer who has no hotel experience.
Predictable Failures by Wrong Branding - Examples
Case 1:
A city hotel with 250 rooms and several high-class facilities which would be classified as a 4–5-star hotel was branded as a 3–4-star global hotel brand. The typical customer of this brand would pay approximately US$ 80 per night, but the hotel required at least US$ 120 average room rate (ARR) in order to run profitably. The decision to blame and release 3 General Managers within the first 18 months of operation could not rectify the mistake of the wrong branding by the owner.
Two years after opening, 51% of the hotel’s shares were bought by an institutional hotel investor and the hotel was rebranded with an international 4–5-star brand. After 12 months, the investor accepted the option of having the rights of first refusal and bought the outstanding 49% of the shares. Five years after buying the property, the institutional investor sold the entire hotel and made a profit of 400%.
Case 2:
The management contract of a 5-star deluxe hotel at one of the most prestigious and up-market locations in the world was awarded to a regular 5-star hotel chain, instead of a deluxe hotel chain.
Despite doing a good job in managing this property, the brand of the hotel could not attract the target clientele, who would have paid up to 25% higher room rates.
The management contract was terminated by the owners within 2 years after opening.
After the re-branding, the hotel now delivers the second highest revenue per available room (RevPAR) in that city.
Case 3:
A brand-new airport hotel in the 4-star segment was branded by a regional hotel operator whose brand reach was rather limited and its internal bookings through their own website was only around 20%.
The investment company terminated the contract with penalty and replaced them by an international 4-star operator.
Within one year, occupancy has doubled, and the penalty was recovered, giving the investor for the next 13 years much higher yields.