Hotel Management • The Hospitality Show Lookbook October 2024 • Are there too many brands in the marketplace?

Over the past few years, companies have introduced new brands at a swift pace, each clamoring to fill the potential white space to grow their loyalty coffers. But with all the new offerings, are there too many brands in the marketplace? Is the surplus diluting the legacy brands?

With brands now numbering over a thousand, hotel owners and guests face a “sea of sameness” among many of the brands in today’s markets, according to Chekitan Dev, the Singapore Tourism distinguished professor at Cornell University’s Nolan School of Hotel Administration. In some cases, one brand is only marginally distinguishable from another, and the challenge is to discern the differences.

According to Dev, one outcome of this growth is greater bargaining power for independent operators who can use social media to attract guests. Another outcome is a search for additional brand concepts, including lifestyle brands. To continue growing, brands will increasingly have to use technology and apply research and development to assess their brand concepts. Dev believes brands must find a way to differentiate themselves and develop “tribes” of customers.

WHAT’S THE DRIVER?

What factors are driving the major parent companies to create these brands? This needs to be viewed form two perspectives: the consumer and the hotel owner, according to Zach Demuth, global head of hotels research at JLL.

“First, on the consumer/traveler side, brands offer more choice as it relates to both price and experience, thereby allowing the brand parent company to increase their share of wallet within a specific destination,” Demuth said. “As travelers become more savvy and more specific with their needs, more brand options offer the likelihood of choosing to remain within one parent company instead of possibly shifting to another.”

Jan Freitag, national director, hospitality market analytics at CoStar Group, agreed. “We change our taste ... we change what we are looking for [and] we change our travel habits,” he said. “There are new generations who are coming into age where they have money to spend on travel, or where they become business travelers, or they grew up traveling a certain way because their parents [did], and now they’re doing it themselves.”

From the owner side, more brands create more opportunities for development and/or conversion. Given that parent companies derive nearly 50 percent of their value from net unit growth, the ability to offer multiple brand options to an owner increases the likelihood of that owner choosing to stay within the broader parent company, Demuth continued.

“This has become particularly important as development costs have risen and owners struggle with eroding cashflows. A great example is what Hilton created with Spark—essentially acknowledging that some owners could not afford the required [property improvement plan] on their existing asset (either within the Hilton family or within a competitor), but could afford a stripped-down version that would still appeal to a dedicated traveler base.”

The modern hotel guest is no longer satisfied by the status quo, noted Michael Cummings, senior vice president for CBRE Hotels Advisory. “Most guests want their hotel stay to be an experience and have a unique appearance and feel,” he said. “As a result, brands are developing new products to satisfy these requirements. Rooftop bars, wellness spas and ‘healthy living’ are common amenities that are aligned with this shift.”

Considering the drivers from the parent company side, Wall Street values one thing above all else—net unit growth, Freitag said. “They need to show growth in their stable of profit every year, quarter over quarter, year over year,” he continued, “while brands are at the same time maintaining their asset life stand so they don’t own their assets. They just try to entice owner to put their brand onto the owner’s admin. And for that to work, the owners need to be enticed. The owners need to say, ‘Oh, I have to embrace what is attractive to customers right now.’ So that’s why parent companies are expanding.”

IS THERE BRAND PROLIFERATION?

How should we think about brand proliferation? At the end of 2023, there were nearly 1,400 global hotel brands—about 10 percent more than existed at the end of 2019, according to Demuth. “At some point, we will—or maybe [we] have—reached a point where there are too many brands,” he said. “The question we have to ask is whether the advent of a new brand actually addresses a specific customer segment that is currently under-served in the market. If that answer is no, or the customer segment in question is too small to provide sufficient revenue uplift, then we should seriously reconsider whether the new brand is necessary.”

Freitag thinks it serves all the requirements of why the parent companies are doing it. “If there wasn’t a customer, or if there wasn’t an owner behind it, they wouldn’t do it,” he said. “They aren’t doing that because it’s fun. They’re doing it because there is a strategy behind it that drives their next unit growth because they can attract more customers.”

Demuth warns that ill-defined customer segmentation or poor execution on brand promise risks brand denigration, which can result in loss of trust and investment value.