Is Branditization of the Hospitality Industry inevitable?

Recently, both Hilton and Marriott announced their 2023 financial results. Good news all around. What peaked my interest was the pipeline (contracted and under development hotel rooms) for each hotel chain: 3,270 properties with 462,400 rooms for Hilton and 536,000 rooms for Marriott.

Within a few short years, we will see several global hotel chains with 10,000 plus properties in their networks.

Already 73% of hotel rooms in the U.S. belong to branded hotels, 27% to independents. Branded vs independent hotel room ratio in the UK is 50:50, 45% in Europe, 50:50 in APAC.

Judging by the robust pipeline of Hilton and Marriott, the process of “branditization” of the hospitality industry is accelerating even further.

The question is why?

Post-pandemic, independents have emerged weakened, without resources to update their tech stack to appease the increasingly tech-savvy travel consumers, equip their employees with much needed tech tools, and invest in digital marketing to decrease their over-dependence on the OTAs.

No wonder, during and post-pandemic, for most independent hotels the OTAs INCREASED their share at the expense of direct online bookings. While for the major hotel chains the ratio direct vs OTAs bookings is on average 4:1, for independents this ratio is 1:4 in the U.S. and 1:5 for European independents. Did I mention that, on average, independents pay 2x-2.5x higher OTA commission on top of the 4x-5x greater dependence on the OTAs?

In addition, labor shortages and unsustainable labor costs are forcing hoteliers to introduce technology solutions to decrease the need for human-provided services: mobile checking and mobile keys, guest messaging and issue resolution technologies, IoT devices to control utilities, AI powered chatbots and voice assistants to handle customer service, automations and robotics.

Independents simply do not have the resources to invest adequately in talent, technology and digital marketing.

The major hotel chains offer solid (though not perfect) tech stack, time- and calamity-tested best management practices, great brand recognition and most importantly: huge loyalty programs that ensure repeat business.

Ex. Marriott Bonvoy membership increased to 196 million in 2023, while Hilton Honors’ neared 180 million. Bonvoy members accounted for 62% of Marriott’s global occupancy and 69% of US occupancy in 4Q. Room nights booked through the Bonvoy app grew 22% y/y in 2023. Marriott views its loyalty program growth as a testament to its current tech transformation and growing engagement with members.

Each Bonvoy member stay is a repeat stay to the chain i.e. 62% of Marriott’s global occupancy came from repeat business! Compare this to the average independent hotel where only 10% of business comes from repeat guests.

A repeat guest spends 62% more and is 5x-10x cheaper to acquire than a new guest.

For the typical hotel developer and owner, joining a major hotel chain provides financial security, end of tech anxiety, higher occupancy, much higher repeat business, exposure to new customer segments and feeder markets, employee professional development and talent retention opportunities.

And yes, all of the above plus the lower OTA exposure and commissions more than compensate the brand affiliation fees of 10%-13% of room revenue.

No wonder, independent hotel developers and owners are flocking to the major hotel chains in increasing numbers.

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