In the race up to Expo 2020, the United Arab Emirates is witnessing a surge in hotel brands – international as well as local – setting base in the region. The stand-alone, local brands are emerging as a real force to reckon with, giving tough competition to the existing hospitality giants.
Local and independent hospitality brands can compete effectively with major international management companies. As the number of hotels in the emirate continues to grow unabated, with the government’s target of providing 160,000 hotel rooms in time for hosting Expo 2020, international hotel management companies such as Hilton, IHC, Hyatt, Accor and Marriott feature heavily throughout Dubai’s skyline.
However, stand-alone local brands are emerging as a real force in the market, providing hotel owners and investors with a real alternative. We have seen a proliferation of new hotel brands being launched to serve specific market segments, while still operating under major international companies. For example, Hilton operates Waldorf, Doubletree, Conrad, Canopy etc; while Accor operates Fairmont, Pullman, Novotel, Ibis and so on. The strategy is to cover as many market segments as possible, while maintaining the relevant standards of quality in the pertinent categories.
Despite recent merger and acquisition (M&A) deals such as the Marriott International/Starwood Hotels & Resorts Worldwide combination, the hotel industry remains highly fragmented without a single player having significant global market share. Interestingly, market analysts estimate that major hotel chains only account for less than 35 per cent of traditional hotel rooms on a global basis. This fragmentation will probably continue to drive more M&A activity in the hotel brand sector in the years to come. The benefits of large chains are obvious. Beyond strategic value drivers (such as broader customer offering, penetration into key existing markets, opening new markets, etc.) and operational value drivers (such as consolidation of corporate teams, expanded loyalty programs, improved marketing budgets and reservation systems, etc.), three other key items drive value of a hotel brand – global trademark portfolio; value of potential management and/or franchise agreements; and value of existing management and/or franchise agreements.
However, independent luxury hotels tend to outperform the chain hotels. Going through offers on popular travel websites, many are focused on authentic experiences. Millennials, a growing market segment, also seems to appreciate experiential holidays, as opposed to cliched packages.
Independent hotels in the mid-market sector are making in-roads with flexible concepts. So, what are the advantages that independent brands bring to the table? Well, there’s more focus on what the guest actually wants versus a focus on international branded guest satisfaction standards, more flexible space for creative design, local identity, far less bureaucracy, less overhead costs in terms of management and marketing fees, as well as flexibility in distribution strategies.
Certainly, locally homegrown hospitality brands paints a promising landscape for aspirational owners and investors looking for a viable and sustainable alternative to the classic international hotel management contract.