KPMG Report Says Hotels and operators should Address branding

A new European report by KPMG says that hotel owners and operators need to work together to create a successful and profitable alliance, which will maximise the return on investment that can be generated from rooms.

The research, which was carried out between December 2001 and February 2002, revealed a substantial gap in perception between owners and operators over how much RevPar uplift (revenue per available room) can be achieved when brand operators manage hotels, compared to the RevPar achieved by independent hotels.


Hotel owners believe that global brand operators achieve, on average, a RevPar uplift of 16%. But brand operators said this uplift was 25% - a discrepancy of nearly 10%.



The difference is even greater when looking at national brands. Owners believed national brand operators uplift RevPar by 11%, compared to operators who said this figure was 27%.


The report says that hotel operators are having to work harder at their partnerships with owners, in order to convince owners of the benefits of working with global and national brands.


With competition getting fiercer, operators are under pressure to offer attractive deals to hotel owners. At present, approximately 25% of European hotel stock is branded, compared to 70% in the US, so hotel operators are looking to Europe to grow their market share and boost revenues.


Nick Pattie
, Director of Hospitality at KPMG, speaking at the Hotel Investment Forum in Berlin, said: “Hotel owners are much more knowledgeable about hotel operations and are becoming increasingly sophisticated when selecting brand operators. Owners are looking for greater flexibility and transparency from operators, and performance guarantees are becoming essential for contracts. Greater emphasis is being placed on profitability as a key performance indicator, and the ability to control costs, such as capital expenditure. In the long term, operators will probably have to be more flexible on lengths of contracts if they want to partner hotel owners.”


The report said that owners and operators have identified a number of areas they need to address:


Effective brand management: Both owners and operators need to exploit management and distribution systems to generate the maximum return on investment. The backing of strong brands can also help owners secure funds from investors. Operators want to ensure that brands have consistent standards across all hotels.

More flexibility in working relationships: Owners would like shorter contracts to protect them from the risks associated with hotel brands changing hands, and different market conditions. Operators, on the other hand, would like longer contracts to maintain and protect brand presence. Owners would also like to see more agility and creativity in the design and refurbishment of hotels to reflect changing market demands.

Improved financial control and reporting methods: Owners are keen to encourage shared decision-making over finances, have more influence over budgets, and a clearer understanding of the accountability of the general manager and his team.

Greater transparency: Many hidden costs are perceived as being passed on to owners. Owners would like to have more influence and understanding of how costs are allocated and charged back.

Sharing of Risk: Owners, particularly of smaller hotels or those operating in volatile markets, would like operators to take an equity stake in hotels. They believe this would encourage operators to focus on profit maximisation.

Interviews were held within the top end of the hotel market across six of the leading European markets: UK, Germany, France, Netherlands, Spain and Greece. Hotels participating in the research included Hilton International, Hospitality Europe, Meridien Hotels Ltd, Novotel Hotels, and Radisson Edwardian.
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(12/11/2001) KPMG Travel CRM Report.