Why hotel brand consolidation won’t be happening any time soon

20 January 2015

Some commentators thought that during this last recession, or perhaps as we continue to emerge from it, the hotel industry globally would see significant brand consolidation, but that seems not to have been the case. The question, though, remains as to whether we might actually see some of this fabled consolidation in the next few years.

An initial observation is that the hotel industry continues to proliferate new brands. The BVA BDRC Hotel Guest Surveys are conducted annually in over 30 major source markets around the globe and every year we seem to add new brands to the study. In 2014 we tracked consumer recognition of 491 different hotel brands, over 70 of which are monitored in every single market.

This distinction draws immediate attention to one key factor at play. Regardless of the growth of international hospitality businesses, the sector remains highly fragmented with vast numbers of domestic and regional brands catering to the needs of their local markets. For, in spite of the growth of international travel, in all but the smallest of countries the bulk of hotel demand is domestically generated, so creating a niche for local brands to prosper.

While it is possible to anticipate further consolidation amongst the international hospitality businesses that operate the brands (with activist shareholders a key driver for this) this is unlikely to reduce the number of actual hotel brands.

Over the last decade or so growth of the portfolios of brands offered by the big players has been a major trend: Accor claims 14 brands, with extensions like Sofitel So and Sofitel Legend on top, Marriott has 15, Hilton boasts of 11, Starwood and IHG each has 9. Invariably each brand is targeted at a particular consumer segment and the emergence of new consumer age cohorts and segments with different market needs means the slate of brands originally developed for Baby Boomers need now to be re-imagined and added to.

Looking at BVA BDRC Hotel Guest Survey data for European leisure travellers (from the UK, Germany, France, Netherlands, Belgium, Italy and Spain) on the face of it there is evidence for a decline in the power of brands as an influence on hotel selection amongst the younger traveller generations, for whom online review sites now assume greater importance.

Yet, at the same time by deploying the BVA BDRC ‘Brand Margin’ methodology we know that hotel brands can command a price premium in the perceptions of consumers.

The data in this second chart demonstrate the price uplift that preferred brands can deliver in different tiers of the hotel market in the opinions of consumers in the same European leisure traveller study; with the outcomes for specific upscale hotel brands identified for example. Ultimately, it is the ability of hotel brands to command a price premium that is the crucial reason for their existence and future success. For as long as they can do this there is no reason to believe they are about to go away.