The core business of hotel groups like Accor, Hilton, Marriott and IHG is to provide services to property owners who either want to join their brand system under a franchise agreement or entrust them with the day-to-day operation of their hotel under a management contract. In either case, it’s as much the group’s brand awareness as it is the quality of its services that will drive hotel performance and convince the owner to choose its flag.
Service fees (distribution, marketing, IT, etc.) and brand trademark royalties make up the bulk of a hotel group’s revenue. This means that revenue growth is fueled by two key factors: the hotel group’s ability to expand its network through new franchise and management wins (hunting) and its ability to sell more services (farming).
More brands, more expansion opportunities
A group’s potential to expand its hotel network worldwide is directly related to the size of its brand portfolio. The larger its repertoire, the easier it is to offer a solution – economy, midrange, luxury & upscale, short stay, extended stay residences, standardized or lifestyle – in line with the property’s location and the owner’s objectives. With this in mind, Accor expanded its portfolio from 17 brands in 2015 (Ibis, Novotel, Mercure, Sofitel, etc.) to 38 in 2019, thanks to acquisitions, equity investments and brand creations across all market segments (Raffles, Orient Express, Fairmont, Rixos, 25 Hours, Swissötel, Mövenpick, Mantra, Mama Shelter, Tribe and Joe&Joe).
Needless to say, brand awareness and reputation are critical factors of development.
Hotel expertise through services
All hotel group contracts impose an obligation on the owner to purchase certain basic services (distribution, marketing, loyalty programs, etc.). Other than that, the range of complementary services varies from one operator and geography to another. Some hotel groups include a large number of mandatory services in their contracts (renovation, revenue management, employee training, etc.) in order to secure a certain level of revenue, but also to ensure the hotel’s performance and alignment with brand standards. Other groups adopt a more flexible approach, focused on providing adequate services on an as-need basis throughout the hotel’s life cycle (marketing support, energy expense management, quality improvement, etc.).
Whatever the hotel group’s strategy – required or optional services – the endgame is always to drive profit to the owner.
Hotel groups offer service catalogs of varying sizes but, as a general rule, the services can be divided into eight main sources of profit for the owner. Below are some concrete examples.
1. Mastering Brand Development
The hotel group’s primary expertise is to advise owners on the choice of brand (location, market, competition) and contract and conditions (franchise or management). Consultancy services for renovation and new construction, as well as interior design know-how, are typically offered by hotel groups (often on a mandatory basis) to ensure that the hotel project fully complies with the brand’s quality standards. Catering advice is also available to owners who wish to create a unique restaurant for their hotel or choose from an existing lineup of solutions, the dining concept that’s best suited to their needs.
2. Powering Hotels
IT systems and infrastructure are central to the operation of a hotel, both in terms of internal management (network access, software applications, cybersecurity, etc.) and customer experience (Wi-Fi, online check-in, fast check-out, etc.). New technologies are constantly creating new services. Hotel groups frequently offer advice, technical analysis and project management services to make sure the hotel is thoroughly integrated into their systems. They sometimes provide IT assistance themselves. In general, hotel groups tend to recommend technical suppliers, but some groups offer their own solutions. To make life easier for customers and employees, Accor, for example, has developed a mobile property management system called “FOLS Mobile” that enables check-in or check-out anywhere in the hotel, and not just at the front desk.
3. Optimizing Visibility
Brand and hotel visibility is vital for generating awareness and potential customer traffic. All hotel groups promote their brands across a wide variety of communication tools and techniques, including advertising campaigns, search engine optimization and sponsorship. Most of them also provide additional levers to reinforce the hotel’s visibility, such as stepped-up SEO, metasearch optimization, hotel website creation and social media management.
4. Maximizing Revenue
This category of services is crucial for the owner, who is banking on the hotel group’s ability to attract customers to their hotel all year round, at the best possible rate. Each group provides access to a distribution network that connects its hotels to a reservation ecosystem, which includes not only its own websites and call centers, but also numerous third-party operators, such as travel agencies, online booking services (Booking, Expedia) and metasearch engines (Kayak, Trivago). Apart from this essential service, hotel groups also propose solutions to market restaurants, meeting rooms and spas, and they often provide revenue management tools and expertise to improve occupancy and optimize rates. Ensuring the hotel’s presence at trade shows and on platforms for corporate clients is also part of the hotel group’s offering. It should be noted that an increase in a hotel’s revenue has a direct impact on that of the hotel group, whose fees are partially indexed to the hotel’s top line.
5. Magnifying Customer Experience
Customer – i.e., guest – satisfaction is the cornerstone of a hotel or brand’s reputation. Knowing their customers better has become a special focus of hotel groups so that they can provide them with tailored services and a high level of satisfaction at every stage of the journey, before, during and after their stay. The ultimate goal being customer loyalty. Hotel groups rely on increasingly powerful customer relationship management (CRM) platforms to manage the customer data, and all offer loyalty programs to learn more about their customers and reward their fidelity. One example is the Starwood Preferred Guest (SPG) program, which has a long-standing reputation for excellence. Accor has just announced the upcoming launch of a new program called ALL Accor Live Limitless, whose range of innovative benefits is expected to revolutionize the loyalty card industry. Other services in this category include customer care management and hotel reputation monitoring.
6. Simplifying Operations
This category includes a diverse collection of services whose shared goal is to monitor the hotel’s operating costs. These services are usually optional. Some groups have a procurement service for purchasing some or all of the items used by the hotel – food, supplies, equipment – or finding suppliers. The benefits for the owner are competitive prices and retro-commissions. Hotel groups now have online purchasing platforms. Accor, for example, recently introduced its AStore site in Europe. Optimizing restaurant operations, ensuring safety and security policies, managing reservation fraud or assessing suppliers’ solvency are other services included in this category.
7. Empowering Hotel Talent
Hotel customer satisfaction surveys have long revealed the close link between hotel experience and line staff. Furthermore, employee loyalty – to a hotel, brand or group – is largely dependent on human resources policy. For these two reasons, hotel groups provide services across the entire HR spectrum. Basic services include hiring suitable employees for different hotel job profiles and providing training and support so employees can do their jobs properly and develop their careers. The vast gamut of complementary services ranges from advice on how to create an inclusive, diversified workforce, help with conducting an employee opinion poll and tools and advice for creating incentive and compensation programs.
8. Committing to Society
Corporate social responsibility permeates every facet of the hotel industry, from the choice of building and renovation materials and food products, to the selection of energy sources and the hiring of locals. Customers have made it clear that they care about hotels’ commitment to social responsibility, and hotel groups have shown that corporate citizenship has an impact on hotel and brand reputation. Each group employs a different strategy. Some focus on theme-based services, while others prefer a more broad-based approach. Whatever their policy, no hotel group is indifferent to social responsibility. The vast array of CSR services includes comprehensive implementation of environmentally responsible hotel projects, energy and water cost-saving measures, reduction of food waste and the fight against the sexual exploitation of minors.
Together with brand trademark royalties and incentive fee, services to hotel owners are the main source of revenue for hotel groups.
Depending on the group, they account for an estimated 40% to 60% of total revenue, and show the best potential for growth.
All industries seek to develop new sources of revenue. In the hotel industry, two approaches exist.
1. Selling core services to new players
2. Providing services that add value to available hotel space
In this approach, the hotel group offers services aimed at adding value to available hotel space. For example, many property owners have already signed rooftop antenna leases with mobile network operators, so maybe they would be receptive to other space-optimizing ideas, like providing activity areas to hotel and non-hotel customers alike. From coworking spaces in the lobby and cooking lessons in the kitchen, to yoga classes in the meeting room and parking space rental, the possibilities are endless. Accor is the first hotel group to seriously develop this idea, notably through acquisitions and recent investments in NextDoor (coworking) and Onepark (parking management).