In the current economic climate characterized by squeezed margins, rising inflation and fluctuating interest rates, the question of choosing the right partner and business structure for the operation of a hotel asset has become more critical than ever. Each model has its pros and cons and the choice ultimately hinges on a variety of factors.
Focusing on third-party and owner-operated, what do hotel owners need to take into account to ensure they’re making the right choice when making a decision on a model?
Communication and collaboration
First off, experts advise that there’s no one-size-fits-all solution, stressing that each asset needs to be looked at individually.
“Each owner has a different view on what their asset should be,” says Keith Oltchick, senior vice president of business development at Remington Hospitality.
“It's a combination of a bunch of different things when trying to determine how best to maximise revenue for the owner. Sometimes it's scoring top line, sometimes you have to be more bottom line focused. It depends on the asset, the market it's in and all the individual attributes that make up that hotel.”
He adds that collaboration and communication are very important when determining a strategy.
“It should be a partnership. Our best-performing assets are ones where we have a relationship with the owner and there’s constant communication. It’s a collaborative effort; we don’t know everything. Owners know a lot more about the asset and the customer base so there’s a benefit to learning as much as possible from them.”
Attracting and retaining talent
When considering the benefits of choosing the third-party operator model, Oltchick says having a larger scale operation also allows for better recruitment and retention of talent than at the individual operator level.
“We’ve seen a lot of talent flee the industry and so a focus on talent retention is extremely important. When you have economies of scale and a number of properties, people at all levels can see a path for career advancement instead of seeing their role as just an hourly job.
If they started in a select service hotel, they could maybe move into another role in a full-service property. And so there's a lot of internal movement possible when there are enough properties, to recruit talent, move people around and retain that talent,” he says.
Sabina Wyss Di Corrado, VP development Europe at Aimbridge EMEA agrees that being a third-party operator with scale means there’s an advantage, and more opportunities for progression can be provided for staff.
“When it comes to negotiating deals, the staffing question comes up very early. Rather than talking about things like fee structure, usually one of the first questions I get asked is how I plan to get the team together. We work on very tight deadlines and we have an advantage in that we can recruit faster and provide more opportunity,” she says.
However, William Laxton, CEO at Mactaggart Family & Partners and director at Resident Hotels argues that single-asset businesses can also create a strong working environment and opportunities by focusing on culture, attitudes, and delivering on promises.
“Being smaller hasn’t denied - either for the guest or for us as an owner – access to talent and there isn’t an inability to retain it. You can create a fantastic working environment and opportunities for people in a single asset business. It's more about culture, attitude and doing what you say you're going to do rather than business scale,” he says.
Size and scale
Oltchick adds that because of their scale, third-party operators like Remington have another advantage when it comes to capital deployment in that they can spend money on infrastructure or process improvements whereas with an individual owner or a smaller outfit, their spend is limited to the capital invested in the asset.
“We can add people in different disciplines; we can have a robust F&B operation, digital marketing, brand performance people and business analytics. When you get to a certain size, you can afford to do that, whereas an owner operator can't afford to have those type of disciplines within the organisation, it’s just not big enough to allocate all that cost.”
Di Corrado adds, “With scale, you can take functions out from on-site into centralised function. For example, with human resources, finance, revenue management, when we have a cluster of hotels in an area, we install a local team which looks after that cluster. That cluster gets managed remotely and that has major cost efficiencies.”
She explains that if there are a few small hotels in an area, rather than have a finance clerk at each site, having someone with a much higher qualification in an office looking after that cluster means there’s less cost involved than if there was someone less qualified on each property.
“This is where you can extract not just a lot of costs, but you can actually manage it much more efficiently,” she adds.
However, Laxton says owner-operators have more control and influence, which allows for better understanding and more responsive management of their assets. In such setups, a small number of individuals are responsible for all the major decisions, making for a more cohesive and efficient operation.
He adds: “In a single-asset business, all the touch points are influenced by a very small number of people; a very small number of people bought the building, converted it to a hotel, created the brand and run the operating company. So there is no blind spot for anyone within the organisation as to why something is how it is or how it might change. These are all bilateral conversations that people are very aware of.”
Speaking to the bottom line, the experts say the optimal business model is one that can be tough to determine due to the varying product offerings and distinct operational strategies. In the end, the choice between owner-operated or third-party managed depends on several variables, including the market location, the nature of the asset, the owner's goals, and the specific circumstances surrounding the operation.
A deep understanding of these variables, combined with an open-minded approach to different operational models, can guide owners to a model that maximizes revenue, streamlines operations, and ultimately, enhances the bottom line.
All those quoted in the article appeared on stage at the International Hospitality Investment Forum held in Berlin between May 15 and 17, in a session called Brand-Managed, Third-Party or Owner-Operated: Which is Best for the Bottom Line?