At the recent NYU International Hospitality Industry Investment Conference, Marriott finally revealed its plans to refresh the Sheraton brand. “From the moment we closed the Starwood merger in late 2016, the revitalization of Sheraton has been a top priority for our company,” said Arne Sorenson, president and CEO of Marriott International. At its core, the Sheraton story is a great example of Brand Integrity vs Brand Growth.
The Sheraton hotel brand was founded in 1937 in the United States. The company listed on the New York Stock Exchange ten years later and by 1965 had opened 100 hotels. Starwood Hotels & Resorts Worldwide, Inc. acquired the brand in 1998. Today there are more than 500 Sheraton Hotels and Resorts in more than 70 countries around the world. In short, they’ve put a lot of flags in the ground. Maintaining brand integrity across all those flags, however, is not an easy task. Many would say the brand has not done a great job of this.
What went wrong? A few things…
Moving Goal Posts
As with many industries over the past 20 years or so, the hotel business has had its fair share of disruption. International travel has become really easy over this time. With low cost airlines popping up all over the world, as Air Asia declare in their slogan – Now Everyone Can Fly! Technology has not only disrupted the distribution model for hotels, but has also helped create highly informed consumers. Today’s well-travelled, desktop-research-aware hotel guests are more demanding than ever. This, of course, puts pressure on the hotel brands to fight for their attention. The best way to do that, in a highly competitive, highly visible landscape, is to continually reinvigorate and refresh their brands.
In more recent years, we have also seen considerable consolidation within the hotel industry. As part of those big deals, brands which were previously competitors, are now part of the same brand family. Whilst the big brands would probably dispute it, most would agree that this has resulted in blurring the lines of differentiation between a number of the brands. With more brands to offer to hotel owners, and less distinctive points of difference between them, it’s not hard to see how brand standards and brand integrity became less consistent over time.
In a way, it was to be expected. Maintaining rapid growth, on an international basis, with a multi-brand portfolio, built on the back of mergers and acquisitions, is hard enough. Trying to do that and also adhere to strict brand guidelines? Just about impossible.
The Long and Winding Road
There was a time when hotel management companies regularly signed contracts with 30 year terms. For the most part, those days are gone and these terms have shortened significantly. Contract terms can vary considerably across regions, but if we were to look for a global average, it’s probably somewhere around 15 years. Just imagine how many changes there will be in your marketplace over that sort of time period.
In the 15 years from 1995 to 2010, spas in hotels went from being a rarity to ubiquitous. In the almost 15 years from 2004 until today, Facebook went from a crazy dorm room idea to one of the Top 10 companies in the world by Market Cap. Not to mention, becoming one of the most important marketing tools for any businesses today – hotels included. TripAdvisor wasn’t even a blip on the radar 15 years ago. Today, hotel brands pray for good reviews on it. The iPhone has only been with us for 11 years.
You get the idea.
Over the course of an average hotel management contract, the world can change quite dramatically. If hotel brands aren’t nimble enough to respond, react and adapt, they can be left in the dust very quickly.
Other People’s Money
When in doubt, follow the money. That’s always a pretty good way to find an explanation for the current state of any business or industry. In the case of hotels, most of the properties are only managed by these brands. The hotel brands don’t own many of the hotels they put their flag on. That means, no matter what great new innovations the brand comes up with, if the owners aren’t willing to pay to make the changes, then everything stays the same.
One of the conditions of a hotel management contract will be that the owner must commit to maintain the brand standards. So, in theory, if the brand standards change, the owner must pay to make the necessary changes to bring his hotel up to the new mark. But what if they refuse? In most agreements, the hotel management company has the option to cancel the agreement and pull their brand off the property. They can, but are they willing to do that?
When a hotel owner refuses to invest the money required to meet the updated brand standards, the hotel equivalent of a Game of Chicken ensues. It’s a question of which side is prepared to walk away. If this particular property is in a key strategic market for the brand or if it is a highly profitable contract for them, they will not want to lose it. On the other hand, if the owner truly values the brand, he will not want to walk away. Especially as he has already invested considerable money over the years into this property.
Slippery Slope of Compromise
The logical outcome is a compromise. That’s what usually happens and may well be the best result for both the hotel owner and the hotel brand financially. However, compromising on your brand standards can be a slippery slope. How much is the brand willing to concede? What elements of the brand are non-negotiable? Sometimes it’s a question of if the brand can afford not to walk away from that contract?
Historically what has happened is that the brands will compromise, within reason, until they can compromise no more. Until they decide, enough is enough. If the words of Tina Edmundson, Global Brand Officer, Luxury and Lifestyle Brands for Marriott, as reported in USA Today are anything to go by, it looks like it’s enough. Edmundson was reported as saying, “Those Sheraton hotel owners who do not want to make the required changes are welcome to rebrand to another Marriott brand or completely leave the company.”
Strong words. Let’s see how the actions play out.