DESPITE MANY HOTEL developers’ belief, a dual-brand property does not always operate at a lesser cost than two stand-alone hotels. In fact, says a new study, dual-brand operations can cost more to run.
CBRE Hotels’ Americas Research in October released a cost-benefit analysis of dual-brand hotels doing business in 2017. While researchers Robert Mandelbaum and Gary McDade charted some positive results from 23 combined businesses, they also dispelled a couple of myths.
The biggest find is operating costs. “When comparing total operated department expenses as a percent of total operating revenue, we did not find any efficiencies achieved by the dual-branded hotels,” the researchers write. “Across all three categories, the operated-department expense ratios for the dual-branded properties were greater than the comparable groupings.”
The three categories studied were dual-brand combinations of limited-service and select-service (three properties); select-service and extended-stay (13 pairs); and limited-service and extended-stay (seven).
“Owners should be careful not to base the financial feasibility of their project solely on expectations of greater profit margins.”
The findings show costs are heaviest in the rooms department, where labor comprises most of the expense. “Across the board,” reads the report, “the rooms department ratios for the dual-branded hotels averaged 22.8 percent, compared to 22 percent at the comparable properties.”
One piece of a silver lining did appear, however: “Rooms department operating efficiencies were only observed at the select-service/limited-service dual-branded properties.”
Mandelbaum and McCabe note strict brand standards that require different check-in areas and brand-specific employee uniforms “limit the ability of operators to benefit from shared staffing.”
The news is not all bad.
The report reveals owners can realize cost savings in other areas, such as “undistributed departments” or back-of-house operations.
When measured as a percent of total operating revenue, undistributed department expenses come in at 2 percent to 3 percent less than comparable stand-alone hotels. That’s probably because BOH operations are “less incumbered by brand standards,” say the researchers. Management can share staffing in general management, accounting, security, marketing and maintenance. An added bonus is the energy costs saved with a combined structure.
Continuing the positive-news track, Mandelbaum and McCabe reported – thanks to the BOH savings – dual-brand properties earn more money than their stand-alone peers. Gross operating profit across all three dual-brand categories were “just slightly better,” they write.
The researchers offer a caveat emptor to their findings:
“Since it is widely believed operating efficiencies are a major benefit when developing a dual-branded hotel, owners of these properties should be careful not to base the financial feasibility of their project solely on expectations of greater profit margins.”
Other factors such as shared services (reservation systems) and lesser development costs resulting from shared amenities including the swimming pool, fitness room and meeting space, also boost a dual-brand’s bottom line. These factors, say the researchers, “may end up being the most important when determining if a dual-branded hotel is the appropriate property type to develop.”
For more information, visit CBRE Hotels’ Americas Research website.