As more and more hotel brands are brought to the market, including the recently announced IHG brand, Avid, the lines that distinguish each brand’s operating “swim lanes” have blurred. In some cases, for boutique and lifestyle brands, brand standards are intentionally flexible and unclear so that hotel owners can create a unique, local feel for each hotel. While the flexibility allows the hotel to operate with a more distinct feel, the less clear these lines, the harder it becomes for the hotel brands to enforce brand standards.
Brand standards can vary from number of bathroom fixtures to types and caliber of sheets to how a customer is greeted at the check-in desk. It is easy to enforce a brand standard where there is a clearly stated requirement, such as a four-fixture bathroom, or requiring two people at the front desk at all times. What becomes more difficult is when the brand standard is described as providing a warm and friendly, “locally based” greeting to the guest in the lobby. Interpretation of and compliance with flexible or soft brand standards become more subjective and open to greater debate.
These soft brand standards require greater communication between the owner and the manager (or brand manager) to ensure the parties can agree on the level and compliance of the standards, especially as they evolve. An owner will want to ensure that their hotel is not being singled out or used as a test case for the implementation of a new standard, and that the implementation of such standard serves some logical business purpose. Provisions protecting the owner from frequent changes and inconsistent application of standards should be negotiated and included in the franchise agreement.
Updating standards
Brand standards are often updated over the course of ownership to reflect changes in general design trends and technology access. For example, guests’ expectations regarding access to technology have forced brands to update their standards to include more plugs, access to USB outlets or wireless chargers, keyless entry, iPads and streaming services like Netflix. When standards are easily changed and updated throughout the year, it can render a competitive set useless. To avoid these issues, provisions allowing for the change or adjustment of the competitive set should be negotiated and included in the management agreement.
Further, as more international brands cross borders, the parties should fully discuss and understand how the brand standards will be implemented and enforced to reflect local customs while reconciling the class and standards of the brand. The harder it is to determine and enforce brand standards, the harder it gets to select and update a hotel’s competitive set. Hotel operators may want to negotiate more frequent updates to the competitive set to adjust for changes in brand standards or lack of enforcement of brand standards.
Competitive sets
When selecting a competitive set for your hotel, considerations regarding similarities or differences within the set should be tested. The competitive set becomes more critical when it is defined as part of the brand standards as applied for the hotel. For example, where all or some hotels within the competitive set provide iPads in the room, the expectation would be that iPads would be provided and considered as part of the brand standards. Another example is the availability of room service, perhaps on a 24/7 basis.
Because competitive sets can play a part in providing for termination rights in favor of the owner, incentive fee calculations or even part of the definition of brand standards, it is important to think through the consequence of each application of the competitive set within the management agreement. A competitive set should accurately reflect the operations, both physically and financially, of the subject hotel and the manner in which the brand standards are implemented and updated.
Samantha Ahuja and Molly Kacheris of Morris, Manning & Martin in Washington, D.C., represent owners, operators and developers of hotels.