As the second half of 2017 approaches, mergers, acquisitions and rebranding initiatives continue to dominate Canada’s branded-hotel sector. In the midst of strong brand proliferation, however, it’s often easy to overlook the country’s independent-hotel landscape and where it stands relative to the big names.
In recent years, a numerical perspective that examines a hotel’s occupancy rate, Average Daily Rates (ADR) and Revenue Per Available Room (RevPAR) has offered very limited insight into how the independent market compares to its branded counterpart — in most areas of recent statistical analysis, the two markets are nearly indistinguishable and, where there are discernable differences, they’re often too minor to draw any conclusive correlations. “Last year, the hotel industry in Canada finished at a 63-per-cent occupancy rate and at roughly a $149 ADR,” says Brian Stanford, senior managing director at CBRE Hotels. “And the realities are that from an occupancy perspective, independent properties are really not that different from how the branded hotels performed; the standalone family-operated hotels that are trying to compete based on their own marketing efforts are all in the 63 to 64 per cent occupancy level.”
According to CBRE’s 2016 report summary, the national occupancy rate for the entire hospitality market averaged 63.8 per cent. Independent hotels experienced a nearly identical occupancy rate of 63.5 per cent. As far as RevPAR, the national average for the year was $94.82, with branded hotels sitting at $93.44 and independent hotels at $101.21. ADR in Canada was $148.53. Branded hotels recorded $146.54 and unbranded, $159.38.
The disparity in numbers grows even smaller when focusing on what CBRE identifies as the secondary independent market. For 2016, CBRE has divided the unbranded segment into two parts — primary independent properties and secondary independent properties. The former segment, Stanford explains, comprises resorts, boutique hotels and unique properties, while the latter includes smaller family-oriented properties.
When examining the primary independent properties in 2016, CBRE reported an occupancy of 63.9 per cent (bringing the metric to just 0.1 per cent higher than that of branded properties); a RevPAR of $91.03 (much closer to the $93.44 recorded by branded hotels); and an ADR of $142.34 (closer, again, to the metrics of branded hotels).
According to the numbers, therefore, independent and branded properties appear to operate in much the same landscape. A deeper look into the independent property market, however, shows there are differences that set the two markets apart, but these differences are most often qualitative rather than quantitative.
The area of greatest challenge that independents face, according to Stanford, is qualifying for the necessary loans to break ground for a new property. “There’s a far stricter underwriting review that happens with an independent property than with a branded property, just due to the comfort level of lenders,” he explains. “It’s almost impossible to get financing on an independent hotel, unless it’s something very unique, like a boutique hotel in a downtown core or a resort. But, if somebody is looking to build anything from a 60-room limited-service hotel in a tertiary market, or a 250- to 330-room full-service or select-service hotel in a major suburban market, those projects are almost always going to have to be branded to guarantee success, but also to access financing.” Stanford cites these financial difficulties as the primary reason why roughly 90 per cent of the room inventory that has been built in Canada in the past five years has been branded.
Among boutique hotels that offer a unique experience in a downtown core is The James Hotel, which is situated in downtown-Saskatoon, Sask. “It’s a unique space and prime area in the city, which allows the guest to really get into the local culture and experience it, as it’s right across from some beautiful green landscapes, the Saskatchewan river and trails that you can walk or run and it has a direct view of lots of annual street festivals,” says Shawna Nelson.
As the director of Sales and Marketing for both The James Hotel and its sister property, the Sheraton Cavalier Saskatoon Hotel, Nelson offers a valuable perspective when comparing branded and unbranded hotels since she has simultaneous experience in both worlds. “I represent the big chain as well as the independent boutique hotel,” she says. “And the nice thing about having an independent property is that it’s [operated by] a local family. The freedom to implement based on what our guest is telling us and the freedom to change design whenever we see fit creates our unique identity, which is hard to do when you’re a bigger chain or company.”
A great example of The James Hotel’s rapidly adapting nature is seen in its ability to turn guest feedback into new product offerings in an expeditious manner. “We’re able to quickly translate a need into a solution and execute on it compared to what you’d get in a bigger hotel where a guest is telling a housekeeper or front desk person but it doesn’t get down to the right person because they have to move onto the next person in line,” says Nelson.
When guests showed interest in the luxury linens in their rooms, The James acted swiftly and began offering its bed sheets for clients to buy. “It’s become the talk of our clients and of our city,” Nelson says. “Clients now call me and say, ‘I need to give a gift and I need your sheets.’ By being a boutique luxury hotel of its size, our staff is able to sit down with guests and be very genuine in their conversation. Our manager, Corinne Lund, is able to meet all 59 guests who walk through our door and, if they’re returning, she knows them.”
The biggest obstacle that Nelson has witnessed in the independent segment is the common misconceptions of what an independent hotel is. “When it comes to the boutique hotel, a lot of times there’s that perception that it’s a home-away-from-home kind of bed-and-breakfast place,” she says. “Though I don’t think it’s as much a challenge as it used to be, I find you still have to break through that perception with your staff, your sales force and your marketing team.”
Charles McDiarmid, managing director of the Wickaninnish Inn in Tofino, B.C., echoes similar points to Nelson and Stanford when describing both the challenges and benefits of running an independent property. While the rewards are certainly there in being and remaining an independent, it’s not without great difficulty and perseverance, says McDiarmid. “If you’re looking at the hotel business, strictly as an investor, you want to have a branded property because, at the end of the day, it’s an investment.” Therefore, a new independent property needs to be truly different if it’s to attract investors who typically prefer the time-proven business models of branded hotels.
In spite of such difficulties, McDiarmid has built a very strong independent hotel by tapping into Tofino’s distinct culture and landscape. The 75-room Wickaninnish Inn provides guests with a panoramic view of the ocean and Chesterman Beach from every room. In addition to its close proximity to the beach, the Wickaninnish also benefits from being locally owned. McDiarmid, who grew up in Tofino, has gone to great lengths to create an authentic experience for visitors. “When we decided to build the Wickaninnish Inn in 1993, we decided that, instead of offering your typical tourist attractions, we would connect our guests with local providers of activities,” says McDiarmid.
For activities such as whale watching, the Wickaninnish works with Mike White, who also grew up in Tofino and has been whale watching from his boat for many years. “You go out with a guy like that, you’re going out with a local who knows every nook and cranny,” McDiarmid says. “I’m able to match up a specific guest to a specific supplier who’s going to be the best person for that experience. We can customize the experience for each and every guest. And that also supports our community.”
Another benefit to being an independent, as McDiarmid sees it, is being able to sustain a business’s individuality. “We invest in our own brand,” McDiarmid says. “We have a strong marketing presence because we do things ourselves. You’re not paying a fee and trusting that the brand is going to take care of you. Instead of investing into franchise fees, we invest into our own marketing efforts to build our own specific brand.” Having a strong independent presence also helps save money on the OTA front. “Because our brand is strong by itself, we don’t need OTAs to help sell our inventory, where you’re paying a commission rate,” says McDiarmid.
McDiarmid’s model is proof that independents can still flourish and compete on the same playing field as the big brands, if they are able to carve a unique presence in the highly competitive market and hold onto that presence through continuous hard work. With properties such as The James Hotel and Wickaninnish Inn, the old saying stands that you only get out of it what you put into it. “An independent will be vulnerable only to itself,” says CBRE’s Stanford. “Depending on how it chooses to put itself out there, the independent runs the risk of undercutting itself, but these things are avoidable and the better independent operators understand that.”
Volume 29, Number 5
Written by Eric Alister