When we think of the lodging industry in the US, many of us think of chains – those big brands such as Marriott, Hilton, and Choice that drive distribution trends and website bookings.
NB This is a viewpoint by Lorraine Sileo, senior vice president of research for Phocuswright Inc.
With household names such as Holiday Inn and Best Western that appeal to the US road traveler, chains also make a nice payday for online travel agencies (OTAs).
Though they seem to dominate the market – and they DO – there’s another, more elusive set of properties that is less frequently tracked, and even less understood. We're referring to the independents, or what we call “the other 30%” of the US lodging landscape.
While it’s true that 70% of all room supply in the US belongs to chains, that still leaves us with 1.2 million rooms operating on their own. (To be sure, a small percentage of non-branded properties are affiliated with rep companies or voluntary chains such as Leading Hotels of the World and Worldhotels.)
According to Phocuswright and h2c’s Independent Lodging Market: Marketing, Distribution and Technology Strategies for Non-Branded Properties, independents will generate US$68.1 billion in room revenue this year. Although this represents less than 30% of all hotel revenue, that’s still a significant volume – bigger than car rental, tour and cruise combined.
Despite their size, independent lodging suppliers operate at a disadvantage. Many lack the resources, tools and expertise to compete with chains and each other. Their makeup is quite fragmented (inns, B&Bs, resorts, hotels/motels), making it hard for properties to band together for the greater good and consolidate marketing and distribution.
In many cases, independents are on their own when making important pricing and channel management decisions, and that often means being left behind.
OTAs play surrogate for brands
Without the branding and operational support of chains, it’s little surprise that independent properties seek (reluctantly) the assistance of OTAs. Only a small minority have implemented such helpful tools as a channel manager or a threvenue management system, so they often look to OTAs to make those decisions for them.
As a result, OTAs will represent 58% of US independent properties’ online volume this year, compared to a 48% share for chains (see Figure 1). While independents account for 28% of total hotel gross bookings, their share of OTA hotel gross bookings jumps to 40%, or roughly $10 billion.
That means that Expedia and Booking.com can rely on a steady stream of independent business for years to come, regardless of what chains do in the long term.
Pinning hopes on OTA alternatives
With so much reliance on intermediaries, it's no wonder that independent properties cited rising third-party costs as a top marketing and distribution concern (see Figure 2). Just like chains, independents want to drive all their business direct, preferably to their websites.
While that’s not realistic without the proper tools and expertise, hotels won’t stop trying to detach themselves from OTAs. Most are pinning their hopes on TripAdvisor to help drive direct bookings via TripConnect and Instant Booking.
Use of SEO/SEM, social media and email to engage travelers also ranks high.
About a quarter of independents plan to increase investment in Google Hotel Finder in the future.
Despite these efforts, their share of business from OTAs isn’t expected to decline anytime soon.
Across the pond
The European landscape is almost an inverted image of the US.
In Europe, chains have long been the minority while independent lodging – small and midsize hotels and guesthouses, as well as aparthotels, B&Bs, vacation rentals and other non-branded properties – rules the roost. Independents make up more than two-thirds of room supply in Europe and more than 90% of all properties.
They also differ from the U.S. in their channel distribution.
Fragmentation, lack of tools and resources, and small room size (the average property is just 14 rooms) make European properties even more reliant on OTAs than their U.S. counterparts. Intermediaries will represent 74% of European independent lodging online bookings in 2015 vs. 58% for the U.S. They’re in good company. European chains also rely heavily on OTAs, though not quite as much (see Figure 3).
All suppliers want to wean themselves off OTAs eventually. But for independent lodging suppliers, is it even necessary?
With offline revenue factored in, OTAs represent less than 30% of independents’ total business, and that percentage is not expected to grow. OTAs can assist properties with global reach, while also guaranteeing them an important mobile presence. Because independents can’t keep up with distribution and marketing demands, they always will need partners. They just need better tools to manage those partners and make the same smart distribution and marketing decisions as their franchised cousins.
Phocuswright and h2c’s summary report will be available soon. To see the key findings infographic and more information about the project, click here.
NB This is a viewpoint by Lorraine Sileo, senior vice president of research for Phocuswright Inc. It appears here as part of Tnooz's sponsored content initiative.
NB2Image by Shutterstock.