Independent hotels have largely shed ‘inferiority complex’

Exterior facade of Dodge Peak Lodge, a part of Magnuson Hotels Independent Collection, in Bonners Ferry Idaho.

This article was originally published in Hotel News Now on April 5th 2023 and has been republished with permission.

Between the 1950s and the year 2000, hotel owners wishing to expand business beyond their local community had two options.

 

The first was to franchise and rename their hotel with a publicly traded brand.

 

This entailed strict corporate control and fees that would often cost 15% to 20% of total rooms revenue. Standardized design requirements, known as PIPs or property-improvement plans, could cost a midscale motorway hotel owner at least $20,000 per room.

 

The second option was to go it alone as an independent hotel and market the hotel via old-school, pre-internet avenues such as billboards, road directories and print advertising.

Then, do your best to attract repeat business.

 

In 1999, Expedia emerged onto the scene as a public company, leading a new industry called online travel agencies.

OTAs gave independent hotels national and global exposure and even raised the question, “If I can receive bookings from Expedia, why do I need the expense of a franchise?”

 

After Sept. 11, 2001, worldwide travel stopped.

 

In this window of time, Expedia and its imitators Orbitz and Travelocity were rapidly embraced by most hotels. Via this new novelty, revenue came quickly, but at a 25% commission on rooms sold, it became costly as well as complex to manage many incoming booking channels.

 

I remember a hotel owner in New Orleans in 2001 who desperately connected his hotel to 16 different booking channels. As all bookings came in via fax back then, he had a dedicated office set up with 16 fax machines just to receive bookings from these channels.

 

On Feb. 3, 2003, Melissa Magnuson and I started Magnuson Hotels with one idea: Independent hotels should not be left behind or taken advantage of by larger forces.

 

They could and should thrive, provide income for their families and employees, add value to their communities and provide advancement paths for young, new workers. They could and should keep their own name and unique characteristics. With the proper support to navigate the minefield of technology complexities and competitors with global powers, they could succeed.

 

As lifelong hotel owners, we knew from personal experience that hotel franchising needed reform, to be fair and provide sustainable growth and transparent, ethical franchising opportunities without PIPs, excessive franchise fees, mandatory suppliers and long-term contracts.

 

As we traveled the country 20 years ago, we spoke to thousands about the power each independent hotel has within its local community. We fought to unwind 50 years of American mass marketing and the misconception that “branded” was good, and “unbranded” was substandard. That unless it has a brand, you just never know what you’ll get.

 

At the same time, it was very common to find an inferiority complex present in even the finest U.S. independent hotels. Most felt overshadowed by the market dominance, power and presence of publicly traded brand chains.

Magnuson Hotels, which started with 12 small independent hotels run by friends and family, has grown to more than 2,000 hotels across all 50 U.S. states and in the United Kingdom. We hope the company has positively affected approximately 175,000 owners, employees and family members.

 

Twenty years on, much progress has been made.

 

Independents are represented like never before with the introduction of soft brands from leading hotel brands. Airbnb, started in only 2008, greatly helped dispel the 20th century marketing myth that standardization is preferable, with 6 million worldwide listings.

 

Fair franchising has taken on its own national movement as tens of thousands of hotel owners are uprising with class-action lawsuits and lobbying state legislatures against unfair pricing and anti-competitive practices of the largest publicly traded hotel brands.

 

Fair franchising has been embraced by the Asian American Hotel Owners Association, a trade group that represents ownership of more than 60% of U.S. hotels, employs 4.2 million workers and is responsible for 1.7% of U.S. gross domestic product, according to numbers I have seen.

 

Challenges

Since 2008, industry consolidation has increased the power leveraged by OTAs and publicly traded global franchise organizations upon the small business owner.

 

Even though U.S. hotel occupancy leaves 35% to 40% of its rooms empty each night, hotel owners face an explosive emergence of new supply from chains eager to achieve market penetration at any cost. OTA commissions still run from 15% to 25%, while vanishing travel agents have always maintained an industry standard of 10%.

 

Airbnb is a double-edged sword to independent hoteliers.

 

While Airbnb helped drive public acceptance that unique is a premium attribute, the growth of non-hotel supply has increased competition. Because Airbnb rooms are not registered as businesses, they are invisible competitors. By 2026, it is estimated that Airbnb supply will be greater than the total U.K. hotel room inventory. In the U.S., Airbnb supply represents nearly 25% of the hotel inventory.

 

While economies are showing slow-to-moderate growth, excessive increases in property insurance and energy costs decrease profits. Labor shortages are now common in all industries and even more so in hotels. New efficiencies will need to be embraced to address the shortage of willing workers, such as automated check-in and room cleaning on-demand.

 

Independent hoteliers have come a long way from the only options being to either franchise or to go it alone.

There are hundreds of low-cost technology solutions that can connect independents to the world so that hotel owners can retain their distinct character successfully without financing shareholder growth for publicly traded hotel chains.

 

There will always be struggles and instability, but with flexible operations, owners can keep their overheads lower and navigate economic turbulence more flexibly and profitably.

 

Thomas Magnuson is the co-founder of Magnuson Hotels, which has headquarters in London and Spokane, Washington.

 

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