Magnuson’s CEO on the hotel owner struggle with brand fees in a changing world

Best Western Hotels & Resorts has announced two separate deals, which will see it expand in India and South Africa.

The news came as the company faced increasing competition from ever-growing numbers of brands, the OTAs and low-cost distributors offering owners access to customers.

In India, the group has signed a master franchise agreement with Delhi-based Sorrel Hospitality, giving it responsibility for Best Western’s future positioning, growth and development across India, Bangladesh & Sri Lanka.

“We see tremendous potential right now in India and we are delighted to have aligned with a company like Sorrel Hospitality, which has an outstanding track record of success, as we work to expand our footprint in India,” said Ron Pohl SVP, brand management, Best Western Hotels & Resorts.

The current Best Western portfolio in India includes 22 properties, with Sorrel now passing a slide-rule over the group to retain “only those that are most stable and profitable”. The company will look to grow using Best Western’s recently-added flags of GLō and Vīb, as well as its own soft brand, the Best Western Premier Collection. Sorrel said that the move would include the rollout of a management model, which it said would “better retain the brand’s identity and optimise for success”.

In South Africa, Best Western announced the conversion of 13 hotels under an agreement with Orion Hotels, taking its estate in the country to 14. David Kong, president & CEO, Best Western Hotels & Resorts, said: “This relationship positions Best Western for growth across the continent of Africa and also presents an opportunity for Orion Hotels’ guests to take advantage of a truly global loyalty programme.”

In keeping with the other global brands, Best Western recently upgraded its loyalty programme, which it says drives around 40% of revenue to member hotels. The changes would, the company said, make it easier for customers to earn and use their points. The start of this year also saw Best Western International take over administration for the loyalty scheme in the UK and other affiliate countries.

The company consistently ranks highly in the annual JD Power loyalty satisfaction survey, last year placing third after Delta Hotels & Resorts and Hilton. The company was hailed for its low redemption thresholds, non-expiring points and no blackout dates.

A strong loyalty programme is increasingly viewed as essential as part of the offering for owners, with operators such as Hilton Worldwide and Marriott International also using them to drive direct bookings through reduced rates. The group has made its own direct booking push, offering a GBP60 gift card for anyone who finds a cheaper price through an OTA.

Best Western has also been seeking to stay one step ahead in the distribution sphere by being one of the first of the global flags to sign up to TripAdvisor’s Instant Booking tool, which it said would help its brand “gain increased exposure to TripAdvisor’s large global community of millions of travellers”.

The Instant Booking tool, the rollout of which TripAdvisor recently accelerated, is more attractive to hotels than the traditional online travel agent model, because it allows hotels to retain control of the booking and keep ownership of the consumer.

The company has also followed the lead of the owner-operators by adding to its stable of brands, which now include: Best Western, Best Western Plus, Best Western Premier, BW Premier Collection, Best Western Plus Executive Residency, Vib and most-recent addition, Glo. The latter is described as “a broad-midscale new construction brand that offers a hip, boutique-style experience for savvy travellers who expect the best in value, design and comfort.” The company’s North America pipeline was at 205 projects at the beginning of the year, of which nearly 60% were new construction.

The group currently has a network of 4,100 hotels and sells itself on a more competitive offering, claiming membership fees of about one-third to one-half of the hotel franchise fees of other major lodging chains. With ‘scale’ this year’s watchword, it knows that it must offer owners the breadth of its global rivals, but without the balance-sheet deployment they use to jump-start new brands.

It faces additional competition from alternatives such as Magnuson Hotels. Tom Magnuson, co-founder & CEO, said: “That model worked for a long time. The world has changed, but Best Western has not. The global economy is challenging, owners are being squeezed. The midscale and economy sectors, where Best Western operates, are at mid-50% occupancy. Owners who are struggling need to find low-cost ways to access customers and in the past 10 to 12 years there have been an explosion of lower-cost ways to access customers.”

Les Asplen, managing director, Best Western Great Britain, told Hotel Analyst: “As a brand we have formed relationships with OTAs, as these channels promote our hotels to their customer base and in markets we have limited exposure. Our members are however increasingly concerned by the working practices of some OTAs, particularly in terms of rate parity practices, bidding on hotel terms and increasing commissions. Best Western Great Britain are working closing with the BHA, who are lobbying a change in law for rate parity, as the current practice prevents hotels from offering lower rates on its direct channels, a practice we believe is not in the interest of our customers or members. As a brand we continue to invest in our CRM capabilities and our loyalty programme ‘Best Western Rewards’, as we believe if we increase personalisation through our communications and reward our customers for booking direct, we will increase brand loyalty and reduce our members reliance on OTAs.”

Best Western is a step outside the usual branded offerings. With no owned hotels it is of only limited interest to investors, but, with brands rising in importance, the company’s heritage – it celebrates 70 years this year – make it more attractive as new, untested, flags emerge daily. One analyst contacted by Hotel Analyst was willing to speculate that, with its powerful loyalty programme, any company looking for a quick economy-led fit could do worse. If it continues to extend its global reach, interest could grow.

HA Perspective [by Chris Bown]: Best Western is a big hotel brand, albeit one that rarely makes the news. But now it is plugging holes in its international spread, with these additions. The South African deal gives the obvious benefit of instant scale in the market, but the Indian arrangement will be more of a challenge in ensuring success.
Master franchise agreements have, in the hotel industry, rarely delivered a successful growth model, or indeed formed the basis for a long term business arrangement. However, there is at least an acknowledgement that the current Best Western portfolio in India needs shaking out, with the rougher establishments let go, before new properties are added.

The Indian market has a home grown business that is arguably a competitor of Best Western – Oyo Rooms. A thoroughly modern, tech-based business, Oyo provides a soft brand, imposing minimum standards for independent hotels to adhere to, and a marketing platform. In less than three years, it has signed more than 5,000 properties across India, and staked its claim as “India’s largest branded network of hotels”.

On one hand, that may be good news, as Oyo has woken up independent Indian hoteliers to the potential of aligning with a soft brand; and Best Western has a portfolio of options aimed at different market segments than Oyo. And hotels may prefer to be listed online with an international group, rather than one with a website that looks like a native version of Airbnb.

On the other, Oyo has started with a strong mobile presence, and its nimble approach to tech will run rings around anything Best Western has in the digital space.

While the Best Western name often stays below the radar, it interestingly pops up frequently as Hotel Analyst’s team surveys mixed owner portfolios. Among the hard brands, there will not unusually be one or two Best Western branded properties. Why do such owners keep the Best Western flag? Presumably because it delivers the best, for certain types of property in certain locations.