A recent article by Parris Jordan and La Baik of HVS provided interesting data on the apparent low volume of US-branded hotels in the Caribbean, when compared to the hospitality scene in North America. The conclusion reached was that there may be an opportunity for significant growth by brands in the region in the near future.
At MacLellan & Associates, as the largest hospitality consultancy based in the Caribbean, they take a more cautious view on hotel brand penetration – one that takes into account the relatively long and mixed history of US brands in the Caribbean. While the world’s first hotel management contract was Hilton’s 1948 agreement on Puerto Rico’s Caribe Hilton, and this hotel still operates under that flag today, very few of the numerous Holiday Inn properties built in the region in the 1970s currently operate under that brand. STR data over the last five years would suggest that the highest RevPARs in the Caribbean have been achieved by the top non-branded or soft-branded boutique resorts, rather than major luxury brand properties. In the recent downturn, many of the most spectacular failures and stalled projects among mixed-use resorts in the region have involved the biggest and most prestigious hotel brand names. MacLellan & Associates’ consultancy team’s lengthy experience of branded operations in the Caribbean has been similarly mixed, and this leads to some hard questioning when evaluating potential operators and negotiating management contracts on behalf of clients.
Hotel brands are basically selling management and marketing expertise when they enter into a management contract and, therefore, there should be an expectation on the part of the hotel owner that the brand will outperform the best run non-branded hotels of similar style, scale, and standard in a particular location. This is a legitimate requirement to justify the relatively high fees and the fundamentally operator-biased terms and conditions in an average management contract today – even after vigorous negotiation of the performance-related elements. In trying to evaluate the likely performance in the Caribbean of a branded property under management contract, MacLellan & Associates offers a few basic observations.
– Is the brand in the ascendancy elsewhere in the world? As an obvious example, a quick check on Expedia and similar websites might suggest that in North America IHG’s Holiday Inn Express, budget-level properties are achieving higher room rates than the group’s full-service Crowne Plaza brand. For a hotel developer in the Caribbean, as in North America, choosing the “lesser” brand could represent the better deal – a lower capital investment and an enhanced rate of return.
– How well does the brand fit the destination? In a worst-case example, on a Caribbean island where room nights have historically been derived 50 percent from North America and 50 percent from Europe, a major US brand’s international marketing efforts could deliver a maximum of only 8 percent European business before the property got in to financial difficulties.
– How do corporate driven marketing programs fit with a Caribbean destination? At worst, some costly programs may be fundamentally inappropriate and corporate business loyalty programs can result in a significant level of “points” business for Caribbean resort properties at less than attractive rates.
– Can the company persuade its best senior managers and specialists to come to the Caribbean? In reality, the region is often viewed as a career backwater by a corporate high flyer, and the result can be second-rate managers – sent to the region under pressure from head office – who find it difficult to maintain standards and cost efficiency, while respecting local culture.
– Do Caribbean properties get the same benefit from corporate training and management development programs as hotels do in North America? Given that the venues for specialist training are usually in North America, higher travel costs are often a barrier to participation by managers and staff in the Caribbean. In many cases, there are also limited opportunities for Caribbean nationals to transfer to group hotels in North America, and thus gain broader experience, before returning to more senior positions within the region.
– How flexible is the brand on design and specification issues? While there is an obvious danger of brand devaluation if core elements are compromised, local conditions in the Caribbean may necessitate common sense variations.
– Is the brand inflexible on purchasing sources and specifications? Where brands are insistent on using North American “national” purchasing agreements, the final cost on island – after import duties – can often be significantly higher than locally or regionally sourced alternatives, which benefit from a low or no duty tariff.
– How well does the brand “partner” on mixed use resorts? Larger hotel groups tend to be quite restrictive in how the brand is associated with real estate offerings, while community and property service charges – set by the operator – have been sufficiently high in some cases as to negatively impact real estate sales.
In summary, history would suggest that some brands have proved successful on a relatively consistent basis in the Caribbean, while some have failed badly. It is evident that great care must be taken in marrying brand and property if real and quantifiable net benefits are to be derived by hotel owners from the relatively expensive management contract relationship.
MACLELLAN & ASSOCIATES
MacLellan & Associates is a full-service consultancy and appraisals practice, established in 1997, which specializes in the hospitality, tourism, and leisure sectors in the Caribbean. The company is the largest hospitality consultancy based in the region, ensuring that the team has an in-depth knowledge of Caribbean countries. The company’s consultants have extensive international experience at the senior level in operations management, sales and marketing, finance, human resources, tourism development, project management, and valuations.
The consultancy’s assignments over the last thirteen years involve large-scale mixed-use resorts, convention hotels, up-market boutique resorts, eco-style developments, urban area business hotels, marina villages, retirement communities, spa resorts, and golf courses. The company has carried out work in Jamaica, Bahamas, Belize, Honduras, Grand Cayman, Dominican Republic, BVI, Anguilla, St. Kitts & Nevis, Barbados, Antigua & Barbuda, St. Lucia, St. Vincent & the Grenadines, Grenada, Trinidad & Tobago, and Dominica.