NB This is a viewpoint by Lorraine Sileo, senior vice president of research for Phocuswright Inc.
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.
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.
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.