The current consolidation mania of third-party management companies is producing important monetary benefits to owners.
The first mover in this third-party management restructuring trend has been Aimbridge Hospitality. In the past few years, Aimbridge has merged with Interstate Hotels & Resorts to grow its management portfolio to well over 1,000 hotels and has continued with other recent acquisitions like Prisma in Mexico, NewcrestImage, and my own company, Prism Hotels and Resorts, to exceed 1,500 hotels under management. There has never been a third-party manager of this size. And that size has created a powerful and unique engine to provide the benefits of scale to owners.
As the CEO of one of the most successful mid-sized hotel management companies in the business, I’ve spent a lot of time talking about why our size is an asset. Even at a time when the industry landscape was increasingly dominated by the big brands, we showed that it was still possible to carve out a niche by offering signature high-touch service and entrepreneurial ingenuity. We proved that personal engagement and relationship-driven partnerships — Prism’s owners meeting personally with our hotel owners and looking them in the eye — went a very long way. And we demonstrated that a deep and enduring commitment to a strong, connected and collaborative professional culture pays very real dividends.
Ultimately, of course, none of that would matter if it didn’t translate to a stronger bottom line. This is a results-driven business and delivering leading performance metrics that put money in the pockets of owners and investors is really what it’s all about.
But now, in this unique and challenging time for the industry, it’s become clear that there is strength in numbers — and that size really does matter. In rough seas, bigger boats are more stable. And at a time when the hotel business is buffeted by unique strains and structural stresses from the COVID-19 pandemic and the ongoing economic disruption, management companies with deep resources are not just more appealing to owners but are better positioned to withstand the ebbs and flows of an evolving marketplace.
The trick is to find a way to leverage the advantages of bigger management companies while retaining the high-touch personal service of a boutique operator. That’s not always an easy middle ground to walk, but it’s well worth the effort, especially today. Because size doesn’t just come with more security. The advantages of scale are many — and they are just too good to ignore.
Scale and Savings
Vendor discounts are the most obvious source of savings. But I’ve seen firsthand how a larger company can spend 40% less annually on IT — for the same (or, in many cases, better!) level of quality and service. Depending on the size of your portfolio, that could mean savings of anywhere from tens of thousands to hundreds of thousands of dollars annually — just in one department.
A few hundred thousand here, a few hundred thousand there, and pretty soon you’re talking real money! Large companies can also often provide lower premiums and benefit from overall lower per-employee costs for many benefits programs. Owners who have partnered with small and mid-sized operators in the past might have some initial concerns about getting lost in the shuffle, but once they see how much more money they’ll have in their pocket, that hesitation is likely to change to celebration.
Recruiting
While the direct benefits to owners are potentially dramatic, scale is about more than just savings: it’s also about resources. With a more robust recruiting infrastructure, you can recruit from a deeper pool of talent. And in today’s tight job market, enhanced recruiting can be a critical advantage. A larger company also comes with a wider variety of growth opportunities for employees: mentoring, leadership development programs, regular training and career development programs. More opportunity for talented people makes it easier to not just attract more talented people, but to retain them.
Growth and Investment
The big picture is even rosier. Larger entities have the technology, personnel and resources to plan ahead, invest in the future, upgrade systems, conduct more elaborate and extensive research and development, and much more. Savings resulting from efficiencies of scale can be reinvested in the operation, creating a positive feedback loop with more significant and sustainable financial benefits.
National Scale, Local Insights
The volume and quality of data you have access to when you are connected to larger numbers of hotels in each market gives you extraordinary — and sometimes even predictive — insights into market trends.
For example, we have over 71 hotels in the Houston market. That dominating presence gives us the ability to share leads, employees and critical market data. That real-time information is going to be more accurate, valuable, timely and actionable than anything you can get from third-party industry data providers. The list of synergies is long, and things like lead sharing creates a better professional environment for the sales team, with more lucrative cross-selling opportunities.
The Best of Both Worlds
The key is to leverage these incredibly valuable economies of scale and retain the best advantages of smaller operators. Owners are still going to value personal attention. It’s up to you to give it to them. You can still maintain a strong and connected company culture at scale, provided you make it a priority, and you are highly committed. But you can’t do it on your own. Which is why it’s important to partner with an institution that is not just a good professional and financial fit, but a cultural one, as well. A shared vision is the foundation of shared success.
Regardless of the size of the institution, you want a hotel management company that doesn’t treat culture as a trendy buzzword, but as a core operational priority. You want a company that recognizes that culture and connectivity have an enormous impact on recruitment, retention, positive guest experiences and ultimately profitability. You also want a proven track record. A record of industry-leading results, aggressive sales and marketing strategies, sophisticated revenue management tools and proven expense controls. But also a track record of bold and creative leadership that understands how to connect experiences and outcomes in innovative and inspired new ways.
Having seen this business firsthand now from both sides of the fence, I can personally attest that the grass is pretty green on both sides. Personal relationships still matter. High-touch service still has enormous value. And it’s a good thing that, when choosing an operator, owners today have better options than even a few years ago. But there is no question that at this moment those priorities are best addressed within the framework of a larger operation. Because the savings, stability, sustainability and depth of resources that established larger operators bring to the table is more important than ever in today’s marketplace.
Steve Van is president of Prism Hotels & Resorts, which is part of Aimbridge Hospitality.
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