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Hospitality Lawyer on hotel brands — How far will the pendulum swing? What’s in a name? Just ask Starwood, Hilton . . . Coca-Cola or Procter & Gamble

Author of www.HotelLawBlog.com
12 December 2006
Hospitality Lawyer on the power of hotel brands. A rose by any other name may smell as sweet. But does a Trump by any other name sell out as fast? Does a Four Seasons by any other name get a $3.7 billion bid from Bill Gates and the Prince?

What’s a brand? It is not always so easy to determine. Yesterday, I talked about how Donald Trump is more than “just” a very successful developer. He has developed a powerful BRAND with legs.” But are all brands the same? Should they be? What makes a successful brand — for an owner or developer?


If you look at the apparent results of condo hotel and residential sales, Trump has it right. In his blog, on February 21, 2006, Donald Trump wrote: “I’ve worked hard to make sure the Trump name is found only on buildings of the highest caliber and products of the finest quality. I won’t even consider giving my approval to anything unless I know it’s the top of the line because when people see or hear “Trump,” they expect the best. That’s just basic marketing and good business.”

And the latest reports on hot sales at Trump Waikiki and Trump Baja suggest that consumers get it. They see the Trump name as a guarantee of quality and something that they think they understand — something will meet their expectations. But others do it well too. Look at Canyon Ranch Living and Miraval Living and many others. Oddly, many of the traditional hotel “brands” don’t seem to get it, and that is somewhat puzzling.

Another perspective.

My friend and lodging investment advisor Thomas R. Engel, President of T.R. ENGEL Group, has some thoughts about hotel branding that may interest you. Tom is one of the top advisors in the country on hotel investment and maximizing value, whether for new ground up development or for repositioning of existing properties. I have worked closely with Tom on some stunningly successful projects over the past 20 years, both when he was running Equitable’s hotel investments and since he left to set up his own advisory company that helps others with their hotel investments — like the repositioning of the hotel now known as The Hilton San Francisco Financial District, dealing with Marriott on some of its largest and earliest mixed-use resorts, and a number of new hotel mixed-use developments we have worked on together.

Anyway, one of Tom’s many areas of expertise involves selecting the “right” hotel brand or operator, and then “managing the manager.” He has run a number of Meet the Money® panels on these subjects for me and has written a number of excellent articles or opinions that appeared in the Global Hospitality Advisor® over the years.

The swinging pendulum.

It is certainly interesting to us veterans to watch how the pendulum swings. Many of us remember how in the 1980s, all the developers and lenders would do anything to sign up a brand for 100 years on a management agreement to be “safe” in the knowledge that the hotel brands were running the hotel. Then, from 1989 through the mid 1990s, it seemed like any owner or lender with the opportunity would strip the brand to maximize value (. . . for the next brand). In fact, don’t hold me to these numbers, but somewhere in the mid 1990s, the pendulum swung from something like 60% of the U.S. hotels being branded to 60% being independent, and many of those that remained branded had probably changed brands or tried to do so.

Now of course, the pendulum has swung back the other way. The brands have incredible power. The question is: Can you get a brand that will help you (or you think might help you), and how tough are they going to be on the owner-developer-lender in their demands? And of course, the ultimate question is: Can this brand be worth the expense of meeting the brand standards and programs? The answer is not always “yes.”

So what about brands?

But Tom Engel, who is credited with creating/co-creating 3 lodging brands — Embassy Suites, Crowne Plaza Hotels & Resorts and Hawthorn Suites hotels — believes much of the hospitality industry does not understand Trump’s “basic marketing and good business” when it comes to branding. When Tom joined us for JMBM’s “Outlook 2007 Industry Roundtable,” he shared with us his thoughts on branding.

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Excerpts from JMBM’s “Outlook 2007 Industry Roundtable

Jim Butler: What’s your take on Starwood’s latest brand positioning?

Tom Engel: I think Starwood is the one hotel brand sponsor that gets it better than the others. That may be because Starwood’s chief, Steve Heyer, is a transplanted Coca-Cola brand manager. When he arrived at Starwood he had Starwood’s execs step way back and reflect on the foolish way most hotel brands were marketed. Heyer then set his team on a path of retooling Starwood’s brands. And I believe the results are showing. For example, though Westin’s currently-mandated brand initiatives are not proprietary — additions like lobby flowers in glass vases, the scent machines, new music, mood lighting and candles, and so on — these “brand positioning” initiatives were consumer-research driven and appear to be creating the favorable “brand pull” sought from end-benefit initiatives.

Jim Butler: Why is this so much different than what other brands do?

Tom Engel: Well, who out there can articulate today’s Holiday Inn brand positioning? How about Radisson’s? Don’t feel dumb if you can’t. And I’m not picking on those two — the list is endless. The problem is that most hotel execs using “brand management” language throw it around without a clue as to the meaning and power, for example, of the words “brand positioning.” Positioning is a sacred expression within the walls of companies like Procter & Gamble, Coca-Cola and Unilever. In fact, years ago, a former Procter & Gamble brand manager became the old Holiday Inns’ president. I had cut my teeth as a brand manager at Unilever and Revlon, and he recruited me to create and launch the “Suite Brand” known now as Embassy Suites. When he and I used expressions like “brand positioning” and “consumer end benefit,” “brand character,” and “sustainable brand point of difference,” people in the industry looked at the two of us like we had three eyes! Those were the pioneer days of hotel industry brand segmentation. All those early pioneers were educated within “pure-play” schools of brand management — the leading consumer packaged goods companies that taught their brand managers how to create, manage and lead a brand.

Jim Butler: What were the results of that influx of brand managers into the hotel industry?

Tom Engel: The hotel industry’s brand pioneers got it pretty right judging by the staying power of the hotel brands they created: Courtyard by Marriott, Embassy Suites, Hampton Inns, Residence Inn, Ramada Renaissance, and Crowne Plaza Hotels and Resorts. All these brands were pretty much launched within 24 months of each other in the early 1980s.

Jim Butler: So what has changed since then?

Tom Engel: Just ask consumers — they can’t tell you what most hotel brands stand for. Currently, hotel executives up and down the management spectrum use brand management vocabulary, and equity analysts following the lodging industry lace their reports about what “this brand is doing or not doing.” But it’s obvious that most of them do not know what a brand’s “sustainable point of difference” means, let alone how to create it. But that doesn’t stop them. They say their brand stands for something. But do consumers agree?

Jim Butler: So where is the industry going with brands?

Tom Engel: Those who figure it out will be rewarded by marketplace. If the brand sponsors get smarter and become more authentic “brand managers,” more powerful brands will emerge. And that will be for the better as most of us today are increasingly brand-oriented and brand-dependent in the hotels and resorts we own and manage. Looking ahead as a continued stakeholder in the lodging industry, I remain skeptical — but hopeful — that more brand sponsors will “get it” and will truly make their brands stand for something.

Jim Butler: If the trade press is any indication of what’s going on, some of them are certainly going for it! It will be interesting to watch how their efforts unfold. Thanks for your insight, Tom, I always learn a lot from you! For the brands that get it right, I predict we will see significant “brand extension” — where the brand on a hotel can be extended to other components of the mixed-use project and create tremendous value and synergies. So far, there are only a few brands that seem to have been able to accomplish this feat. There are great rewards for those who can.

Hotel Management Agreement resources

If you found this article helpful, you may also find of interest these other articles on Hotel Management Agreements and related brand topics on www.HotelLawBlog.com:

Hotel bankruptcy trump card. Terminating hotel management agreements without liability — the alchemy of lead to gold for troubled hotels and hotel loans?

Hotel Lawyer: The 5 questions every owner should ask before selecting a hotel brand

How to get a great hotel operator

Hotel Management Agreements 201

How to terminate a hotel management agreement when an operator really deserves it!

Hospitality Lawyer on “LIFESTYLE” hotel mixed-use development. Are Valencia and Miraval the new paradigms for “lifestyle” hotel mixed-use?

Hospitality Lawyer on hotel brands — How far will the pendulum swing? What’s in a name? Just ask Starwood, Hilton . . . Coca-Cola or Procter & Gamble

Hospitality Lawyer Baja Mexico — So what’s a brand? How did Trump get into this conversation?

Hotel bankruptcy trump card. Terminating hotel management agreements without liability — the alchemy of lead to gold for troubled hotels and hotel loans?

Terminating hotel management agreements when things don’t work? Not easy, but not impossible either.

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Thomas R. Engel is founder and President of the Boston-based T.R. ENGEL Group, LLC (TRE), an international hotel real estate asset management and advisory group. Prior to creating TRE, Engel spent 7 years as Executive Vice President, Equitable Real Estate Investment Management, where he created and managed its Lodging and Leisure Group. He is also credited with creating/co-creating 3 lodging brands — Embassy Suites, Crowne Plaza Hotels & Resorts and Hawthorn Suites hotels. Engel entered the lodging business following an earlier career in brand management with Unilever and Revlon, Inc., New York City. Engel earned an under-graduate degree from the University of St. Thomas and graduate degree from Northwestern University. Tom Engel can be reached at 617.451.1701 or thomasengel@trengelgroup.com.

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Our Perspective. We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $50 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.

Jim Butler is one of the top hotel lawyers in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.

Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of 50 seasoned professionals with more than $50 billion of hotel transactional experience, involving more than 1,000 properties located around the globe.

Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right “fit” for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.

Jim is frequently quoted as an expert on hotel issues by national and industry publications such as The New York Times, The Wall Street Journal, Los Angeles Times, Forbes, BusinessWeek, and Hotel Business. A frequent author and speaker, Jim’s books, articles and many expert panel presentations cover topics reflecting his practice, including hotel and hotel-mixed use investment and development, negotiating, re-negotiating or terminating hotel management agreements, acquisition and sale of hospitality properties, hotel finance, complex joint venture and entity structure matters, workouts, as well as many operating and strategic issues.

Jim Butler is a Founding Partner of Jeffer, Mangels, Butler & Marmaro LLP and he is Chairman of the firm’s Global Hospitality Group®. If you would like to discuss any hospitality or condo hotel matters, Jim would like to hear from you. Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.