Independent vs Chain: Which performs better?

NASHVILLE, Tennessee—Lindsay Culbreath, senior director of business development and marketing for STR, explored in depth the state of independent hotels during her presentation at the 6th annual Hotel Data Conference hosted by STR and Hotel News Now at the Loews Vanderbilt in Nashville.

During the presentation titled “The state of independents,” Culbreath shared performance metrics for each of the classes from luxury through economy, taking a close look at their recovery cycles and profitability.

Does it pay to be independent? It depends on the market and the class, Culbreath said.

Following are five key takeaways from the presentation:

When it comes to the luxury segment, the occupancy gap between chains and independents continues to widen, Culbreath said. Luxury chain hotels have reached prior peak occupancy levels—and then some—while luxury independents are about 0.1% off from prior peak occupancy levels, according to STR.

“The chain properties have surpassed prior levels by almost 2%,” Culbreath said.

However, luxury chains’ average daily rate premium over luxury independents is tightening. In 2007, average ADR for chains was $276 compared to independents’ $197 (or a $79 difference). In 2014, average ADR for chains was $297 compared to independents’ $230 (a $67 difference).

In the upper-upscale segment, chains yield higher ADRs, Culbreath said. However, upscale independents have the higher ADR premium. Year-to-date June, upscale independents’ ADR was $133, while chains’ ADR was $124 (a $9 difference).

“Over the last eight years, the difference has been between $6 and $9,” Culbreath said, adding that upscale independents historically have had the ADR premium.

Midscale independents have a higher occupancy and a revenue per available room premium over midscale chain properties, Culbreath said. Midscale independent RevPAR year-to-date June was at $97, and chain properties’ RevPAR was at $78.

“That premium continues to grow,” Culbreath said. “What started off as a $14 premium (in 2007) has grown to $19.”

For the purpose of her presentation, Culbreath focused on luxury independents and looked at three specific markets: Miami, New York City and Boston.

Luxury independents outperformed the luxury chain properties in all three markets, she said. Miami is a slightly different animal, as it has more luxury independent properties than New York City and Boston.

Sixty-five percent of hotels in New York City and Boston are branded, while 35% are independent, according to Culbreath.

New York City luxury independents are unable to compete with chains when it comes to occupancy, she said.

Demand for independents dipped 9.4% during 2009’s downturn, but the sector has shown stable demand increases during the recovery, according to STR data.

Year-to-date June, demand for independents is up 3.8%, and supply is up 0.4%. ADR is up 4.1%, and RevPAR is up 7.6%.

“We have seen stable ADR growth of more than 3% for the past three years,” Culbreath said.

“Luxury, upper-upscale and upscale independents are selling seven out of every 10 rooms available,” Culbreath said. “They are performing much higher than the total U.S. average.”

Year-to-date June, luxury independents had an average occupancy of 75.7%; upper-upscale independents averaged 73% occupancy; and upscale independents averaged 72.8% occupancy, according to STR.

By comparison, the upper-midscale, midscale and economy independents had an average occupancy of 63.5%, 55.2% and 54.4%, respectively.

To put that into numbers, 31% of the 4,957,714 total rooms in the United States hotel system fall into the independent or “unaffiliated” chain-scale segment, according to June STR pipeline data.