StrategyStreet / Blog / The Brand is Worth More than the Land




The Brand is Worth More than the Land

The modern hotel industry is really two separate businesses. The first business includes companies that have the hotel brand names. These companies manage and operate hotels. These companies include InterContinental Hotels Group, Starwood, Wyndham and Marriott. The second group are companies that are owners of the hotel properties. Most of these are REITs.

In a deteriorating market, the hotel operators, the first group of companies, perform better than the hotel owners because they have lower leverage and higher margins. These operating companies also have higher operating margins over an extended period of time.

At one time, the operators both owned and operated hotels. Most of them concluded, in the late 80s and early 90s, that they made far more money managing a brand than they did owning the land. They sold off the ownership of the hotels to people who would add a great deal of leverage in order to get an attractive return.

In any normal market, it is better to be the brand owner with the customer than to be the holder of other assets. The company closest to the consumer’s mind usually makes the best return on investment.

Posted 5/8/08

***

Apology: In order to avoid spam, you must register in order to provide comments on this particular blog. To add comments without registering at StrategyStreet, follow this link.

Comments

You are not allowed to create comments.