The Rise of Third-Party Management in Hospitality
The case for third party management companies has recently been explored and proven by global hospitality consultants, HVS. In their recent white paper, they explored the rise of third-party operators (TPOs), particularly in the UK.
The white paper identified the trend as emerging from the growth of the franchise model by major hotel brands and reports:
“All of the major hotel brands analysed increased the number of franchised assets relative to their total portfolios across the period. Whilst this may also indicate the proportional increase in limited service and extended stay properties, the trend is clear”.
What actually is a third-party operator?
The white paper breaks down the fundamental differences between branded operators like Hilton, Marriott and Accor, and TPOs.
When the branding company is also the management company, this is referred to as a brand operator. The use of a brand operator is traditionally most common among larger, full-service hotels. This arrangement does not mean that all of their properties are operated by the brand; for example, most have both brand-managed properties and franchised properties that are managed by third-party operators or the owners themselves.
Third-party operators are unaffiliated with the owner or the franchise brand and are often referred to as White Label operators. This business model, which emerged in the USA, has gained significant traction in Europe in recent years. In the case of a TPO, owners may obtain branding using a licensing agreement between the owner and a hotel brand. The use of TPOs has traditionally been most common among small and mid-sized hotels, especially for hotels that are limited service or extended stay. However, this has evolved in recent years with many owners choosing the services of the more experienced and credible TPOs for large corporate and luxury hotels.
RBH success story
As the hotel management company of choice, RBH was featured as the case study within the white paper and our successful approach outlined. HVS summarised how we add value and drive a hotel business forward: from greater efficiencies across payroll and staffing benefits via our award-winning training programmes, to procurement savings and revenue management. The white paper highlighted one example of the impact of transitioning from direct brand management to franchise in which RBH was instrumental in increasing annual EBITDAR by £14 million, a 5% increase on margin as a result of our comprehensive cost-saving plan. Crucially, guest satisfaction increased notably too.
The expert team at RBH has a wealth of experience in increasing asset value through a variety of initiatives but central to our approach is our understanding of the whole market.
Discussing the benefits for hotel owners in terms of profitability, flexibility and asset value, HVS predicted a global rise in the number of credible and established TPOs. They explain:
“The TPO model is much less established in Australia and New Zealand, accounting for less than 1.0% of total supply. Given the evolving investor profile in the region and the growth of TPOs with global reach, we are likely to see a marked increase in the TPO model across Australia and New Zealand in the coming years”.
We recognise this opportunity which bears out through our recent timely alliance with Australia-based TPO, Gatehouse Hospitality as part of our ambitious growth plan for cross-continent business.
We support all the findings in HVS’s white paper and are committed to working together with hotel owners and growing the market further, to the mutual benefit of all.
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