Staying at independent boutique hotels and other unique hospitality businesses is becoming increasingly popular. This trend has flourished because of another recent trend in the hotel industry called “DE flagging.”
What does “DE flagging” mean?
In the past, hoteliers who wanted to start their own hospitality businesses often turned to big chain hotels like Marriott International or Hilton Worldwide to help them.
Why? ….Because these big chain hotels could provide reliable business and safety through a big brand name. In addition, this brand recognition reduced the individual marketing costs to the individual owner and provided operational guidance, software and training systems. This purchasing of a chain name to use for a business is what’s called “buying a franchise.”
However, many individual hotel owners are no longer turning to big chain hotels to provide the safety they want in running their businesses. Instead, they’re discarding the big brand name in exchange for an independent name that promises a unique reservation experience. When an independent owner discards the franchise they’ve purchased, they’ve “DE flagged” their business. The reason it’s called “DE flagging” is because the hotel can no longer display the brand flags and branding on their hotel property.
DE flagging is happening due to multiple reasons:
- Some big chain hotels are reducing services and staff, which affects brand integrity. For example, many hotels have eliminated daily housekeeping and in-room dining. Once famed breakfast buffets have changed to to-go bags. Problems can arise when these temporary changes become more permanent to keep costs low as hotel chains recover. Marriott predicts that business won’t return to 2019 levels for three years. In the meantime, many boutique hotels can take advantage of their smaller sizes to return to a higher level of service more quickly.
- Younger travellers have more brand loyalty to online travel agencies like TripAdvisor, Booking.com, Expedia and Airbnb rather than legacy hotel brands. Upcoming generations aren’t as brand loyal to the large hotel chains as previous generations. Travellers who book hotel rooms on mobile devices prefer online travel agencies to hotel brand sites by a three-to-one margin. Additionally, online travel agencies are usually preferred over booking directly with a hotel because of better price transparency.
- Travellers don’t want cookie-cutter hotels anymore. They want an experience that’s unique and different, which big brand hotels can’t always provide. Some hotels have taken note of this, and they’ve adapted by making their businesses more boutique.
- Many hotels are struggling due to the pandemic, and some are close to going bankrupt. This once-in-a-lifetime factor combined with the consumer trends mentioned above has caused some hotel owners to file for bankruptcy to clear large amounts of debt incurred during Covid-19 and start new with unique branding to get more business. In addition, some hotel owners in large cities and other urban centres will transition their hotel property to apartments and other long-term rentals.
How does this impact the hospitality industry?
Because hotels are DE flagging, it’s likely that the competition between hospitality businesses is going to increase. Each business will strive to provide a unique experience that outdoes its competitors.
While this will increase the number of specialized hotels, inns and bed and breakfasts, there may be too many choices for the typical traveller — causing them to choose based on price. I predict the hospitality businesses that provide a unique experience and are cheaper than their competition will greatly benefit while this trend is relevant.
Additionally, I believe hotels that utilize technology to improve their overall customer experience will be able to stand out from their competition. Hospitality businesses that have the technology to allow travellers to work on-site and to feel safe from potential health risks will have guests that feel appreciated and special.
Some examples of how you can use technology to enhance the guest experience include implementing contactless check-in and departure via app or text messages, keyless entry, wireless charging devices, portable streaming devices and smart controls for lights and temperature. In addition, you might consider offering a smart speaker for guests to talk to the front desk or request housekeeping or a valet.
At the end of the day, with so many unique alternative accommodations available to travellers, it’s important to develop your individual brand story to provide a comprehensive local experience. This can help you be prepared to adapt to these emerging trends.
Remember, the modern traveller is often looking for a local tour guide in addition to a unique experience. Make sure to emphasize the things to do around your hotel and communicate how your hotel enhances the local experience in a non-cookie-cutter way.
DE flagging is going to continue to happen. The bottom line is that many hotel owners will continue to compare the cost versus benefit of the franchise fees paid to legacy hotel brands, and many will go independent. Because of the factors outlined above, DE flagging will create greater competition and diversity between hospitality businesses, especially those who already have guest experience focused technology implemented into their business.
CEO & Founder
Incode Business Services
Incode Business Services, the hospitality consulting company that helps you launch, operate and grow your hospitality business.