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DEVELOPMENT STRATEGIES FOR HOTEL CHAINS
Academy of Economic Studies, Bucharest, Romania
Abstract: The purpose of this paper is to identify and analyse the development strategies of the hotel chains in the
Bucharest hospitality market. As a consequence of globalization the competition between the hotels for a better
position, there is a tendency to make a partnership with the hotel chains. At this moment in Bucharest are 26 hotels,
that belong to 15 international chains and 3 local chains, and the most common forms of partnership are: franchise
agreement, contract management and direct investment.
The article is based on a questionnaire adreesed to the management of hotel chains present in Bucharest with scope to
identify which are the benefit their competitive advantage beloging to a hotel chain.
Keywords: development strategy, hotel chains, hospitality industry, internationalization.
-overs, consolidations and
Hospitality industry has developed very fast in the last 2 decades, also in the Central and Eastern Europe because of the
political climate change. The most countries in this area are developing because of restructuring of the economy, this
increase the work productivity but also the workforce is at a very low cost comparised with Western Europe, and this
thing attract the international companies to invest. The accelerate the economic growth of the region is considered to
be the main factor in the appearance of some of the most famous international hotel chains.
This things attract the international hotel chains to penetrate also this markets by different forms. Because of the
instability of the political climate and regulatory environment they prefer not to invest directly in this countries, but to
do strategic alliances and to develop with low cost, that
From a definition of what a competitive strategy is, an analysis of the five competitive forces or factors that determine
competition, and the idea of a value chain, three generic competitive strategies can be described: cost leadership
strategy, differentiation strategy, and focus or market niche strategy (Chon & Cunill, 2006, p. 6).
In the literature many studies authors analyse which form is the best, and which are the advantage and disadvantage of
each form. The practice shows that frnachise agreement is the simple way for expansion of international hotel chains
because of the reduce cost of initial fee and additional fees, a goos exemple is the BestWestern hotel chains which
operate 4.048 hotels under franchisee. (Hotels Magazine - Giant Report, 2010, p. 29). As with any form of business
format franchising, a hotel franchise involves an agreement between a hotel company (franchisor) and a hotel owner
(franchisee) that enables t
services in return for payment of the prescribed fees. Agreements will normally be for a period of ten to twenty years,
with the franchise duration often directly linked to the life of any mortgage applying to the hotel property. Typically, a
franchise agreement will involve a one-off, up-front payment plus ongoing fees (Lashley & Morrison, 2000, p. 172).
There are three motivation for frnachising, first, franchising is an efficient way to collect the three fundamental
resources a growth-oriented company needs: financial capital, market knowledge and human capital. Second,
franchising is a vehicle to achieve a variety of scale economies. Third, franchising is perceived by agencies as an
effective answer to the principal-agent problem, because franchising eliminates the shrinking problem often related to
principalagent relationships (Heung & Zhang &Jiang, 2008, p. 369).
In the case of contract management the owner of the hotel has a contribution with infrastructure requirements, while
operator provides the management expertise, usually with are expats. Although both firms combine specialized assets,
than the value of the infrastructural
requirements provided by the owner (Chatoth & Olsen, 2003, p. 425).
Each hotel chain is trying to offer services which are different form other chains\' services in certain segments, but
which present significant experience for the client, that is, present a level of satisfaction that the consumer experiences
while staying at a particular hotel. Therefore, those hotel chains that offer to their consumers a certain brand and
guaranteed quality will have the competitive advantage. Their brand (or brands) is recognizable
among customers by its quality, price, means of providing service and other features of the particular chain. Service
quality is an extremely important factor, through which it becomes internationally recognized (
From other point of view also the brand is important for local operators because when they affiliate they had to have
some infrastructure requirements, such as: number of rooms, localization, customers portfolio and others. Each hotel
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chain have their own criteria to affiliate, a good example is Accor Group which have 15 different chains and each one
have their one standards to become a partner.
Locational attributes and features are obviously of fundamental importance for the development of the hotel sector.
The size and nature of the city in which the hotel is located are seen to be important by all categories, appearing as the
most important factor for both the medium and smallest chains. The very large ones see the opportunities for business
tourism as the most important factor, and rank the degree of market economy development as the third most important
perception. For the large chains, the government policy towards FDI (foreign direct investment) is seen to be the most
important locational variable, with the region infrastructure appearing as number two. For medium ones, alongside the
city size already mentioned, opportunities for both business and leisure tourism are second and third, respectively. The
smallest hotel chains also perceive the country infrastructure to be important, and believe that there are strong
possibilities for business tourism (Johnson & Vanetti, 2005, p. 1086).
The Bucharest hospitality market became attractive for international chains in the last decade, because of economic
growth of Romania and lack of supply in this sector.
In a report of CB Richard Ellis Hotels is revealed what position have the Bucharest market in relation with others
capitals of Central and Eastern Europe, and hotel market situation through the occupancy and average daily rate. The
Bucharest hospitality market is consider attractive despite a low occupancy rate than Warsaw, Prague or Budapest, but
has a bigger average daily rate than mentioned cities (CBRE Report 2010).
The results of the study shows that all managers of hotel chains present in Bucharest have the same opinion about the
level of maturity of this market, and they put the contraction of the last two years on the international financial crisis.
Lower tariffs and occupancy affected in a important way the turnover of the hotels, but they oriented to the MICE
(Meetings Incentives Conventions Exhibitions) niche, to increase their income. In the figure show below you can see
the situation of the Bucharest market in 2004 and 2010, and the main conclusion is the growth of the hospitality market
that has developed very much in those 6 years. The main factor for this growth is the increasing number of arrivals of
tourists, despite the country trend which is decreasing.
Fig. 1. Bucharest market position, compared with other capitals of Central and Eastern Europe
The most used strategy for international hotel chains present in Romania is the strategic alliances, which take a
different form, franchise agreement or contract management, but national chain preffer direct investment, just one of
the European chain have invested direct into the Bucharest hospitality market. In the table below is exposed what
strategy choose each hotel chain.
Strategy used by hotel chains to penetrate the Bucharest hospitality market
Type of strategy Hotel chain
Franchise agreement Best Western, Ramada, Howard Johnson, Golden Tulip, Novotel
Contract management Ibis, Radisson, Pullman, JW Marriott, Crowne Plaza, Intercontinental, NH Hotels
Private property Continental Hotels, Euro Hotels Suites, Top Hotels K+K Hotels
Most of hotels affiliates to a chain are located in the north of the city, the main factors for this was the localization of
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hotels affiliates to a chain, but the hotels which penetrated the market a long time ago are in the city center (JW
Marriott, InterContinental, Howard Johnson Grand Plaza etc.).
One other interesting aspect is the position of the hotel chains in the market, they prefer middle scale, upper scale and
luxury, this is showed by the number classified at 3, 4 or 5 star, 25 hotels, and just one hotel have 2 star Hello Hotel
belonging to Continental Hotels, an national chain, and this because this hotel chain has an agreement with Accor for
Ibis Hotels located in Romania, and they are not allowed to enter in direct competition with their partner.
The legal environment is very important especially for international hotel chains because of his relative instability, this
thing is explain by the eight laws have benn adopted since 1992 about the classification of the hotels.
At present, based on the Order of Minister no. 1296/2010, the certificate of classification is released by the Ministry incharge.
The certificates of classification must be renewed every three years. Apart from the compulsory criteria most
of them representing an inventory of the installations, pieces of furniture and linen, as well as of the services rendered
thereis a number of supplementary evaluation criteria: number of points is established for each separate
supplementary criterion, which, by addition should reach a minimum score for the hotel to be included in the
respective category (Lupu & Nica, 2010, p. 7).
85% of the hotel affiliated to a chain has more than 50 rooms, only 4 hotels have penetrated the market niche of
Fig. 2. The structure of rooms supply, after affiliation or non-affiliation to a hotel chain
In figure 2 can see the structure of rooms supply, and the main important thing it can be concluding is that hotels
chains aims the luxury segment of tourist, from a total of 2.061 of rooms classified to 5 stars, 1.863 are affiliated to
those seven hotel chains present on this segment. For middle scale segment this share is low because numerous hotels
classified for 3 and 4 stars, but remain aproximatively at 30% of affiliated rooms, for economy segment just one hotel
chain is present, Hello Hotel, with 150 rooms representing 13,72% of 2 stars market.
Most of managers of hotel chains things the most important strategy for a hotel is the structure of the guest, this is the
most important factor influencing the hotel efficiency. Every manager aims to those segments, who are less sensitive to
price, draw wide scale of hotel services and their demand is possibly the most stable. This segments are the corporate
clients and the congress tourists. Another segment less profitable for hotels are tourist because they want a lower price
first two segments. To reduce the seasonality and to improve the financial
All analysed hotel chains have one or more multipurpose rooms because they consider this niche very efficient
compared with others services offered by hotels. Main market segment of this halls are the conference but they also
addresses to those to want to celebrate different religious events.
From obtained responses received about slighty more than 50% of tourist are foreign, and domestic tourist accounted
the rest. For foreign tourist most often registered by respondents are: germans, italians and french.
All hotel managers realized that if they want to be competitive and to remain on market they must continually come up
mentioned that this situation push them to be more creative and innovative.
Better promotion, media promotion or internet, promotional packages, expansion that are some of the tools that
majority of hotels used last year for better competitiveness. Some hotels renovated the rooms and the common areas of
the hotel, introducing new products and services etc.
In the last year the analysed hotels which already went through reconstruction mentioned that they mainly improve
hotel rooms FF&E (replacement of carpets, new paintings, new furniture, new LCD TV, new beddings etc.),
improvement of hotel restaurants and F&B departments and one hotel add also new rooms.
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To counteract the decline in the brand loyalty of guests, many experts regard the consequent use of Customer
Relationship Management also known as Customer Retention Management as a key concept for the hotel industry
in the 21st century. The major challenge now is to define suitable brand-specific and segment-specific service levels.
One of the most important competitive advantage of the hotel chains from independent hotels is the positioning in the
tourist mind of their quality services, quality obtained by their services standard in all hotels beloging to the same
need to balance the p
of local adaptation. The most required services in the analysed hotels are: wellness&fitness, internet, laundry and
Another department consider very important for hotel chains managers is the Food&Beverage, this fact is proved by
the specialists coming to work in the prestigious restaurants belonging to hotel chains.
For next period all hotels intend to reduce the average daily rate but to increase the volume of tourists, this tactic have
consider the most affected market hit by the global economic crisis, that explain why hotel operators was reduce the
RevPAR with 40% in 2009, and in 2010 was still feeling the effects. (European Hotel Index Valuation, 2011, p. 4)
Almost all hotel chains want to develop in the next year, some of then consider a good strategy to increase their room
the same group but targeting a different market segment, some examples are: group Hilton Worlwide intend to
introduce Hampton and Double Tree chains, also Intercontinantal Hotels Group want a Holliday Inn hotel in the center
of the Bucharest (Horeca Magazine, 2010).
In conclusion hotel chains have a long term strategy, and a very detailed tactic plan to achieve their objectives. The
tactics include a policy directed towards customer satisfaction by providing the a very good quality of services. The
hotels that join a hotel chain enjoy the scale effects and they concentrate in marketing actions, worldwide advertising
create a brand, that attract more clients to the hotel.
Despite the increasing numbers and sale force of the franchise companies, independent hotels still represent a
significant portion of the room supply in Bucharest.
This research identified the strategies used by international and local hotel chains to develop their business and which
are the determinant factors to penetrate a market, what objectives they have from a market, and how to get to a
economic performance in the hospitality industry.
Chathoth, P.K., Olsen, M.D. (2003): Strategic alliances: a hospitality industry perspective, International Journal
of Hospitality Management, no. 22, Elsevier, p. 425.
Chon, K.S., Cunill, O.M. (2006): The growth strategies of hotel chains: Best business practices by leading
companies, The Haworth Press, p. 6.
Heung, V.C.S., Zhang, H., Jiang, C. (2008): -owned
hotels? International Journal of Hospitality Management, no. 27, Elsevier, p. 369.
Johnson, C., Vanetti, M. (2005): Locational strategies of international hotel chains, Annals of tourism research,
32(4), Elsevier, p. 1086.
Lashley, C., Morrison, A. (2000): Franchising hospitality services, Butterworth-Heinemann, Oxford, p. 172.
Lupu, N., Nica, A.-M. (2010): The avatars of the hotels classification systems, Revista de turism, p. 7.
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***Hotels Magazine, Giant report, 2010, p. 29.
***CB Richard Ellis Hotels Report 2010.
***European Hotel Index Valuation, 2011.
***Horeca Magazine, 2010, no. 53, p. 27.
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