Some might say it’s a storm in a negotiating teacup, but at the moment the stand-off between Expedia and Choice Hotels looks pretty serious given that both parties have lost the ability to work with another to sell rooms in about 6,000 hotels around the world.
Max Starkov of HospitalityEBusiness goes into detail in a post on hotelsmag.com, but the basics are simple: Choice and Expedia sat down for talks to renegotiate their global distribution deal; Choice wanted “flexibility” over a number of areas of the deal; Expedia didn’t.
The current state of play is that the worldwide deal to put Choice’s portfolio of properties on the Expedia platform, including hotels.com, was terminated last Thursday (October 15) and neither side looks like it will back down.
Insiders at Choice say they have their own direct sites and other online travel agencies to distribute their content, but losing Expedia – albeit temporarily – is clearly a bit of a blow.
Expedia also misses out in the short term, of course.
At the heart of the falling out is a disagreement over booking fees, guarantees over exclusivity (or not), best room rates against other OTAs and the ability for individual hoteliers to manage inventory and pricing.
But Choice’s decision to not back down against what Starkov calls the “market bully” in Expedia does has the potential to trigger a wider round of aggregation by hotel chains in the sector.
Imagine if Choice was joined by Wyndham, Marriott, Hilton and Accor – to name just a few of the other huge hotel chains?
What would Expedia, or any other large OTA, do when faced with a collapse in the merchant model which, as some say, is propping up the agency business given that air contributes far less to the revenue pie.
Expedia, typically, is remaining tight-lipped over the whole sorry saga with Choice:
“Within the normal course of its contract renewal and negotiation process, the parties have been unable to reach mutually agreeable terms on a contract renewal.”
It adds helpfully (hopefully):
“Our customers continue to have access to 100,000 hotel properties globally.”
I believe this kind of disagreement is fairly new for a hotel brand who represents only franchisees hotels. I don’t think the parallel should be made with group like Accor or Marriott or Hilton who clearly can control more of less their pricing and their global contract with OTAs.
Choice is a different animal. I would be very surprised if independent hotels don’t contract directly with Expedia to avoid the loss of guaranteed revenue with Expedia (merchant model). There is a limit about what Choice can do to enforce their distribution strategy to their franchisees.
Same applies to Best Western by the way…
Nice story but “when faced with a collapse in the merchant model” – isnt this a bit alarmist? This is hardly a collapse. Choice has roughly 5,000 hotels (including those under development.) Even if we assume that *all* of them were participating in the merchant model, Choice accounts for less than 5% of Expedia’s total inventory. Further, given the star level and ADR of Choice hotels, one can be sure that Choice makes up an even lower percentage of Expedia’s gross hotel revenues. Finally, as we saw with IHG, the real loser in this will probably be Choice. Customers that would have found and booked a Choice hotel on Expedia will no doubt simply book a Holiday Inn or Best Western etc. Yes, some will seek out Comfortinn.com when they can’t find the perfect Comfort Inn on Expedia but the majority of OTA shoppers are not brand loyal (that is why they are on Expedia!) and will simply book elsewhere.
Tom:
Perhaps insert the word “potential” before collapse. it is simply worth pointing out that if the power shifts to the hotels (possible – it certainly happened with airlines), then there is risk associated with the merchant model.
Kevin,
I agree there is always risk. However, In the current economic climate, I don’t see the power residing with the hotels anytime soon. 2010 is not the year of recovery in hospitality. In addition, the hotel industry has never been able to move in concert (in spite of lots of ex-airline guys like me showing up in hospitality) the way the airlines have. Ownership structures, control issues and general fragmentation have prevented the industry from acting in unison. And hotels are not a commodity product like air – location and brand still make a big difference – hence the need for distribution. As Guillaume points out, individually owned hotels can often contract directly with an OTA, thwarting the brand’s attempts to reign in Expedia or anyone else.
There is risk in telling the giant no. The hard part is that Expedia is not acting as a partner with the industry. They have are dictating the deals “you have to be at this % off to participate” “this must be an exclusive offer or we will charge you an extra 2-5% margin” “We need you to be priced at X rate or lower” The have become the elephant in the room and are starting to set the price not the hotels. Other OTA’s want to work with the hotels to find what works well for both parties.
Expedia / Hotels.com have been the industry “bully” for too long
Business is all about relationships, Relationships are based on trust, Sometimes integrity and promises are not respected, there is good business (with good people) and there is bad business (with suspect people)
I applaud Choice and other hoteliers to standing up to the “bully” and deciding against “bad business” practices.
You can find Choice CEO point of view in HotelMags http://www.hotelsmag.com/article/CA6702984.html
The positive side of the story: maybe Choice will discover they can make more good business with their direct channels and direct emarketing
Expedia is a lazy and very costly channel for hotelier, hope in this crisis world, hoteliers will understand to invest in IT, emarketing to improve their direct sales and protect their brand.
If not, many will die.