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For Business, Corporate Travel & Meeting Buyers & Arrangers

Hotels: Chain reaction

A combination of new hotel brands and consolidation continues to impact choices for travel buyers

Two years ago, Intercontinental Hotels Group (IHG) was the largest hotel group in the world in terms of room numbers, just ahead of Hilton but significantly further in front than third-placed Marriott International. Yet two years on, it is Marriott that now leads the pack after its US$13.3bn acquisition of Starwood Group late last year to create a global hospitality giant comprising 30 hotel brands and more than 1.2 million rooms. IHG, with some 767,000 rooms and just a dozen brands, has also slipped to third place in the rankings, albeit only marginally behind Hilton.

But IHG, whose global headquarters are located in Denham, south Buckinghamshire, seems determined to fight back in a bid to regain its former dominance. Over the summer, at the annual meeting of its hotel owners and franchisees in Las Vegas, it revealed plans to launch a new brand aimed firmly at the lower end of the midscale market, in which IHG is already a key player with its Holiday Inn and Holiday Inn Express brands. Rooms in the new brand will be priced some US$10-15 below the rack rate of a comparable HI Express hotel, IHG revealed.

Richard Solomons, who retired in August, age 55, after six years as IHG’s chief executive and 25 years with the group, made an interesting comment before he left. He told financial analysts that “while it was easy to add brands from a supply perspective, from a guest perspective if the brand isn’t meaningful and relevantly differentiated then what we are doing is confusing them.”

As BBT goes to press, IHG has not yet announced the new brand’s name, referring to it only as ‘Project Horizon’. Initial construction is planned to start early next year, for openings beginning in 2019.

A crowded market
Whatever the new brand’s name, it will be entering a crowded market that can create headaches for the managed travel sector. The number of global hotel brands has now reached just under 1,000, according to latest figures compiled by hotel data company STR, which has identified some 996 brands. This includes 196 in the upper midscale segment (where both the existing Holiday Inn brands are positioned), and 154 more classed as midscale, where the new IHG brand will be positioned.

Many of these 996 brands, however, are small regional or local groups being developed to create an identity for hotel owners with a clutch of properties to market. Even President Trump is getting into the game with plans for two new brands to add to his company’s existing golf and resort hotels: the ‘lifestyle’ brand called Scion and a three-star concept named American Idea. This will supposedly “reflect traditional US values and honour the local heritage”, according to Eric Danziger, CEO of Trump Hotels, who adds: “It’s all about hometown America.” Neither brand will feature the Trump name, unlike his other hotel properties.

The first Scion branded hotel is set to open next spring in Cleveland, Mississippi, while the Mississippi Delta region will next year see the first American Idea hotel – coincidentally in a state where Trump beat Hillary Clinton by 18 percentage points in last November’s election. Both hotels will be conversions from existing properties under construction.

Focus on millennials
While IHG’s planned new brand was described at the Las Vegas convention as aimed at “principled everyday travellers… who value a hard-earned dollar”, analysts suggest this may just have been to reassure the present owners. In reality, it seems inevitable IHG will pivot towards the millennial market when it defines the concept further.

It is clear that the now well-documented millennial phenomenon (a quick search of the BBT website reveals we were writing about millennial-focused hotels back in 2013) is a key influence on the hospitality sector – and likely to be for at least the decade ahead, in terms of hotel design, targeting and customer base. The cohort of travellers in their 20s and 30s have shown they have definite ideas and preferences when it comes to choosing and using accommodation, while the parallel emergence of disrupters such as Airbnb in the hospitality world has added to the pressure on traditional hotel groups to revise their strategies.

Hilton’s newly launched Tru brand, for example, is unashamedly aimed at the traveller with a ‘millennial mindset’ on a budget. It has all the characteristics of a millennial-focused property: rooms without conventional wardrobes or desks, large-screen flat TVs, and lobby areas which are used for networking and recreational activities. And rates are positioned below traditional midmarket hotels, such as Hilton’s own Hampton Inns.

With two Tru properties already open in the US, Hilton is ramping up the roll-out by opening a new one every month until the end of this year, with 60 more due in 2018. While the brand is initially only in the US, it is expected to be brought to the UK next year.

This is a rather rapid roll-out in comparison to the new generation of millennial-focused brands from other chains, such as Marriott’s Moxy which, although announced way back in 2013, so far only has nine properties open worldwide. A further nine, however, are scheduled before the end of this year, including a 294-room hotel at Stratford in east London.

Other chains are also quick to come up with new brand concepts but tardy when it comes to physically opening actual hotels. Hilton’s Canopy lifestyle brand, for example, was announced in autumn 2014, but the first hotel did not open until a year ago, rather surprisingly in the Icelandic capital Reykjavik. Next up are two Canopy hotels in Washington DC, due before the end of this year, with the UK’s first Canopy, located near the Tower of London, set to open in “early 2018”.

The impact of the millennial traveller on the midmarket sectors – both on business or pleasure, but increasingly combining the two – is reshaping the branded chains primarily in the US but also in Europe and elsewhere. Latest US data for rooms under contract as of June this year (covering hotels in both the confirmed planning and construction stages) show a near 66 per cent hike to 57,150 rooms in the midscale category, compared with the same month in 2016.

Europe also saw a 20 per cent increase in the June midscale pipeline, with some 17,000 new rooms on the way. The Asia-Pacific market, in contrast, does not seem to be so in thrall to the millennial traveller: new development of midscale hotel rooms in the region was just under 5 per cent ahead in June, year-on-year, although the budget segment saw a buoyant 86 per cent hike.

The global hotel market, moreover, continues to expand. Data from consultancy Hospitality ON reveals that the worldwide supply of hotel accommodation last year – covering both branded and unbranded properties – grew by 3.6 per cent over the previous year. “The rate of increase was the strongest in 15 years,” it says.

Mergers and acquisitions continue
Powering this rapid growth has been the M&A activity of the leading global hotel companies, with the Marriott-Starwood merger last year a key turning point. Not only did it put significant clear water between it and rivals Hilton and IHG, but it also signalled CEO Arne Sorenson’s intention to pile on the pressure. Just over one-third of all hotel rooms being built in North America – and nearly one-fifth of those worldwide – are due either to be managed or put under a franchise contract by Marriott, according to analysts.

And there is a lot more to play for. While North America is on the way to becoming a mature market, with broadly 70 per cent of hotels operating under a chain badge and only 30 per cent unbranded, Europe offers more potential. The brand versus independent split in Europe on average is estimated at 55 per cent for unbranded independents and 45 per cent for branded chains, although the chains’ growth is accelerating.

Elsewhere in the world, brand penetration is more mixed. While the Asia-Pacific region is already tilting towards having a majority – albeit small – of branded accommodation providers, both South America and the Middle East and Africa remain largely unbranded, although there are exceptions. Rotana Hotels and Resorts, for example, has grown over the past 25 years from its base in the UAE to become one of the region’s key players, with 56 hotels in 21 cities across 13 countries. Another 49 are in the pipeline.

But the rules of the branding game are changing, as the major chains have in recent years embraced independent hotels – admittedly usually at the top end of the market – to neutralise the competition and to offer them the marketing and distribution benefits they already provide for their own brands.

These so-called ‘soft’ upscale hotel brands, often also named ‘collections’, include the Autograph Collection from Marriott, the Ascend Collection from Choice, Hilton’s Curio and the recently launched Tapestry Collections, along with Wyndham’s planned Trademark Collection.

Both the Tapestry and the Trademark brands are different, targeting the three- to four-star segment of the market; a sign that the ‘soft’ brand strategy is evolving. IHG is also believed to be planning a ‘soft’ brand in the near future in addition to its new midscale brand.

Tapping into independent hotels
Yet independent hotels may also be worth considering in their own right by travel buyers, especially with the help of a TMC which can help identify the most appropriate properties in key destinations.

“Using a Request For Proposal (RFP) tool means multiple channels of negotiation can be easily managed,” says Rachel Newns, hotel product manager for FCM Travel Solutions. “Used carefully, hotel loyalty schemes can also provide attractive personal benefits for travellers which help to keep compliance within the corporate programme,” she adds.

Yet doesn’t this seemingly endless roll-out of new brands and concepts threaten the individual business traveller – let alone travel buyer or manager – with a severe case of ‘brand fatigue’? Not so, says Stuart Birkin, director of account management at Corporate Travel Management. “It makes for a more competitive market as accommodation suppliers pitch for the same corporate business and this should drive the costs down,” he says.

But he admits that “all the brand name changes and launches can be difficult for corporates to keep track of, which makes it even more important to steer the buyer towards the hotel brand that’s going to provide the best service and valued-added benefits at the client’s price point.”

Yet for all the focus on brands, the leading hotel chains sometimes appear to drop the ball. Marriott, for example, recently unilaterally changed its room cancellation policy, requiring guests to give 48 hours’ notice (up from 24 hours in general) to avoid incurring a cancellation fee. Hilton followed suit shortly afterwards.

The move upset travel buyers, according to a speedy online poll by lobbying group Business Travel Coalition, which found that some 59 per cent of buyers and TMC executives from a dozen countries who responded believed their business travellers would switch to another chain. Nearly one-third were also considering amending their travel policy to restrict bookings made with Marriott. An own goal or storm in a teacup? When you’re the world’s biggest branded hotel chain by a distance, such decisions matter.

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