Developing multiple brands is the current name of the game for global hotel chains. But how far can it go, asks David Churchill?
When Four Seasons opens its 100th luxury hotel later this year it will, to many people, mark its emergence as a true global chain, spread across 41 countries around the world. But it will also represent something rather novel in the hospitality world of today: it is the only global chain to have just a single brand name – Four Seasons.
Unlike its bigger rivals, the Toronto-based group has eschewed a multi-brand strategy over the past 55 years in favour of growth via developing a reputation for excellence under just the one banner.
Marriott International, on the other hand, has adopted a different strategy to achieve a chain of more than 4,400 hotels in 87 countries. Its growth has come from developing more niche brands than any other of its rivals, with 19 brand identities at present. And it is hungry for more, as shown by its US$12.4 billion acquisition earlier this year of arch-rival Starwood’s 11 brands and 1,300-plus hotels.
Marriott’s brand-led strategy is now the business model of choice for most of the world’s major hoteliers: the top ten global chains by room numbers have some 130 different brands between them. Worldwide, according to hospitality data monitor STR, there are nearly 1,000 hotel brands, with two more added so far this year – Hilton’s Tru and the Unbound Collection from Hyatt.
Marketing to the millennials
And there are more on the way, including a new ‘lifestyle’ brand from presumptive Republican presidential candidate Donald Trump, although it is not expected to carry the Trump name – unlike his other hotels, such as the recently reopened Trump Turnberry golf course and hotel after a £200 million refurbishment.
Trump is clearly jumping on the millennial bandwagon (those travellers aged from late teens to mid-30s) which is set to play a key role in the travel world over the next few decades: Marriott, for example, estimates that half its guests will be of the millennial generation by 2020.
The reasons for this surge in numbers of global hotel brands are down to several factors, ranging from the economic to the way the hospitality industry has been responding to demographic changes. The key driver, however, has been the strong recovery in demand for hotel accommodation in most international markets in the wake of the 2008 financial crisis and recession, leading to record hotel occupancy levels, revenues and profits for many hotel chains for most of this decade.
As the world economy recovered so investors took note, funding an accelerating trend for hotel companies to shift away from actually owning their properties to focus on being brand managers and operators. Add to this the potential of new hotels under construction, plus plenty of scope to convert independent properties into ones carrying a brand flag, and this approach encourages hotel groups to develop even more brands.
Global room supply remains strong, according to the latest figures from hotel data specialist STR. The pipeline for new hotel rooms under construction in Europe grew 8.5 per cent in April year-on-year (63,323 rooms from 440 hotels), with most building activity in London; in the US, the increase was 28.3 per cent.
Moreover, for all their seeming dominance, there is still plenty of growth available to the leading groups. The top ten chains only account for about a third of the estimated 17.5 million traditional hotel rooms available worldwide (excluding disruptors such as Airbnb), according to research by Morgan Stanley.
It points out that none of the ten has a market share of 5 per cent or more and even the combination of Marriott and Starwood to become the world’s biggest hotelier only gives the new grouping some 7 per cent of the global market.
Slower rate of growth
Yet while there are some concerns over the global economic and financial outlook – particularly weakness in the Chinese economy and the impact of the Brexit vote – the issue may be one of a slower rate of growth than any dramatic turndown. The latest HRG global hotel survey, for example, “shows that many hotel groups [last year] simply didn’t achieve the rates of growth that they had been expecting”.
And while Marriott CEO Arne Sorenson admitted to financial analysts during the bid battle for Starwood that “there is a bit more anxiety about what GDP growth is going to look like this year”, he was still willing to pay top price to outgun the Chinese. France’s Accorhotels clearly thinks likewise, recently scooping up the Fairmont, Raffles and Swissotel brands for US$2.9 billion.
Other global chains, including Intercontinental Hotels Group, Hilton Worldwide and Hyatt have all been linked so far this year with possible mergers – either as predator or prey.
But China remains a key player. In April, Chinese conglomerate HNA Group, which owns China’s fourth largest carrier Hainan Airlines, bought Carlson Hotels from Carlson (parent of CWT) along with its majority stake in Europe’s Rezidor Hotel Group, with the aim of taking full control within the next few months. It may then merge Rezidor with Spain’s NH Hotels, in which it already owns a 30 per cent stake.
In addition, Chinese hospitality group Jin Jiang, which claims to be the world’s fifth largest hotel group, last year acquired Europe’s Louvre Hotels group of more than 1,100 hotels spread across six brands, including Golden Tulip. It plans to reposition this brand as “the global leader in premium business travel”.
Meanwhile, in the Middle East, Rotana Hotels and Resorts has strengthened its position as a leading player in the region with the recent opening of the Downtown Rotana in Bahrain’s capital Manama, a 26-storey, five-star hotel and its third property in the kingdom. It also confirmed expansion plans for a portfolio of 100 hotels in place by 2020.
Yet it is not just the money that is driving brand strategy: instead, the market itself is changing. “The past ten years have ushered in more new hotel brands than any time in modern history and most of these are geared toward the millennial generation,” points out Brett Russell, a senior vice-president with hotel consultants HVS.
Hilton Worldwide’s new Tru brand is the latest to be unashamedly aimed at this market: “It will appeal to those travellers united by a millennial mindset”, says Hilton. It will be the 13th brand in Hilton’s portfolio, aimed at the lower end of the mid-market sector, with room rates below that of Hilton’s Hampton Inn brand.
CEO Chris Nassetta believes the mid-market sector is “a space that is ripe for disruption”, even suggesting Tru could eventually become the company’s biggest brand. And Tru ticks all the boxes for the millennial market, which is also influencing the way it will look. Its rooms will be slightly smaller than the rooms found in most mid-market properties – including Hampton – and will not have baths (showers only), wardrobes (open hanging space and hooks instead) or desks. Instead guests will have use of a chair which includes a pop-up mini-table with room for a small laptop or tablet.
This truncated room design is based on the belief that millennials want to use their rooms basically for sleeping, while at other times they will decamp to the hotel’s lobby with their smartphones or laptops. This reflects current hotel design thinking towards making the lobby the hub of the hotel.
Tru will call its lobby The Hive, with four distinct multi-function areas for “lounging, working, eating or playing”. Lobby furniture will be moveable to allow for either quiet workspace or larger social activity. Yet although the brand was announced in late January this year, the first Tru will not open until next spring (in Oklahoma City) with the initial roll-out limited to the US. This follows the trend with other new brands: a high-profile announcement to generate interest from property owners, followed by a delayed delivery.
Hilton’s lifestyle brand Canopy, for example, was announced in the autumn of 2014, with the first one finally opening in Reykjavik this month. But the next Canopy to open, in Washington DC, is scheduled for “late 2017”, while the first UK Canopy, close to the Tower of London, will not come on stream until 2018.
But as the pace of global brand expansion grows, does this threaten to lead to ‘brand fatigue’? After all, with so many brands targeting evermore niche markets – STR, for example, divides global brands as falling into six distinct segments (luxury, upper upscale, upscale, upper midscale, midscale, and economy) – it is often hard for travellers and buyers alike to fully understand or recall what each brand is offering.
“It can be very confusing with all the new brands being added,” says one travel buyer at a leading leisure sector firm. “It’s difficult at times to know who they are really aimed at – for instance, is it just millennials, or do they offer something to non-millennials who may be young but don’t fit that mindset?”
Keith Watson, director at hotel booking specialist HRS, also thinks business travel is echoing the millennial generation by becoming more ‘traveller-centric’.
“Much like the leisure traveller who expects to control every aspect of the trip, bookers are now expecting similar levels of choice, flexibility and instantaneous real-time access when it comes to booking a business trip – whether it be with a global brand or an independent property,” he says. “As a result, bookers are demanding more flexible policies and asking for tools that are more user-friendly, featuring the right level of content to meet their needs.”
Buyers, however, appear generally happy with the chains despite their multi-brand strategies. “My preference is to work with chains if possible and practical – subject to whether they are suitable for our office locations – due to the additional leverage that this brings, in terms of both negotiated rates and other terms and conditions,” says Jef Robinson, global category manager for software firm Citrix.
“Branded hotels are often better for a big company, due to the leverage that can be achieved from volumes in different hotels under the same brand,” he adds.
Meanwhile, the focus in the hotel world now turns to what Marriott has in store for Starwood following the takeover. Marriott is not talking publicly about its plans as the takeover goes through the process of getting permission from competition authorities around the world – the European Union cleared the deal last month and the acquisition now only needs approval from China.
Marriott’s Sorenson has made no secret of his belief that Starwood’s SPG rewards programme is one of the main ‘prizes’ from the deal, although he may still combine it with Marriott Rewards to create the biggest global hotel loyalty scheme with more than 100 million members. But major changes are not expected to take place until either late next year or early 2018.
However, those brand-weary travellers hoping for a cull of some of the combined 30 brands now under one owner may be disappointed. Sorensen seems willing to realign, rather than let go, any of the brands that occupy similar market segments, such as AC by Marriott and Starwood’s Aloft, as well as Ritz-Carlton and St Regis. And there is some suggestion that Starwood’s environmentally-friendly Element extended-stay brand could by repositioned and used to challenge the growth of Airbnb.
If any brand is axed it could be Starwood’s ‘soft’ brand of independent hotels, The Luxury Collection, as Marriott’s similar brand – Autograph – has outperformed it recently and it would make some sense perhaps to amalgamate them. But don’t bet on it: hoteliers are clearly deeply wedded to their brands and it would take a brave CEO to let any of them go.
Top tips for buyers
Welcome multiple brands More brands mean more locations, choice and price points within the same company, enabling group-wide deals to be negotiated.
Compliance is key A tightly controlled programme, capturing data and benchmarking against city averages will help achieve revenue savings and put buyers in a better position to fine-tune policies.
Cheap is not always cheerful The lowest rate may not be the most cost-effective as negotiated rates often include airport/local transportation, breakfast, wifi, parking and so on.
Rate audits Check that agreed negotiated rates can be fully accessed through global distribution systems and other channels.
Frequent travellers Negotiate loyalty cards for top travellers that are preloaded at an above-entry level for the scheme as this can help drive compliance.
Define deals Mutually agree the definition of such clauses as late-room availability, especially how much of a hotel’s overall room inventory will be included.