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Grabbing the middle ground

Mid-market hotels are back in fashion, says David Churchill, who looks at how the sector is growing and targeting business travellers with value and style

WHEN THE WORLD’S BIGGEST hotelier – it sells more than 150 million room nights a year in more than 4,500 hotels – says it plans to launch a new brand, then it’s no surprise that business travellers and corporate buyers sit up and take notice. But when that new brand is in the mid-market sector, which only a few years ago was regarded as well past its sell-by date, many might find the move rather puzzling.

British-based and owned Intercontinental Hotels Group (IHG) is early this year set to announce details of its new midmarket hotel chain, initially in the US, but coming to the UK and Europe later, which is expected to be positioned in the pecking order somewhere below its existing Holiday Inn brand.

IHG is keeping exact details of the new brand close to its corporate chest for the moment, but it has made no secret in recent months of its belief that those who thought there were already too many hotel brands in the world were wrong. IHG’s senior management, who at the moment have responsibility for seven brands globally, believe there is room for a lot more.

“You’re going to see much more segmentation in the hotel world as people get more specific about what they want when they travel,” says IHG chief executive Richard Solomons. “Brands are what we are all about.”

supermarket sweep

IHG executives at the hotel group’s recent annual conference for hotel owners and developers in Las Vegas deployed the example of the breakfast cereals market to explain the concept. “If you’re selling cereals [in supermarkets], you can’t have cornflakes all the way down the aisle,” explains IHG Americas region president Kirk Kinsell, pointing out the large variety of brands available that appeal to different people.

This, he argues, is the same for hotel brands – there is not enough variety to meet all demands. “We recognise there is a group of customers who are mainstream, high-frequency travellers whose need is not being met,” he said. The new mid-scale brand – as yet unnamed – is aimed at meeting this demand.

But IHG is not alone in its branding vision. Its major rivals – including Rezidor, Hilton, Marriott, Accor and others – are all plotting brand expansion, particularly in the midmarket sector.

Hilton, for example, is refocusing three of the eight Mint Hotels recently acquired by US private equity firm Blackstone (which also owns Hilton) under its mid-scale Hilton Garden Inn brand. These hotels, located in Glasgow, Bristol and Birmingham, are in addition to the two existing Garden Inns – at Luton and Aberdeen – with another 13 in key European cities.

Marriott is also in the process of revamping its mid-market Courtyard by Marriott brand in Europe, with one of the first of its new-style properties due to open in Aberdeen in 2013 with 194 rooms.

“Within the mid-scale hotel category, our research has shown that European travellers are looking for fresh, simple, contemporary design, as well as good value,” says Amy McPherson, managing director of Marriott International in Europe. The focus on design and facilities – 42- inch HD televisions and interactive news, weather and local information ‘Go Board’ screens in the lobby – are a far cry from the traditional three-star mid-market hotels of the past, where style was sorely lacking.

Although Marriott’s Courtyard brand is the 11th largest in the world (according to MKG Hospitality) with more than 900 hotels, the group has been slow to bring it to the UK, possibly because of concerns in the past over the viability of the mid-market sector. But the success of its Gatwick Courtyard, which opened in 2009, has encouraged it to plan further expansion, starting with the new Aberdeen property.

Europe’s biggest hotelier Accor has also identified the UK mid-market as ripe for expansion. It has seized the opportunity created by the recent collapse of Jarvis Hotels Limited (under a pre-pack administration which saw investment company Jupiter Hotels take control) to franchise 24 former Ramada Jarvis-branded properties under its midmarket Mercure label.

The deal is the latest in a series of franchise agreements by Accor as it aggressively grows its Mercure mid-scale portfolio in the UK. It takes  the total number of Mercure hotels here to 68, bringing more of the mid-scale properties into prime city locations including London, Leeds and Manchester.

Franchising, rather than ownership, is increasingly the way forward for growth in the mid-market sector. US franchisor Wyndham Worldwide (former brand owner of the Ramada Jarvis hotels, now converted to Mercure) is rolling out its mid-scale brand Ramada Encore in the UK. So far it has 16 examples of the brand in the UK – the latest opening was last November in Leicester – and has plans for at least two more this year. Even though positioned in the midmarket, Encore offers wooden floors in bedrooms and a central restaurant, lounge, bar and meeting area, called The Hub.

Style also typifies Starwood’s approach to the mid-market via its newish brand Aloft, which saw the first UK property open last autumn at the Excel exhibition centre in Docklands. Aloft is positioned below Starwood’s hip designer brand W, whose first UK property opened last year in London’s Leicester Square.

Aloft has many similar design-led characteristics (high ceilings and platform beds, for example) that typify the style of W hotels. Initially targeted at young urban professionals, Aloft is now trying “to appeal to anyone with a young mindset, be they 25 or 45”, according to Starwood senior vice-president Brian McGuiness. More mid-scale Alofts are planned in London and regional cities, in locations close to convention centres or airports, as well as urban neighbourhoods.

trading up and down

The appeal of such stylish mid-market hotels is driven by demand, according to Ryan Johnson, land product manager at FCm Travel Solutions and Corporate Traveller. “Our corporate clients are looking for something a bit different in terms of style, something less bland and formal than a room in a large hotel chain at the other end of the scale,” he says. “I believe we are seeing not only a slight downtrade by clients in price terms towards these mid-market properties from four- and five-star hotels, but also more excitement in the market which is making other clients upgrade from a budget hotel to a ‘boutique’ mid-market property which is still within their company travel policy.”

But without a recognisable brand name, or the benefits of distribution through a chain, many mid-market hotels have struggled. This can be partially countered by belonging to a marketing group, such as Best Western, but independent hoteliers still often lack the resources to undertake much-needed refurbishment and investment in their properties. It has been estimated by veteran hospitality consultant Paul Slattery, co-founder of Otus & Co, that there are nearly 50,000 hotel rooms in Britain which should be removed from the market because of their “physical state, redundant facilities and poor performance”.

Many are to be found in the midmarket sector.

downturn economics

What changed the mid-market game for good was the impact of the recession on expectations, particularly among business travellers and corporate buyers. The rise of the budget sector – dominated by Premier Inn and Travelodge – had been well-flagged, but it took the reality of the downturn to push the road warriors into their low-priced, no-frills rooms in a significant way.

Yet, at the same time, the midmarket also came under pressure from above as well as below. The four-star business hotel chains found in the recession that, not surprisingly, buyers rejected their pricing strategies. The hotels’ response was to drive down costs, as well as charging for extras that had previously been included ( for example, breakfast and car parking). The upshot was that business travellers who still wanted a four-star hotel (even with reduced service levels) at three-star prices could still afford it. If not, then three-star quality could still be found at budget hotel rates. It was win-win for the traveller and buyer, lose-lose for mid-scale hoteliers.

Portman Travel vice-president Johan Persson points out that “mid-market hotels are competing against budget and four-star rivals by providing a host of value-added services, rather than reduce the room rate, making these a more attractive option for the business traveller and corporate travel buyer”.

These services – such as free wi-fi, parking concessions, and food and beverage discounts – can easily be quantified, he says. “While price plays an important part in the decision-making process, it is no longer just about room rate and we would always advise clients to take the whole package into account – room rate plus value-added services – rather than just comparing rates across hotels of differing standards.”

The mid-market hotels sector, however, has proved remarkably resilient to the pressures of recent times. Travel buyers have traditionally acknowledged the value on offer from the mid-market, with a full-service offering and abundance of supply in good locations. Not every business traveller wants to stay in a budget chain and, in any case, they do not have sufficient capacity in all regions.

But the downside for buyers is that understanding the mid-market sector can be confusing and contradictory. While the term ‘mid-market’ can generally be equated with three-star, in reality it is a far more nuanced sector, with the decision on positioning taken by the chains themselves as part of their marketing mix. Official rating guides often miss this point.

Even price cannot always be the guide. A standard room at the Courtyard by Marriott at Gatwick in mid-January, for example, was available last month at about £60 a night; the online rate for the Premier Inn at Gatwick was £44 per night in advance, or £72 for full-flexibility. But is the renaissance in the midmarket here to stay? HRG director Margaret Bowler thinks it is. “The growth of the mid-market reflects the fact that every hotel brand operator is currently looking to ensure they have coverage across all ratings,” she says. “And it does provide the corporate buyer with another option, which for those looking for value savings will be welcomed.”

David Bailey, deputy managing director of TRI Hospitality Consulting, points out that “in reality, the midmarket didn’t really ever go away – it just reinvented itself more in tune with what the market now wants and expects.” Whatever the faults of mid-scale hoteliers, he adds, “there is clearly a place in the market for what they offer to a sizeable segment of travellers and buyers.”

Rezidor plans rapid growth in mid-market

MID-MARKET is the key growth sector across Europe for Rezidor, according to CEO Kurt Ritter. “We are putting a lot of resources into developing our midscale Park Inn brand in the current economic climate, with about 5,900 more rooms coming on-stream over the next two to three years,” he says. Only Hilton, with its Garden Inn mid-market brand, is opening more rooms over this period – 6,000, according to the STR Global database on Europe’s hotel pipeline, with Holiday Inn opening some 4,400 rooms. Ritter says it is the tough economy in Europe that is driving demand in the mid-market.

“Even investment bankers are moving to mid-market hotels because of the downturn,” he says. Although first developed almost a decade ago, Park Inn has only taken off in recent years and now totals more than 100 across the EMEA region, with a few also now open in North America.

There are some 23 Park Inns in the UK at present with more on the way, including a 235-room Park Inn due to open later this year adjacent to Wembley Stadium, followed by a property at Excel in Docklands.

Prior to the recession Rezidor considered launching into the budget hotels sector, says Ritter, but was deterred by the high costs associated with gaining sufficient scale in this market, especially in the highly competitive UK and France budget sectors. If and when Rezidor does move into the budget sector, it is unlikely initially to be in these countries.

Ritter insists he does not want to develop as many brands as some of his chain rivals, preferring to focus on the revitalised upscale Radisson Blu brand in Europe, as well the Hotel Missoni boutique properties in the Middle East.

Radisson Blu has proved such a success since its recent relaunch that the Carlson group, which owns the Radisson brand and is a 51 per cent shareholder in Rezidor, is converting many of its North American Radisson hotels under the Blu banner. The remaining Radisson hotels in North America and elsewhere which don’t fit this branding are set to be repositioned slightly downscale to Blu, under the working title of Radisson Green. Ritter, however, does not see significant scope for “greenlabel” Radissons in Europe just yet.