Future hotel industry growth is likely to include fewer megadeals that cause years of headaches as teams merge brands, corporate culture and loyalty programs, the CEOs of two of the world’s largest hotel companies said this week.
Instead, hotels will consider rounding out the brand portfolio to offer customers a full range of options rather than risk losing them to the competition. In other words, hotel owners who don’t run an ultra-luxe brand like St. Regis or Waldorf Astoria might want to add one. Otherwise, they risk losing some loyal customers to competitors with multiple high-end offerings. Oh, and maybe throw in a yacht or a vacation home or two.
“It’s like rungs on a ladder,” IHG CEO Keith Barr said Tuesday at the Skift Global Forum in New York City. “If you’re missing rungs, it’s difficult for customers and owners to climb that ladder.”
Sign up for our daily newsletter
“If your goal is to capture as much as possible 100% of your guests’ travel wallet share, you want to be big enough so they never have to look outside of your ecosystem,” Anthony Capuano, CEO of Marriott International, said later in the day.
There’s constant speculation that brands like IHG Hotels & Resorts, Accor, and Hyatt might one day merge to better compete with Marriott and Hilton. However, it seems the era is behind the industry – assuming you can believe what hotel CEOs have been saying for the last few years. Marriott and Starwood’s integration took years after their $13 billion merger in 2016 resulted in a portfolio of 30 brands, including St. Regis and Westin.
Focus on smaller projects
Instead, the industry currently appears to be focused on smaller, complementary businesses that offer a geographic boost in regions where a hotel company didn’t have a presence prior to the acquisition. Such deals can also fill the gaps in a price segment of the market where a hotel company was previously limited.
Geographically, Marriott’s acquisition of AC Hotels gave the company a boost in Europe, while its purchase of Protea Hotels expanded its reach in sub-Saharan Africa. In terms of market segments, IHG has carved out a foothold in the ultra-luxury sector with acquisitions of Regent and Six Senses, as well as more upscale soft brands like the Vignette Collection to attract more boutique customers.
It also makes good business sense as it opens the doors to working with hotel owners who previously would not have considered entering into a branding agreement with a company like IHG.
“It was like a puzzle,” Barr said. “We had the parts, but we didn’t install them. Now we have them, and it’s just amazing how it’s transformed our ability to work today with corporate and capital partners who haven’t spoken to IHG. It’s really, really exciting.”
Sometimes these extensions are not even a traditional hotel brand. Marriott launched its Homes & Villas vacation platform after realizing it was losing business to vacation rental platforms; Prior to the acquisition, members of Marriott’s Bonvoy loyalty program did not have the ability to earn and redeem points throughout the property.
“One of the reasons we started Homes & Villas [wasn’t] because we thought we were going head-to-head with Airbnb, but because for various specific purposes of travel — multi-generational travel, for example — we’ve heard from our web team members that a full-home, multi-bedroom experience better suits their needs,” said Capuano.
Partners in gastronomy
For a long time there was an either/or in the hotel industry when it came to coolness and size. You could either be a cool, stylish brand with just a few hotels, or you could be a giant with reach around the world – albeit with a more sterile, less fashionable feel to your homes. Some of the largest hotel companies in the world are now testing this model.
Accor – the French hotel conglomerate behind brands like Fairmont, Raffles and Sofitel – last year took a majority stake in Ennismore, the UK-based lifestyle hotel company with brands like The Hoxton and Gleneagles.
Ennismore leadership, including Founder and current Co-CEO Sharan Pasricha, remains deeply involved in maintaining the customer experience and maintaining the ethos of the family brands. Accor’s leadership — including Gaurav Bhushan, CEO of Accor’s lifestyle and entertainment division and now co-CEO of Ennismore — is primarily focused on operations, growth and performance.
The term “lifestyle hotel” can be a head-scratcher, but it’s typically a hotel that’s more focused on design, experiences, and food and drink. Think of those super trendy neighborhood hotels that are far more welcoming than the dimly lit boutique hotels of the past. Accor and Ennismore define lifestyle hotels as those that generate about half (or more) of their revenue from food service. Smaller companies running these lifestyle hotels typically hit about 12 hotels before reaching their maximum bandwidth for operations, Pasricha said.
“Or you are part of a larger group, but then you lose yourself in the system. I think we’re trying to buck the trend,” he added. “We are really autonomous in the way we work. We have an independent culture. We got a lot of our original brand founders very involved.”
When a cool brand gets absorbed by one of the big hotel conglomerates, there’s always some sell-off. Kimpton was the flagship of the boutique hotel movement before IHG took it over. Even Marriott had signaled that it needed to help bring the W brand back to its glory days when it was a stirrer and shaker in the hotel environment.
One way the Ennismore team seems poised to keep its consumer appeal in check while expanding globally is by keeping brand founders involved. Pasricha pointed out that the founders of brands like 25hours Hotels and Mama Shelter should remain involved in realizing the original real estate visions, rather than delegating expansion tasks to Accor.
“Running lifestyle at scale has never been done before — not in a way that’s really not an oxymoron,” he added. “There is actually a tension between authenticity and scale and if we hadn’t involved the founders in the brands and if I wasn’t the founder driving the product side of the business I would say it would be challenging because of the lifestyle of the brands are difficult to do. They’re really hard to make.”
However, a cool partnership between big brand conglomerates is fading. TPG reported earlier this year that Marriott and Studio 54 founder and boutique hotel magnate Ian Schrager are ending their partnership for the Edition brand. The late Marriott CEO Arne Sorenson pointed out years ago that Edition’s success depended on Marriott working with a visionary of cooler, smaller brands like Schrager.
“I’ve been working with Ian for 12 or 13 years now. I have such deep admiration not only for his creativity but also for his passion. He loves to create. He loves this brand,” Capuano said this week, before finally acknowledging the partnership runway had its limitations: “We haven’t renewed our exclusivity with him. But again, we have 15 active projects. Our teams speak to him and his team every day, and he’s more engaging and passionate than ever.”
