2005 Giants 325

HOTELS' 325 ranking reveals biggest chains still growing by leaps and bounds.

By Karyn Strauss, Associate Editor -- HOTELS Magazine, 7/1/2005

In this feature: - Main Story - HOTELS Corporate 300 - HOTELS Consortia 25

Among the corporate chains, the big will get bigger. No question,” says Arthur Adler, managing director and CEO, the Americas, Jones Lang LaSalle Hotels, New York City. HOTELS’ annual ranking of the world’s biggest hotel companies bears that out. The top 25 corporate hotel companies took advantage of a hot deal pace in the United States, recovery in Asia and the unbranded potential of Europe and the Middle East to grow, collectively, by about 25,000 rooms over the previous year.

Who stays on top will come down to brand power. Watch for new brand rollouts and acquisitions aimed at diversification. “There will be more consolidation as single brands try to build themselves into segment-spanning companies,” says Thomas Keltner, president, brand performance and development group, Hilton Hotels Corp. Global Hyatt has already done that with the acquisition of U.S. Franchise Systems and AmeriSuites (scheduled for a new look and probably a new name by year’s end).

New launches will be as important as acquisitions for companies such as InterContinental Hotels Group, which can afford to nurture its start-up, boutique-inspired Indigo, or Starwood Hotels & Resorts, which just announced a new limited-service version of its W hotels and will roll out a Westin extended-stay brand shortly as well. “In the United States, the footprint of the big brands is saturated. Sure, there are opportunities for new builds and conversions, but not on the scale of the numbers for new limited-service and all-suites brands,”says Chuck Tomb, senior vice president of development, Starwood Hotels & Resorts.

Keltner disagrees on the saturation issue. “Hilton and Marriott have only 8% of the industry supply in terms of rooms. Compare that to the airlines,” Keltner says.

One point that draws no argument is the potential for growth outside the United States. To capitalize, chains are going to have to be more flexible—both in their approach to the marketplace and in how they co-brand, says Jay Witzel, president and CEO, Carlson Hotels Worldwide. “India and China still are 4- and 5-star markets. That may not change for three to five years, but it will change, and that will mean more mid-tier opportunities. We are already seeing the start of that in India,” Witzel says.

David Michels, CEO, Hilton Group, sees competition heating up. “It is not going to be the folks with the fastest in-room Internet who win the race. This is an old-fashioned industry. It is about service, brand, location,” he says. Nor will growth outside of the United States be fueled by a something for everyone approach. “Can a chain sweat over managing 20 to 30 brands? Will the customer even remember?” he asks.

That is what makes differentiation critical to brands seeking growth—whether it be giants creating a sharper image or start-ups. “One of the biggest challenges facing chains is clear brand differentiation,” says Peter Strebel, executive vice president and chief marketing officer, Cendant Hotel Group. “In a time when decisions are made in a matter of seconds on the Internet, brands have become more valuable than in the past. Mass media is changing; radio and television audiences are different. The challenge is to maximize your marketing efforts to get more bang for your buck. I expect some new brands will be emerging that will capitalize on the growing younger market.”

The Winners
Brands on the companies to watch list: Beyond the major players in the top ranks, Mark Wynne Smith, CEO, Europe, Jones Lang LaSalle Hotels, London, ranks NH Hoteles and Golden Tulip/TOP Hotels as noteworthy up and comers. “They are aggressive; they fight for each asset. What Golden Tulip/TOP has achieved shows it can make headway even against the large brands,” Wynne Smith says.

David Katz, CIBC World Market Corp.’s director, lodging and gaming, says Starwood “appears to be winning the brands races because they seem to have a more sophisticated approach to branding and innovation.” Hilton and Marriott “have indicated their portfolios are mostly complete, so growth will have to come organically, which is reasonable given positive fundamentals.” Among the hungry companies in the next rank, watch LaQuinta. “They focus on the limited- service, midscale segment, which is a great value proposition and is growing by leaps and bounds,” Katz says.

Adler likes the prospects for all of the giants. In the next tier, Omni and Wyndham are on his radar. But he doesn’t discount the niche players. “There are reasons why Kimpton, Rosewood, One&Only and Joie de Vivre exist and will continue to exist. As long as they continue to understand their customers and their niche, they will do very well,” Adler says.

From a European perspective, brands to watch are Malmaison, Premier Travel Inn, Six Senses, Staybridge Suites, Travelodge... to name but a few, according to Russell Kett, managing director, HVS International, London.

The Losers
The most vulnerable companies for 2005 and beyond will include:

Mid-scale with food and beverage. “This sector has been contracting for the last eight to nine years. It does not resonate with consumers,” Keltner says.

Brands that fail to innovate. “Some hotels are about today and yesterday. You have to be about today and tomorrow. That’s the way to attract a younger market who can drastically grow your loyalty programs and drive more business,” Tomb says.

Brands without a clear identity. “They are going to lose traction,” Witzel says. Other trouble spots: lack of a global presence and inadequate marketing muscle.

Small, non-niche players. “If the hotel industry is to make a real impact in the world commercially, then the companies simply must get bigger and, by implications, their brands must become more prominent,” Kett says. “This inevitably will lead to fewer brands but, at least from a European perspective, there are too many weak brands with no real identity or equity. Most are simply company names, not brands. So yes, acquisitions are a must; the real question is ‘who is dining and who is dinner?’ "