I woke up this morning and opened an email I received from Hotel Owners magazine, a hospitality magazine that I contribute to regularly, and the headline news jumped out at me. ‘Hilton launches new affordable lifestyle brand Motto’ it read. That got me thinking again about the big boys playing in the hospitality market today.
I wrote back in April about the greed and gluttony of these behemoths of our industry. In that article I mentioned that Marriott wants to sell you everything but the plane ticket, taken from another piece. That may be logical given that over 67% of hotels in the US are branded and that in Europe it has already passed the 40% mark. These high percentages were reached by the brands buying ‘different and differentiated’ sub brands or hotel groups that they did not have in their portfolio.
You only have to browse the websites of the big brands to see how their sub brand portfolios have literally exploded over the past years.The top seven brands account for over 35,000 hotels worldwide already.
STR Global estimates that there are 187,000 hotels, offering 17.5 million guest rooms, around the globe. The 15 largest brands account for 45,300 hotels, representing a full 25% of all hotels worldwide. STR defines hotels as properties that are rented nightly, with seasonality taken into account, and having a specified number of rooms. This expansion by brands has been in an effort to capture as large a market as possible, and this is a natural course for them to take. Yet many popular and historic tourism destination are already reporting saturation in visitor numbers and many are already limiting visitor numbers.
So, while keeping an eye out for more brands to buy, they started to copy creative ‘startup’ hotels and ‘invent’ their own new breakout brands while announcing that they were doing this, in the case of the new Hilton brand Motto, to “empower guests” by giving them the freedom to create their own experiences.” Now I don’t know how much of an experience can be made in a 14 square meter room, but perhaps if you are inventive you can create some. The rooms, “designed with an average footprint of 163 sq ft or 14 sqm and will include space-saving features such as wall-beds, lofted beds, segmented shower and toilet stalls”, are obviously a grab for the ‘affordable room rate’ market wrapped up in a creative marketing pitch and sales ploy.
In yet another article I read yesterday I noted with interest that other brands, completely separated from the hotel industry are starting to move into the lodging territory. Shinola out of Detroit are planning their first hotel which will feature many of their products, while Restoration Hardware, with one restaurant in the meatpackers district of New York, are also eyeing entering the hotel industry with a namesake brand. They are among many of the new players coming into the segment, and adding to the already present luxury purveyors such as Bulgari, Luxury watchmaker Audemars Piguet in Switzerland, the Palazzo Versace Queensland with the world’s first fashion-branded hotel in Australia back in 2000, while Baccarat and Missoni all boast hotels under their brands. This is to name but a few. Many more will doubtless discover this opportunity and we will maybe see hotels under names like Coach, Ralph Lauren, Guess, Chanel and many many more. Perhaps the day will come when McDonald’s sits proudly under an ‘affordable’ McDonald’s Inn! Will Subway open the world’s first underground hotel, or will we see Pizza Hut Hotels on our streets? I’m sure there are many investors searching for the right brands to team up with and open a new line of properties.
I have long held that the hotel industry has by and large become a real estate industry following the divesting of properties in the early 2000’s by the major brands. This brought a flurry of investment by many outside investors, and the proliferation of new build hotels, many of them multi-purpose buildings.
Investors are looking to make big bucks on the increase in values of their hotel portfolios, and the brands are only too happy to flag them. In the days of mega mergers and takeovers both hostile and friendly, I guess this is a natural course of events. Hoteliers are necessary in managing the properties and helping keep them profitable for the owners until they are sold to the next speculator.
Of course I may be exaggerating and I do believe that most brands work hard to deliver value to their guests, and will claim that their new offerings are part and parcel of the evolution of the business. There is some truth in this but I cannot but believe that it is also powered by their vision of being everything to everyone and capturing as much as possible in the quest to deliver value to their shareholders. I would probably do the same if I were CEO of one of the major brands.
So where will that leave the future industry? Already today there are market locations saturated by the brand names, and hotels where the only differentiation between them is the name at the top.
Most cities today sport an almost identical array of brand shops and restaurants. Everyone expects to come across the Gap, Banana Republic, Zara, H&M, Guess and many more along with McDonalds, Subway, Pizza Hut, Wendy’s and the other names when wandering the main streets.
So will it be only natural to see Shinola, Restoration Hardware, Hotel Dior, Chanel, Bulgari and other hotel entries from the fashion and perhaps food world?
The massive proliferation of hotels will certainly benefit the consumer but I worry about increasing saturation of room supply, and what will happen to many properties when the next recession comes along. Will this explosive evolution last, or will we see a decline in interest ?