The race to 1 million rooms heats up
20 MARCH 2015 9:33 AM
A handful of major hotel chains are rapidly nearing the 1-million-room threshold. Who crosses first is yet to be seen.
GLOBAL REPORT—InterContinental Hotels Group CEO Richard Solomons scoffed when first asked about it. Sitting in a suite at the JW Marriott at LA Live, the hustle and bustle of the Americas Lodging Investment Summit just a few floors below, he had more pressing matters to tackle.
But there it was, the question looming large and heavy: Do you want to be the first hotel company to reach 1 million rooms?
“I don’t care about it,” he said. “I know somebody’s gone out there and talked about it, and good for them.”
Hilton fired back six days later with a declaration that it was the “world’s largest and fastest-growing hospitality company.” Even Best Western International joined the fray, when on 27 January the company announced its own record-breaking year.
In an asset-light age where the industry’s big players generate an increasingly larger share of revenues from fees, one thing is clear: Size does matter.
Arne Sorenson agreed with that premise.
“We like to be on top, for sure,” said Marriott’s president and CEO via email. “Global development is directly related to unit growth, which is tied to our business model of managing and franchising hotels. The power of our portfolio allows us to meet the development strategies of individual owners and franchisees and propel distribution and growth.”
As does Hilton’s Chris Nassetta.
“Our large-scale, broad geographic and chain-scale distribution is a huge differentiator, and the loyalty effect of having the right brands in the right markets is undeniable,” the company’s president and CEO said via email.
Solomons does too, with a caveat. For him, growth for the sake of growth is not the point. What matters most is delivering a relevant offering to guests. Do that, and expansion naturally follows.
“We don’t talk about being big-hearted. We don’t talk about being enormous. We talk about being brand-hearted, which is about delivering a product that consumers want,” he said. “If you get that right, you’ll grow the business.”
The company turns away more deals than it signs in some regions, Solomons said. And the existing portfolio is constantly being combed to remove the bottom performers to ensure that delivery to guests.
Wooing Wall Street and guests
Talk of brand-heartedness doesn’t woo Wall Street, though.
Case in point: the recent ousting of Starwood Hotels & Resorts Worldwide’s Frits van Paasschen, whose resignation came days after the company reported another quarter of lagging unit growth.
“We have come to the conclusion that now is the right time to turn to new leadership to drive execution of Starwood’s growth strategy,” said Bruce Duncan, chairman of the board, during a conference call.
Starwood has some ground to gain. The company counts seventh on a list of global chains by rooms in operation combined with rooms in the pipeline as of 31 December 2014. Hilton claims the No.1 spot with 938,268 rooms open or in the pipeline, followed by Marriott (932,801 rooms) and IHG (904,067 rooms).
Wyndham Hotel Group comes in at a distant fourth with 777,826 rooms, despite the company having the largest number of hotels open with 7,645.
“We’re extremely proud of our portfolio and the growth we’ve experienced both here in the U.S. and internationally—and our goal is to continue that quality growth,” said Wyndham’s president and CEO, Geoff Ballotti, via email.
For him, that hotel tally is meaningful. It demonstrates the company’s commitment to growth, as does it Wyndham’s strong reception from owners and developers.
“They’re looking to partner with an established, trusted organization that will drive guests through their doors and offer the resources and support needed to succeed,” Ballotti said.
Guests see size similarly, Nassetta explained. System size conveys comfort, the promise that a preferred brand (or brand family) will be represented in any market they visit.
“Our goal is to serve any guest anywhere in the world, for any lodging need they have,” he said. “As the industry leader in rooms in supply, rooms under construction and development pipeline, we’re doing just that. And we continue to be confident in the global strength of our 12 distinct brands that guests love and owners prefer.”
The major chains employ a variety of tools as they chart global expansion.
Management contracts, franchising and (in the right situation) even leases contribute to growth. So, too, do portfolio acquisitions.
Marriott in particular is executing on the latter. The company in recent years acquired Spain’s AC Hotels (2010), the United States-based Gaylord Hotels (2012) and South Africa’s Protea Hotel Group (2013).
Most recently the company brought Toronto-based Delta Hotels and Resorts into the fold, expanding Marriott’s footprint in Canada by 38 hotels and more than 10,000 rooms.
Wyndham, too, has pulled the portfolio-acquisition trigger, most recently in February when the company announced the $57-million buy of Dolce Hotels and Resorts.
The executive team at Hilton prefers organic unit growth, Nassetta said.
“In 2014, we continued to lead the industry in net unit growth excluding portfolio acquisitions,” he said.
“Putting all that together with our asset-light strategy and a tremendous amount of hard work from our team members has allowed us to grow in good times and bad.”
Each executive spoke of the importance of their developments teams, particularly as it relates to expansion in new and emerging markets around the world.
IHG also has approached development from a global perspective—a strategy largely bred of the company’s United Kingdom home base offering fewer opportunities for growth than, say, the U.S., Solomons explained.
“Because our home market is relatively small, we have to think about the other markets. What it leads to is strong presence on the ground in each of those markets,” he said.
In China, for instance, IHG has a standalone team that reports directly to the CEO. That approach has “enabled us to understand our local markets better,” Solomons said.
At Wyndham,more than half the development pipeline is outside the U.S., and nearly 70% of that is new construction, Ballotti said.
“We’ve focused on expanding our presence in markets where the demand is ripe for hotel development—like China, India, Peru, Brazil and parts of the Middle East,” he said. “We have incredible, motivated development teams around theworld dedicated to connecting us with likeminded partners and ensuring that our brands expand in the markets where the brand and our franchisees are best positioned for success.”
Growth on a global scale is not possible without shared leadership, Nassetta said.
“Success is also dependent on distributing leadership by giving people accountability and responsibility to make decisions at the point of most information,” he said.
Sorenson described a similar situation with his development team.
“They know they have my OK to be innovative and to try new things that will help them and the company succeed,” he said.
Whether that leads Marriott or Hilton or IHG or Wyndham over that 1-million-room mark first, only time will tell.