Hilton unveils Tru brand to fill midscale void
 
Hilton unveils Tru brand to fill midscale void
25 JANUARY 2016 3:05 AM
Citing a need to fill a void in the midscale segment, Hilton Worldwide Holdings launches a brand called Tru that executives said could eventually overtake Hampton by Hilton as the company’s largest hotel chain.
MCLEAN, Virginia—Hilton Worldwide Holdings is launching a midscale segment brand called Tru that eventually could have the largest footprint among the company’s 12 hotel brands, according to executives involved in the offering’s development process. 
 
“It’s the most disruptive thing we’ve done in the space,” Chris Nassetta, Hilton’s president and CEO, told Hotel News Now during a phone interview. “The price point we’re trying to hit, I don’t think there are a lot of great options for consumers and I don’t think there are a lot of great options for owners.
 
“Ultimately it will be our biggest brand by number of units,” he added, noting that it took the Hampton by Hilton brand 30 years to become the behemoth that it is today. “We know in the next few years it will be hundreds.”
 
Hampton has 2,080 hotels comprising 207,000 guestrooms open. In total, Hilton’s system included more than 4,500 hotels with more than 745,000 rooms as of 30 September 2015.
 
“Over time (Tru) will grow as strong and powerful as Hampton is,” said Phil Cordell, global head for focused service and Hampton brand management. “We still are very confident we have a few good years in the cycle.”
 
Hilton is mindful to not infringe on Hampton’s space in the upper-midscale segment, executives said.
 
“We had to make sure we didn’t cannibalize Hampton,” Cordell said. “We don’t want to hurt the goose with the golden egg.”
 
Hilton has 102 Tru by Hilton hotels signed, with an additional 30 hotels in various stages of approval. Cities include: Atlanta; Dallas; Houston; Chicago; Denver; Portland, Oregon; and Nashville, Tennessee. The brand initially will focus on development in the United States and Canada before expanding globally once it has reached stability, Cordell said. 
 
“It’s more about a mindset than a specific demographic or generation,” said Alexandra Jaritz, global head for Tru. “It’s designed to appeal to a cross generation of travelers. It’s more of a mass appeal product.”

The company registered several Internet domains utilizing various forms of the Tru name in July 2015. It externally called the brand "Project Canvas" until its launch.
 
Tru’s target customer is one that has a youthful mindset, wants to spend money on experiences rather than stuff, is looking for value, is looking for consistency and is looking for human connection, Jaritz said.
 
According to data from STR, the parent company of Hotel News Now, at the end of December there were 5,629 midscale properties comprising 478,444 guestrooms in the U.S. The segment’s average daily rate finished 2015 at $83.18.
 
 
Developers like Tru’s possibilities
Developers called the Tru brand a perfect fit for the Hilton portfolio and agreed there are huge possibilities for it.
 
Mitch Patel, president and CEO of Chattanooga, Tennessee-based Vision Hospitality Group, said he believes Tru will be the brand that will bring lifestyle to the masses.
 
“Hampton elevated itself and has opened the door for Hilton to look at something that can be positioned in the midscale segment,” said Patel, who has committed to developing eight Tru properties. “It’s going to be defining that space … where lifestyle, value and midscale are coming together.
 
“This is going to scale really fast,” Patel said. “I wouldn’t be surprised if in 10 years they have 1,000 units out there in urban areas, airport markets and tertiary markets where a lot of the midscale product is outdated.”
 
Jeff Good, president of Valparaiso, Indiana-based Good Hospitality Services, said he is kicking the tires on several sites for Tru and expects the brand to fare well right out of the gate.
 
“They’re trying to get into that $80 to $90 swim lane; there’s not a lot of that product out there from a consistency standpoint,” Good said.
 
Patel and Good were part of group of a dozen owners Hilton formed to be a part of the Tru planning process, Cordell said.
 
“We could not have developed the strategy with Tru without (owners involved),” Nassetta said. “They are an absolutely critical component.”
 
Tru will feature a prototype with 98 guestrooms and a 2,776-square-foot lobby. There will be two guestrooms sizes: the 275-square-foot double queen room and the 231-square-foot king room.
 
“We’re trying to be very purposeful with guardrails for the brand,” Cordell said. “There are two room types, period. There’s no meeting space. The pool is optional. The porte cochére is optional. There are really strong guardrails around it with some flexibility.”
 
Attracting a new customer base
Nassetta said the midscale segment was an obvious void to fill in Hilton’s quest to serve any guest in any part of the world for any travel need.
 
Hilton research indicates nearly 40% of total hotel guest stays are in the midscale and economy segments, according to Nassetta and Cordell. STR data indicates that the midscale and economy classes combined account for 38.7% of roomnights sold in the U.S.
 
“Largely we’re not serving that,” Nassetta said. “Part of this is most definitely to serve that 40% segment of demand better. If you look at that 40% slice of demand, it definitely indexes younger.
 
“We’re clearly focused on customer acquisition,” he said. “We know that when we get people into our system, they like our product and they tend to trade up.”
 
Increasing exposure to the company’s Hilton HHonors loyalty program is another reason for the expansion, executives said:
  • “At least 20% of our HHonors members are looking for that price point,” Cordell said, adding that Tru’s ADR will likely fall in the $90-to-$100 range. Hampton’s system-wide ADR in 2015 was approximately $120.
  • “The sooner we can get people into the system, the more loyalty we can create,” Nassetta said. “This is definitely a means to acquire younger customers and more customers.”
  • “One of the things I’ve seen is that whole interest from guests who really are craving this idea of ‘just because I’m paying less doesn’t mean I can’t have a great experience,’” Jaritz said. “We have the beauty of not having legacy products, so we’re using those learnings from the ground up.”
 
The loyalty-program factor can’t be underestimated, according to Good.
 
“This brand will do a lot of things for Hilton other than just fill a (brand) space,” he said. “It’s also developing a loyalty pattern in which you have a better shot at picking off that first-time traveler. It’s a feeder brand in a lot of ways.”
 
An organic growth strategy
Tru joins Canopy, Curio and Home2 Suites as the fourth brand Hilton has launched since 2008.
 
“It’s not that we are not thoughtfully thinking about other ways to accelerate growth by acquiring other companies,” Nassetta said. “But we’ve gone the organic route.
 
“When we look at opportunities out there and the products you could acquire, what would we buy?” he added. “This is a space that needs to be reinvented. Yes, it will take us longer (to have many properties), but in the long run we’ll be in a better place.”
 
Nassetta said a discussion to enter the midscale space has been ongoing for the better part of eight years.
 
“I’m paid to worry, but I don’t worry about anything about this,” Nassetta said. “This is a category killer brand.”
 
The goal from the beginning of the process was to challenge what owners and consumers know about hotels—from room size to required amenities to design, according to Cordell.
 
“(The hotel industry is) not always known for innovation,” he said. “On a broad scale, we don’t really challenge what our guests think or what they want. We challenged ourselves about how can this brand be different and lead consumer behavior.”
 
Thinking outside the box
Hilton didn’t use a research group to determine the name. It was clear it didn’t want a name that used “inn” or “suites” or “hotel.”
 
“Tru has so many implications,” Cordell said. “True value, true consistency, true experience, true promises. There are so many things about being true to who we are.”
 
Jaritz said Tru has three pillars:
  • Simplified: An intuitive and simple guest experience and a property that is easy to build, maintain and operate.
  • Spirited: Cultivated connections with a vibe that is playful, energetic and engaging.
  • Grounded in value: A minimal yet meaningful approach that champions the value-conscious consumer while value-engineering it to provide owners with a good return on investment.
 
Using those pillars to maintain a level of consistency over time is a key component of the brand’s success, Jaritz said.
 
“The biggest thing out of the gate is we don’t have legacy product—this is primarily new-build,” she said. “We have to stay disciplined in our approach.”
 
Patel said Hilton must ensure the brand is well-defined and maintains differentiators from Hampton to be successful.
 
“They have to make sure they stay disciplined; that’s the key word,” Patel said. “One of the core pillars is a compact, functional, fresh fun room. You can’t deviate from that.”
 
Excluding land, Tru’s development cost per key is $83,000 to $85,000, Jaritz said. The prototype is set for 98 rooms, but it can scale up to include as many as 150 rooms or scale down to have 80 rooms and occupy less than two acres. Target markets include urban, suburban and highway locations.
 
“There’s nobody else in this space that has something with such cross-location appeal,” Jaritz said.
 
Good said the projected costs to build a Tru property are under $10 million, which is a good price point for developers and lenders.
 
“From the lending side it brings the overall package size down a little bit where smaller banks can play in that area again,” Good said. “You’ll have more financing players being able to participate.”

 
 

4 Comments

  • Anonymous January 25, 2016 3:44 AM

    Great, another brand. It seems like we have a thousand of those already. But this one makes some sense as it appears that it won't overlap with any other Hilton brands, at least at the outset.

  • Anonymous January 25, 2016 12:05 PM

    No, not yet. It's all in the value engineering that's done to get the cost per key down.

  • ginger Root January 30, 2016 3:08 PM

    Hilton should have reflected the percieved "essence" of this colorful and accessible brand, which spans cross-pollination of mass/upper masses...with a FAR catchier feel, in how it resonates with expectations, how it motivates...just not getting that "Tru" belief...;) But then again, the people they're likely reaching/converting don't have the demanding criteria that more persona-driven hotel brands can meet...

  • ASDF February 1, 2016 2:16 AM

    Who doesn't the love the Nassetta nonsense of how this won't steal from existing owners with Hampton Inns? Does he really believe his own lies?

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