Hilton inches closer to economy brand
06 FEBRUARY 2015 8:37 AM
With soft brand Curio up and running and lifestyle brand Canopy firmly in the works, Hilton executives are turning their sights on the company’s lone hole in the brand lineup.
LOS ANGELES—With the addition last year of lifestyle brand Canopy and soft brand Curio, Hilton Worldwide Holdings has a presence in nearly every market niche and segment—with one notable exception: economy.
That soon could change, according to Jim Holthouser.
During an interview at the Americas Lodging Investment Summit, the executive VP of global brands hinted that Hilton’s entry in the space could come within the next two to three years.
“We’ve looked at the economy segment many times. This isn’t something that we’ve just unintentionally not done. We’ve looked at it many times. And it’s an important one for us to get right,” Holthouser said.
The midscale and economy segments account for approximately 40% of hotel demand, he said, adding, “We really have no product to serve that.”
There are a lot of reasons why Hilton hasn’t introduced a lower-end product just yet.
“It’s not that Hilton’s clueless or we’re lazy here,” Holthouser joked. “It’s been intentional for us to focus on other parts of the industry first.”
In addition to launching the aforementioned Canopy and Curio brands, Hilton executives also have been busy growing the luxury side of their business. (There are 50 Waldorf Astoria and Conrad properties open at present, with an additional 25 in the pipeline, he said.)
The economics of economy brands
Another reason why Hilton hasn’t yet launched a budget brand: The economics have yet to stack up.
“Unfortunately, the model you find in economy doesn’t throw off enough profit to be able to keep the hotels in the kind of condition that we would want, especially if we would put the Hilton name on it,” Holthouser said.
That’s beginning to change, however.
“I’m very encouraged because … you’re starting to see some different models emerge in our business that will prove much more profitable,” Holthouser said.
Generating fees is a major incentive for any global player, he said. Hilton’s team also views an economy play as having potentially greater advantages.
“Essentially it creates a portal for next-generation travelers. If we think about millennials today—I know there’s a lot of hype about that generation—they’re a third of the adult population and 8% of lodging demand. That will change,” Holthouser said.
“Where you look at where that 8% largely stays, it’s really in economy and midscale. By the time a company like Hilton works to develop a brand, get it out there, get 1,000 units, we’re not going to be talking about millennials because they’re going to be on their second, third or fourth job and moving up. It will be whatever comes after millennials,” he said.
Just a matter of time
Hilton executives don’t view the economy play as appealing to any one generation. Rather, they view it as a point of entry into the broader Hilton brand family, Holthouser said.
“That’s how we need to think: Build an entry product, a portal if you will, for next-generation travelers, get them hooked into Hilton HHonors, and then as they go through the various life phases then you’ve got all kinds of really cool products you can serve them with over time.”
As to when Hilton and its competitors will start to build those entry products, Holthouser said “in time.”
When pressed further: “You’re already starting to see signs on the horizon. I’d say within the next two, three years.”