Kong: Best Western must add more brands to grow scale
 
Kong: Best Western must add more brands to grow scale
01 AUGUST 2018 8:13 AM

Adding to Best Western’s current roster of 11 brands and growing its presence in Australia are among the company’s top priorities as it looks to leverage its “disruptor” mentality, CEO David Kong said during the recent HotelsWorld event.

SYDNEY—Best Western International continues to look for ways to increase its global scale, and Australia is one region President and CEO David Kong pointed to as a prime target.

Speaking during an onstage interview at last week’s HotelsWorld gathering, Kong said Best Western is looking for expansion through organic growth and potential mergers or acquisitions, but adding more brands remains a goal for the Phoenix-based company.

“Eleven brands is probably not enough based on the need to create more choices as people evolve their expectations,” Kong said.

The importance of scale can’t be underestimated, he said. Marriott International’s 2016 acquisition of Starwood Hotels & Resorts Worldwide illustrates that scale is a sign of the times because it created formidable competitive advantages.

“Think about the synergy and efficiency created by that … in the first year Marriott saved $250 million in overhead expenses,” Kong said.

That money can be used for new investments in other areas such as marketing, sales and technology, he added.

“Which means they can do things faster and they can make these investments a lot more frequently,” he said. “That creates a tremendous advantage.”

Marriott is the one company that doesn’t need online travel agencies, Kong said.

“OTAs need Marriott more than (Marriott) needs OTAs,” Kong said. “So when it’s time to negotiate a new contract, who has the advantage?”

Best Western, which was founded as a membership association by M.K. Guertin in 1946, has built its current portfolio of more than 4,200 hotels through organic growth by launching new brands. After years of trying, Kong in 2010 was able to get Best Western’s members to approve a brand tiering system that established the base of the company’s portfolio today: Best Western, Best Western Plus and Best Western Premier.

It launched its Vib (pronounced “vibe”) urban boutique brand and Premier Collection soft brand in 2014. Other brand launches include: Glo in 2015, SureStay Hotels by Best Western, SureStay Plus, SureStay Collection and Executive Residency in 2016 and BW Signature Collection in 2017.

Kong said company executives have explored options to acquire brands and companies in its quest to expand.

“We have to look at those opportunities,” he said.

Best Western developed a chart that shows how major hotel companies expanded in various chain scales and used red circles to indicate brands that were acquired.

“Most of them have a lot of red circles … that’s how they ramp up and grow scale so fast,” Kong said. “So we have to consider that.”

Australia, where Best Western has 115 independently owned and managed properties, is a prime focus of expansion, Kong said.

Best Western for many years worked through partners in Australia and New Zealand. Earlier this year, it ended the partnership agreements and combined its presence in the region under the parent umbrella.

“It’s a friendly separation, but nonetheless, the reason behind it is important to create scale,” Kong said. “When we have an affiliate here that’s doing its own thing with a hundred some hotels here, they can only do so much. If it’s part of the parent company with over 4,200 hotels around the world, all of the sudden you create this immense synergy and efficiency.”

The move bolsters the parent company’s interests in a region that is attracting more developers and investors to it, he added.

“It motivates the mother brand, Best Western International, to actually make investments in this territory,” Kong said. “Sydney is a very hot market, and there are other markets similar in Australia and New Zealand.”

All of this puts Best Western in aggressive growth mode for the region, according to the CEO.

“We have the potential to double our presence here (in the next five years) especially through the utilization of our new brands—we have boutique and lifestyle brands, we have an extended-stay brands, we have soft brands that’s becoming very popular,” Kong said. “We have the economy segment brand (SureStay) that has the fastest ramp-up in the industry—we have 190 hotels around the world and we just launched it two years ago. … All of these represent huge potential for us in this market.”

Investment incentives
To further accelerate that growth, Best Western will extend its ability to provide investment incentives—a program it launched in 2016—outside of the United States. The investments will primarily be sliver equity, but could include joint ventures, Kong said.

In addition, Kong didn’t rule out Best Western launching management services in Australia and New Zealand, similar to what it does in Asia, but it will initially start by teaming with endorsed management companies.

Kong, who has served as Best Western’s chief executive since 2004, said the company’s growth strategy is a direct reflection of a change in its overall mindset.

“I’ve always believed the innovation is really important especially when change is happening so fast all around us,” Kong said. “We have adopted a different way that we think about things so I always advocate that we think about a disruptor in today’s world and advocate a sense of urgency in execution.”

That urgency has given the company’s leadership a well-defined direction, he added.

“If you don’t have that type of mentality, you tend to sit around the boardroom and think, ‘What are some of the things I can do to make some improvement to my business?’ when we ought to be thinking, ‘What are things that can actually derail us, that cause us to be irrelevant over time?” Kong said.

That type of thinking prompts different results, he said. Marginal tweaks result in marginal improvements, but looking at it from a disruptive perspective yields a unique state of mind.

“When you actually worry about survival, you tend to think totally differently—you start with a fresh sheet of paper and you begin to think like a disruptor,” Kong said.

Full circle: Back to brand choices
This disruptor mindset circles back to the quest for more brands to create scale.

Best Western’s well-chronicled path that took it from one brand to 11 brands under Kong’s watch is a result of the company meeting consumer demand, he said. The need for different segments in the hotel industry is a result of the needs of different travelers.

“In each one of those segments you can have a traditional hotel … but you can have a lifestyle hotel for each one of those segments, you can have soft brands for each one of those segments, you can have apartment hotels for each one of those segments … you can have home sharing for each one of those segments,” Kong said. “If you multiply the number of segments that we have times the types of hotels that we could possibly have because of different travel locations, you all of the sudden end up with a lot of brands because that’s what people want—they want a lot of options.”

He cited BMW’s growth from having three vehicle models when he arrived in the United States 40 years ago to the numerous models it has today as an example of meeting consumer demand outside the hotel industry.

“You ask yourself, ‘How did that situation come about? … Did BMW just wake up one day and decide to have 30 brands rather than just three?” Kong said. “Obviously they evolved in time because of customer expectations.

“Likewise, you take that choice that’s so important to consumers and apply it to the hotel industry, that’s why you need to create all these bands,” he added. “Offering choices is a really good thing because it builds loyalty.”

The rise of online travel agencies can be attributed to this choice-driven model, according to Kong.

1 Comment

  • kicero shah August 1, 2018 6:17 PM Reply

    Creating Goodwill capital behind a Brand takes time and no amount of refresh can hurry it up. Lot of built in Goodwill is lost when a Brand decides to drop the insignia like BWI did by dropping its famous Crown. For growth sometimes one needs fresh blood and simply old wine in new bottles, just does not work.

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