NEW YORK — Hotel industry leaders at the NYU International Hospitality Industry Investment Conference emphasized growth, not just from a portfolio standpoint but also in regard to inclusivity and social responsibility.
For Best Western, much of the portfolio growth over the past 11 to 12 years has been organic, according to Larry Cuculic, president and CEO of BWH Hotel Group. The company started as one brand and has grown to 18 brands as it segmented its portfolio.
Many of the company's developers now are the children or grandchildren of developers who have been in the hotel industry for a long time, Cuculic said. The young developers want to chart their own course and develop hotels they would want to stay at, often boutique and lifestyle hotels.
“They want to be able to show that they can do it and they can really chart a new course with regard to development,” he said.
Best Western has grown through its recognition of both consumer and developer demand for these types of hotels, Cuculic said, adding he hesitates to think about what would have happened if the company hadn’t gone that direction.
Choice Hotels International has 13 brands, and about half of them were launched organically, President and CEO Pat Pacious said. Four years ago, the company acquired its WoodSpring brand, providing the opportunity to reinvigorate its extended-stay segment. The company had 100 extended-stay hotels in 2018, and now it will open its 500th this year. It has also since launched another extended-stay brand, Everhome Suites.
Organic growth can come in three flavors, he said. It could be a brand launch, a new prototype that sets a brand in a new direction — such as its Cambria brand going after secondary leisure markets — or derivatives, such as Clarion and Clarion Pointe.
This week, Choice announced an acquisition of Radisson Hotel Group's Americas business, including its nine brands.
Pacious said that with organic growth through large-scale business, the returns are infinite because of the power of the full engine behind it. Organic growth always generates the highest return for shareholders, but inorganic growth through the right segment creates the opportunity to reach new types of consumers, he said.
“In a business like ours where seven out of every 10 franchise agreements we award go to an existing franchisee, our franchisees want us to do more development, want us to provide more branding opportunities for them,” he said. “Inorganic growth can help you do that in adjacent segments.”
Hilton historically has grown through mergers and acquisitions, said Kevin Jacobs, Hilton's chief financial officer and global development head. If there’s white space in a strategic imperative, it may make sense to acquire a brand. Hilton has been in that position before, such as when it bought DoubleTree.
These types of deals have to be put through a strategic lens and then a financial lens, and ultimately have to be financially accretive, he said.
“If you’re trying to solve a problem, you do the classic buy versus build analysis, and so far for us, as a new management team post all that [mergers and acquisitions] I talked about, we’ve concluded build is better than buy,” Jacobs said.
The organic growth model is 100% profit with infinite yield and high returns on investment, he said. That doesn’t mean that Hilton won’t ever acquire another brand, but given its strategic setup and its experience in creating new brands, it’s highly likely its growth will come entirely organically.
How companies grow their customer base is just as important as the brand growth question, Marriott International President Stephanie Linnartz said. Marriott is rapidly growing and needs more loyal customers for the hotels being added to the pipeline.
Part of that comes from Marriott’s loyalty program, Bonvoy, and growing that platform through new offerings outside the hotel brands that are complementary to the hotels, she said. The company’s Homes and Villas platform, its Ritz-Carlton yacht collection and travel insurance offerings all help with that.
They are relatively small compared to the core hotel business, but they help the loyalty program and grow the customer base, Linnartz said.
“You’ve got to think about growth very strategically and holistically,” she said.
When considering growing brands, there are two customers: owners and guests, said Elie Maalouf, CEO of the Americas for IHG Hotels & Resorts. That requires learning whether there’s something guests want that the company isn’t delivering. IHG has grown to 17 brands by realizing opportunities of scale to meet the needs of owners and guests, he said.
“Guests’ flavors and desires expand, and they want different varieties,” Maalouf said.
To succeed, though, that consumer demand has to meet with capital and owners’ desire to invest, he said. The Holiday Inn Express brand has gone from zero hotels to 3,000 in 30 years.
“To me, that’s the model,” Maalouf said. “Whoever did that back then — genius — nailed that intersection of guest preference, owner desire and did 100 a year on average.”
Environmental, Social, Governance
Research shows consumers prefer hotels that have sustainable practices over hotels that don’t, said Geoff Ballotti, president and CEO of Wyndham Hotels & Resorts. The challenge is letting guests know what hotels are doing to be more environmentally friendly, he said.
The hotel industry came together during the COVID-19 pandemic to educate guests about cleanliness protocols, and can apply the same strategy to sustainability initiatives, he said. Competitors can share best practices with each other without trying to hold an advantage over one another, he said.
Wyndham has certification requirements of its franchisees and is active in water conservation efforts, maximizing towel and linen reuse programs and energy-efficient lighting, Ballotti said. The next step is tracking these efforts.
“By year end, they’ll be not only certifying that they’re following each of these standards, they’re tracking each of these standards, and we’ll be communicating that to consumers,” he said.
The hotel industry needs to continue working on diversity, Linnartz said. Those who work in hospitality skew female, minority and young, and those are the jobs that disappeared during the pandemic. A study by McKinsey and Co. found the pandemic set women back roughly a decade in terms of equitable pay and representation, calling it a “she-cession.”
While there’s a great deal of diversity in the hotel industry, there isn’t enough at the highest levels and senior leadership roles, she said. There isn’t enough diversity among hotel owners, and that’s why Marriott launched its $50 million Bridge the Gap program to encourage more female, Black, Native American, Latino and Hispanic owners.
The industry has made progress, but there’s more work to do, she said. Hospitality offers people opportunities to start as an hourly worker and advance to general manager, regional manager or an executive position. Fifty percent of Marriott’s general managers started as hourly employees.
Diversity efforts require a level of intentionality, Maalouf said. Not every career path will get someone to the top, so exposure to some of the key experiences in finance, development and other growth aspects are important.
“We have to think about those career paths and make an intentional effort to open them up,” he said.
Having development experience in particular tends to be important, Maalouf said, adding that he’s proud that IHG’s development group is led by a woman, Julienne Smith, and almost half of the team members are women. It wasn’t like that when he started, he said.
“We’re not growing any more slowly,” he said. “We’re growing even more rapidly. In the first quarter, we had our highest signings since 2018 in the Americas.”
The other challenge in the industry is getting the lenders and equity community on board to allow for access, Pacious said. The first questions entrepreneurs get asked are about their experience and net worth, and if they don’t have enough of either, it’s difficult to move forward.
The Asian American community has done a great job creating personal networks connecting them to local lenders, he said. That is what needs to happen for other minorities and female entrepreneurs.
“We have to get the equity players and the lenders to open up a little bit more as well and change what their investment committees are actually thinking about when they're making those decisions about whether to fund a project or not,” he said.