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Ask hoteliers what the biggest story of the travel industry has been in the past year, and many are apt to say one word: consolidation.
They’re referring, of course, to the wave of mergers and acquisitions that we saw take place in 2016 and play out in 2017. Two were especially notable: AccorHotels’ $2.7 billion purchase of the Fairmont, Swissotel, and Raffles brands, among other acquisitions in the luxury alternative accommodations space (Onefinestay, Travel Keys, and Squarebreak), and Marriott’s $13.3 billion acquisition of Starwood Hotels & Resorts, which finally closed in September 2016.
With its numerous recent acquisitions, AccorHotels has built a formidable luxury business. Its luxury hotel brands now include Fairmont, Raffles, Swissotel, Sofitel, Sofitel Legend, So/Sofitel, M Gallery by Sofitel, Pullman, and Grand Mercure. AccorHotels also has partnerships with Banyan Tree and Orient Express, and it also owns luxury alternative accommodations platform Onefinestay, which now includes Squarebreak and Travel Keys.
Marriott’s acquisition of Starwood resulted in a total of eight luxury brands in 60 countries worldwide: JW Marriott, The Ritz-Carlton, Ritz-Carlton Reserve, Bulgari, Edition, W Hotels, The Luxury Collection, and The St. Regis.
A little more than a year later, the effects of these transactions are still reverberating throughout the hospitality industry. And for the luxury hospitality space in particular, the consolidation has resulted in two competing giants — AccorHotels and Marriott — but also room for opportunity.
“The mergers that took place this year, between Marriott and Starwood and AccorHotels and Fairmont-Raffles-Swissotel — we’ve never seen that level of consolidation before and it is reshaping our industry,” said Christian H. Clerc, president of worldwide hotel operations for Four Seasons Hotels and Resorts.
Skift spoke to a number of hotel executives at the International Luxury Travel Market in Cannes in early December for their thoughts on how consolidation is impacting their business, and here’s what they had to say.
Be Big Or Small, But Don’t Get Stuck in the Middle
Many hoteliers Skift spoke to expressed the idea that this is the time for smaller hotel companies to shine, now that the large brands are getting bigger.
“Either you’re small and nimble and you’ve differentiated yourself, or you’re very big,” said Marc Dardenne, interim CEO of Jumeriah. “We’re happy to be in the position that we are because it creates value with our owners. In a large organization, it’s difficult because you’re so big. If you’re in the middle and undifferentiated, you could get swallowed up.”
For that reason, he said, “We’re not focused on numbers; we want to grow smartly and every addition enhances our brand. We’re not about growth for growth’s sake.”
That being said, Dardenne also revealed that Jumeirah plans to debut a new upscale lifestyle brand in early 2018, so we’ll see how the company manages its growth while also launching a new brand.
Being “small and nimble,” Dardenne said, has helped Jumeirah in its distribution strategies, however. “We’re also very accessible and we have a one-to-one approach to sales and marketing that lets us be focused on every owner’s priorities. For big players, it’s challenging for them and for customers to have so many brands. There’s an advantage in distribution and loyalty, however. With size, you can lose the essence of the business and the DNA of the brands.”
Staying true to a single focus is what Clerc plans to do at Four Seasons. “We like our position because we’re global, and there’s clarity about our brand and we have that single focus. Right now, we don’t have any plans to launch new brands.”
Clerc added: “The consolidation taking place in the industry is an opportunity for us. We’re single focused on luxury hotels. We see this as an opportunity to continue to excel in that niche. We’ve done it for well over 50 years. Our brand awareness is greater than the size of our portfolio of 107 hotels.”
Neil Jacobs, CEO of Six Senses, echoed Clerc and Dardenne’s statements.
“People want individuality, and it’s an era for small brands with a little scale and consistency,” he said. “The more consolidation, the more opportunity there is for smaller players like us.”
Nicholas Clayton, Capella Hotel Group CEO, said that while he has “total respect for everyone in our industry,” it’s often smaller, more regionally focused players who are the leaders in luxury hospitality in their respective locales.
“To win the game at the local level, it’s not the bigger companies, but the very best hotels in these destinations that are winning,” Clayton said. “People want to stay at the best hotel for that destination and it’s a market that’s not cornered by the big brands. In another market, it could be an independent hotel. Their luxury brands [from the bigger companies] aren’t always the best-performing brands in their markets.”
Time to Team Up
Kenan Simmons, vice president of the Americas for Small Luxury Hotels of the World, said that more independent hoteliers are also turning to organizations like his to seek strength in numbers. “Consolidation in the hospitality industry has helped our business,” Simmons said. “Bigger brands are getting much more powerful, so independent hotels need to align themselves with someone. We’ve had more inquiries this year than we ever had.”
Others are looking to one another for scale, including Taj Hotels Resorts and Palaces. Last year, the company teamed up with Shangri-La Hotels and Resorts on an alliance that linked their respective loyalty programs.
One year later, Taj Hotels chief revenue officer Chinmai Sharma said the program is going well, and he hinted that more hotel partners may join, or that Taj may deepen its relationship with Shangri-La. “There’s a lot of engagement on both sides and it’s good,” he said. “We’ve seen a lot of redemptions with Taj members and Shangri-La hotels. There’s some interest among other brands but nothing formal yet. There’s a chance of a deeper integration with sales and distribution, and some smaller players may get together. We’re trying to find like-minded partners.”
The increasing consolidation in hospitality also has the company rethinking its overall strategy to go from an asset-heavy company to one that’s asset-light — a model preferred by major hotel companies that include Marriott, AccorHotels, and Hilton to pursue more growth and scale.
“Consolidation is definitely having an impact on the larger ecosystem,” Sharma said. “It’s interesting to see where it goes and we’re keeping an eye on it. Management agreements and asset-light models are making everything more competitive. For all intents and purposes, they are hotel operators with all those brands. Taj is majority owned and operated but we have plans to change, to go more asset light. We’ll grow fast in the years to come.”
Brand Differentiation Becomes Crucial for Marriott and AccorHotels
The mega mergers that Marriott and AccorHotels have undertaken have forced both companies to work on how they define their multiple brands to make sure each one is differentiated enough from one another, let alone competitors.
Mitzi Gaskins, vice president and global brand leader for the JW Marriott and The Luxury Collection brands, said that because Marriott has carved out its own luxury and lifestyle division, the brands can function as though they were part of a smaller, more agile business unit of their own.
“Even though we’re this big organization, having this separate luxury and lifestyle division gives us the ability to create a true luxury focus,” Gaskins said. “We’re attracting talent for people who want to work in luxury, and it gives us an advantage. It also feels like it’s small, it’s like a cocoon in this larger organization….We have 380 hotels in the division and the way we’ve done this allows us to be better.”
Differentiation of brands is also crucial. “I think our brands will be more differentiated now than when they were competitors; the swim lanes will be narrower. It was a painful process and an educational one. When the [loyalty programs] are together, we will be even more powerful,” Gaskins said.
Her colleague, Anthony Ingham, global brand leader of W Hotels, added: “The business has to be stricter about differentiation. Every word and image counts.”
Those sentiments were also echoed by Rick Harvey Lam, senior vice president of global marketing for luxury brands at AccorHotels. Lam said AccorHotels has also undergone an extensive exercise in brand differentiation and that the company carefully examined each brand’s DNA and origins to come up with “brand concepts, markers, and rituals that give you a clearer feeling of where you are,” culminating in three to four pillars or themes for each brand.
W Hotels’ Ingham also said that brands like his have greatly benefited from the Marriott acquisition of Starwood because the brand can focus on making sure its standards remain consistent, and growth isn’t done for growth’s sake.
“What’s really different for W now is that the value is much broader than the footprint or the fees,” Ingham said. “Millennial-minded consumers really crave value and we now have so many more resources available to the W brand now. It’s not about growth at any cost anymore. There used to be this conflict between fee income versus detrimental impact to the brand and now, with 6,200 hotels and 1,500 in the pipeline, an exit is a small drop in the ocean relative to the portfolio of hotels. That dynamic is different. Starwood was under pressure from Wall Street.”
Ingham added: “This consolidation does turn hospitality on its head.”
AccorHotels and MArriott Want to Keep Thinking Outside the Box
Lam said that AccorHotels isn’t content to just think of luxury in terms of hotels, either, which is why the company has pursued acquisitions in luxury vacation rentals and alternative accommodations to capitalize on the “synergy” of this segment with traditional hospitality.
“Our vision of the group is one of differentiation, and basically being not so much the biggest hospitality partner but being the ideal travel partner, so although our core business remains the hospitality business, we are also diversifying in what I would call ‘digital platform in distribution,’ but also into what we would call the ‘shared economy’ and being a bigger part of the local communities,” Lam said. “We feel that there is some synergy but also we will be able to tap into a segment and a need that has been already been in the works for the last few years. Instead of fighting it, we want to make sure that we are part of that evolution.”
Marriott hasn’t publicly expressed any interest in investing in the sharing economy anytime soon, but it is also pursuing innovation in the luxury guest experience. Tina Edmundson, global brand officer for Marriott International’s luxury and lifestyle brands, noted Marriott’s innovation in the Internet of Things Guestroom, the launch of the new Ritz-Carlton yacht debuting in late 2019, and the company’s investment in PlacePass, a metasearch for tours and activities, as evidence of Marriott’s commitment to thinking of itself as more than just a hotel company.
And while AccorHotels’ experiment in serving as a booking engine for independent hotels was not successful, Lam said, the effort speaks to the company’s approach. “I think, first of all, the culture is humble and we are very agile. I think, if you would compare us with other big groups, you’ve seen that we have walked the talk. Meaning with we have added critical mass in the luxury space but we have also trialled, tried, and sometimes we — I won’t say ‘fail,’ I don’t like the word ‘fail’ — but we have tried something and tried to see whether we could mean something and, believing in economies of scale, try to leverage our distribution channels for independent hotels.”
And although that endeavor didn’t go as planned, Lam said AccorHotels will continue to remain attuned to innovation, as evidenced by the company’s pilots with accessible, connected guest rooms, and the new AccorLocal mobile app.
“We do believe — and this is also our approach going forward — that we will keep thinking outside the box,” he said. “But we will remain open-minded when we believe that we will need to go into other directions.”