Luxury and lifestyle hotels are the industry's new battlefield for growth. IHG's rapid growth in this sector with new brands over the last few years boils down to one thing: This company isn't just ceding high-end customers to companies like Accor, Hilton, and Marriott.
Another day, another brand for the hotel CEO who once cautioned against brand bloat across the hospitality sector.
IHG Hotels & Resorts expects to launch a new soft brand collection of luxury and lifestyle hotels in the next few weeks, the company’s CEO Keith Barr said Tuesday on an investor call.
IHG’s further elbowing into the luxury and lifestyle space is a shot across the bow (and English Channel) to competitors like Paris-based Accor, which has also emphasized growth in both sectors during the pandemic. Hilton also recently indicated plans to beef up its LXR Hotels & Resorts luxury soft brand in markets like the U.S. and Israel.
With so many hotel companies looking to sign deals, that likely puts more leverage into the hands of potential franchisees at the negotiating table.
The soft brand space enables hotel owners to retain more autonomy than they would under an agreement with one of IHG’s hard brands and accompanying standards like InterContinental. It also gives IHG another tool to play in the luxury and so-called “lifestyle hotel” space, which focuses more on elevated local experiences and food and beverage offerings.
“As we’ve engaged with owners and developers on our expanded portfolio, it became very clear that there’s strong demand and appetite for a collection brand from IHG in the luxury and lifestyle space — something that could create more opportunities to work with us on properties that today don’t have quite the right fit in our portfolio,” Barr said.
The launch of a yet another new brand at IHG may seem like a head-scratcher. After all, Barr cautioned at Skift Forum Europe in 2019 against having too many brands and that “if you have brands which don’t truly mean something … it’s just a sign on a building.”
IHG acquired luxury brands like Regent and Six Senses under Barr’s watch while organically launching new brands like Atwell Suites and Voco. But the IHG CEO maintains each of the company’s new brands, including the upcoming collection of hotels, plays a vital role in the company’s growth.
The new brand would be IHG’s 17th compared to 40 at Accor, 30 at Marriott, and 18 at Hilton. Brand bloat is still a concern. Accor CEO Sebastien Bazin previously indicated only 12 of the company’s brands account for 90 percent of the company’s profits. IHG’s brand growth is significantly more measured by comparison.
IHG leaders expect the new luxury and lifestyle collection of hotels — which Barr declined to name or provide much in the way of details “for just a few weeks longer” — will grow to more than 100 hotels in the next decade. Growth will largely depend on conversions, deals where IHG would convince the owner of an existing independent hotel to take on affiliation with the new soft brand.
IHG will market features of brand affiliation like its distribution channels, loyalty program, and marketing and sales teams during the conversion talks. The unique aspect of soft brand conversions is there isn’t typically the heavy investment required for building design and décor that would be required for the uniformity of a hard brand and its accompanying standards like InterContinental.
The luxury and lifestyle space accounted for more than $100 billion in rooms revenue in 2019, according to IHG. The growth potential stems from the fact that 40 percent, or 1.5 million rooms, of the sector is tied to an independent hotel.
The soft brand could also enable IHG to tap into the all-inclusive resort sector, something Barr indicated interest in during an interview with Skift last month and that he reiterated on the investor call Tuesday. Marriott is utilizing its Autograph Collection soft brand in its own all-inclusive push.
While the fundamentals may seem ripe for lifestyle and luxury growth, there is also a lot of competition in the market. Paris-based Accor is one of the most active hotel companies in the sector, with its planned Ennismore spin-off of luxury and high-end brands like SLS, Gleneagles, and the Hoxton. Hilton’s LXR Hotels & Resorts and Marriott’s The Luxury Collection soft brands would be direct competitors in the luxury space.
But Barr remained bullish on how IHG can forge ahead with growth, even calling the 100 hotels in 10 years projection a potential undersell.
“That’s a good number to have, but we probably could have more than that as well,” Barr said.
A Transition Year
IHG’s $138 million profit for the first half of 2021 was one of several financial and development points company leaders pointed to as sign of a travel recovery well underway. This was up from a $233 million loss for the same time in 2020.
The U.S. and China accounted for a bulk of IHG’s recovery from the pandemic while markets in Europe, the Middle East, and Southeast Asia struggled more in light of ongoing travel restrictions and more reliance on international travel.
Nearly half of IHG’s hotels saw revenue per available room, the industry’s key performance metric, exceed 2019 levels in July.
IHG signed 203 new hotel deals for the first half of the year, which was about a quarter more than the same time last year when the company boasted signing one new deal each day. The company emphasized significant growth at popular brands like Holiday Inn Express and Avid.
But company leaders also got pushback from analysts noting that net rooms growth for the year so far was essentially zero.
Part of this was chalked up to the 102 hotels leaving the system in light of Service Properties Trust, or SVC, cutting ties with both IHG and Marriott in favor of moving properties into brand agreements with Sonesta International Hotels Corp., a Boston-based hotel company in which SVC has a 34 percent stake.
IHG also has itself to blame for some of the flat rooms growth. Company leaders indicated in February they were reviewing about 200 underperforming Crowne Plaza and Holiday Inn hotels and in talks with owners about potential renovations or ending contracts. Fifty-six of these hotels left the IHG network in the first half of this year while more than 30 will undergo renovations.
IHG could end up with as many as 130 of the hotels under review leaving the system and the remaining 70 getting significant renovations, Paul Edgecliffe-Johnson, IHG’s chief financial officer, said.
Company leaders expect strengthening both brands will drive higher customer satisfaction and make them more appealing with potential new franchisees. About 75 percent of the Crowne Plaza portfolio will have been entirely renovated within the last five years by the time the review process completes.
“We are pleased with the progress and think this will really help the Holiday Inn and Crowne Plaza brands grow over time,” Edgecliffe-Johnson said.
Developer Tides Turning
IHG leaders see the room deletions as a short-term matter and that 2022 and 2023 will look more like 2018 and 2019 when it comes to the pace of development.
The new brands will help fuel the recovery in the U.S. while the pace of development in China already “feels just like 2019,” Barr said. Europe, the Middle East, and Asia outside China are also picking up when it comes to development.
Company leaders claimed they haven’t seen any impact on bookings yet when it comes to the rise of new strains of the virus like the Delta variant. Instead, they see a return of investors willing to put capital into new hotel projects — especially with some of the company’s self-described “mainstream” brands like Avid and Holiday Inn.
“It was right for there to be a pause in many ways for the segment in this industry for a period of time,” Barr said. “You are seeing the development sentiment in the mainstream segments come back and accelerate. Lenders are feeling more confident moving forward, too.”
Photo credit: IHG's new luxury and lifestyle brand will complement some of the company's existing high-end offerings like InterContinental (pictured). HEBS Digital / Wikimedia