All the major hotel companies see upside in pushing into the high-end sector. IHG zeroing in on independent luxury hotels is a smart strategy to rack up rooms growth against the competition beyond the tough-to-crack luxury markets in the U.S. and China.
Unbranded, high-end hotels abound outside the U.S. and China — and IHG leaders want to bring those into a more flexible branding arrangement in the latest move to boost the company’s luxury and lifestyle footprint.
IHG Hotels & Resorts divulged Tuesday its newest brand, the company’s 17th that was first hinted at earlier this month, will be the Vignette Collection. The organic growth move follows the company’s acquisition of luxury brands like Regent in recent years and affirms its position as the world’s second-largest luxury and lifestyle hotel operator behind Marriott.
The Vignette Collection — a soft brand where owners can access IHG’s distribution, sales, and loyalty networks without the rigid design standards that go with something like an InterContinental — also enables the company to comprehensively compete in the sector against the likes of Hilton and Accor, which have both pointed to luxury and lifestyle hotels as leading sources of growth.
“It’s something that’s probably not well understood. We’re the second-largest player in the industry in luxury and lifestyle,” IHG CEO Keith Barr said in an exclusive interview with Skift ahead of the brand launch. “We have been building that brand portfolio to enable us to access a lot of opportunity. One of my biggest frustrations was we had owners who wanted to work with us, and we didn’t have a product to sell them.”
IHG beefed up its luxury and lifestyle portfolio in the last decade to include Kimpton, Regent, Six Senses, and now the Vignette Collection. Hotel Indigo and InterContinental round out IHG’s luxury and lifestyle portfolio, which the company says accounts for more than 400 hotels.
It’s not a major gap behind Marriott’s luxury lead, which accounted for 452 hotels across brands like St. Regis and Ritz-Carlton, according to the company’s most recent annual filing with the U.S. Securities and Exchange Commission. Hilton’s luxury brands like Waldorf Astoria, Conrad, and LXR Hotels & Resorts — a soft brand that will be a Vignette direct competitor — accounted for just under 80 hotels.
IHG sees plenty of green to be made in beefing up its presence further in the space.
The luxury and lifestyle space accounted for more than $100 billion in rooms revenue in 2019, according to a company report. The growth potential stems from the fact that 40 percent, or 1.5 million rooms, of the sector is tied to an independent hotel.
Fertile Ground for Growth
All the major brands like Marriott, Hilton, and Accor have touted various emphasis on luxury and lifestyle growth through hard and soft brands over the last year. Paris-based Accor has been among the most vocal over the pandemic, with a corporate restructuring leading to independent divisions for its ultra-luxury brands like Raffles as well as more lifestyle-centric ones like SLS.
Vignette can throttle IHG’s luxury and lifestyle ambition forward over the competition simply by finally giving the company a soft brand to win over independent hotel owners who like some of the elements of a major affiliation but not the rigidity of a hard brand.
“This is going to help tie together that luxury and lifestyle opportunity with the power of IHG,” Barr said. “Owners like the space. It lets owners bring in their personal sense of design to some degree.”
The Vignette Collection’s first hotels will be the Hotel X in Brisbane, Australia, as well as the Pattaya Aquatique hotel in Thailand.
IHG will likely see some growth from the U.S. and China for the brand, which Barr indicated on an investor call earlier this month could grow to more than 100 properties in the next decade. But there is more fertile soil in markets like Europe and other parts of Asia that aren’t as brand heavy as the world’s two largest economies — both of which have thousands more branded hotels than independents.
Only 45 percent of the luxury and upper upscale hotel rooms in Europe are branded, according to brokerage firm JLL. It’s slightly higher at 54 percent in Asian markets outside China.
More than 70 percent of luxury and upper upscale hotel rooms in the U.S. are branded, according to brokerage firm JLL. While China is more of an even split, some of IHG’s competitors like Hyatt have noted the market there has become a high barrier-to-entry place to grow a franchise footprint.
Barr also indicated opportunity to be had in the Middle East, where JLL tracks as about the same as the U.S. in terms of branded higher-end hotel product. But the Middle East and Africa broadly are ripe for hotel parent companies to appeal to independent hotel owners to consider taking on a brand affiliation: There are just over 5,700 independent hotels across the Middle East and Africa compared to less than 2,000 branded properties, according to STR.
“It’s a question of where are there the most fish to do your fishing at the end of the day,” Barr said. “You really look at that with Europe into the Middle East and into Asia. You’ve got a significant number of unbranded, great independent hotels.”
The Missing Rung?
Vignette is expected to compete directly with other luxury soft brands like Hilton’s LXR and the Luxury Collection at Marriott as well as more mainstream soft brands like Autograph Collection, Marriott’s premium-billed soft brand of hotels.
Barr sees opportunity in adding more all-inclusive resorts, which he said is possible with Vignette. Marriott previously announced the Autograph Collection would be the branding of choice for its own all-inclusive brand growth.
Barr previously cautioned against brand bloat while also adding several brands to the IHG line-up under his watch — moves he described in a prior interview with Skift this summer as filling in missing rungs to the company’s ladder of brands.
Is the Vignette Collection the company’s final rung to the luxury end of IHG’s brand ladder?
“I think it helps finish it out … There might be some unique stuff on the edges of luxury and lifestyle that you could play around with, which I have in the back of my head,” Barr said before adding with a laugh: “But I want to get this next kid out the door, and then we’ll see what we come up with next.”
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Photo credit: IHG's push into soft brands in the luxury sector can offer plenty of growth for the company in markets outside the U.S. (pictured: the Hotel X in Brisbane, one of the first Vignette Collection hotels). IHG Hotels & Resorts