Skift Take

It's time to think big and give some distinct purpose to individual brands if Radisson wants to stay relevant against the competitors that are eating its lunch.

Series: Early Check-In

Early Check-In

Editor’s Note: Early Check-In, Making Sense of the Week in Hotel Deals & Development: First thing every Monday morning, hospitality reporter Cameron Sperance brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry. Start your week by being smarter.

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(Editor’s note: Early Check-In is taking some time off at the end of the year and will be back on Monday, January 3. Thank you for being loyal readers through the year. Here’s wishing you all the best in 2022.)

It’s even more of dog-eat-dog world than usual in the hotel industry coming out of the pandemic. Smaller brands have targets on their back. 

Radisson Hotel Group Americas is in the middle of an executive shake-up, as former CEO Jim Alderman — who had been with Radisson since March of 2020 — left the company this month. Tom Buoy, the company’s chief commercial officer, was set up as interim CEO last week while the company looks for a full-time replacement. 

The leadership change comes after Radisson split into two companies as a result of U.S. government pressure to keep data from China. The previously fully intact Radisson was owned by a Chinese state-owned firm, Jin Jiang International.   

The executive shakeup also comes at a time when bigger hotel companies like Marriott, Hilton, and Hyatt are getting bigger and analysts beat the drum that hospitality firms of all sizes, but especially smaller ones, must have brands and operations that stand out against the competition to excel in the pandemic recovery.

It’s not impossible for small brands to grow. Sonesta International Hotels Corp. became one of the largest hotel companies in the U.S. practically overnight this year thanks to brand conversions of existing hotels as well as the company’s acquisition of RLH Corp., parent company of Red Lion Hotels. 

But Sonesta has a distinct lineup of brands across a variety of price points whereas Radisson can leave customers — and potential franchisees — scratching their heads. 

Some of Radisson’s brands include the namesake brand as well as the Radisson Collection (billed as a “premium lifestyle/affordable luxury” brand in a company franchise document), Radisson Blu — an upper upscale brand, Radisson Red (another upscale offering but with more of a focus on design), and Radisson Individuals (more of a soft brand where hotels retain more of an independent feel).

“Does the traveling public really understand the differentiator between these various brands?” said Dan Lesser, CEO of LW Hospitality Advisors before adding this isn’t a problem just limited to Radisson: “Without naming names I’ve had more than one franchise guy tell me, ‘I don’t know what the difference is between, you know, this brand and that brand within my own portfolio.’ I mean, if a franchise guy tells you that, what does that say?”

It can be confusing enough to figure out what’s the difference among Accor’s 40 brands or Marriott’s 30 — and those all have different names unlike Radisson’s overlapping monikers.

But those companies have a broader network than Radisson, which makes them more appealing to potential franchisees of both new hotels as well as existing assets. 

Start Your Conversion Engine: Construction financing is tight for hotel developers due to the downturn in travel demand, so hotel companies are putting more of an emphasis on conversions ­— a type of deal where the owner of an existing hotel takes on a new brand affiliation — to fuel growth during the recovery. 

Executives at companies like Wyndham, Choice Hotels, Marriott, and Hilton have all made it clear they are targeting independent hotels and properties branded by smaller companies to satisfy their conversion appetite. A company like Radisson is a logical target.

“We’re under assault from our competitors, as everyone is,” Alderman told Skift earlier this year. “This is a very, very, very competitive business. It’s a very insular business. Almost everyone at one company selling franchises has worked for one of the other companies selling franchises, so you know everyone’s clients.”

Radisson Hotel Group Americas declined to speak for this article. The executive team at Radisson Hotel Group — which operates beyond North, Central, and South America — has pushed back multiple interviews and requests for comment with Skift since July.

Both the Americas business as well as Radisson Hotel Group, perceived as the stronger of the two entities, have a miniscule bite of the hotel industry development pipeline. Radisson Hotel Group Americas doesn’t even account for 1 percent of the U.S. development pipeline while Marriott, Hilton, and IHG accounted for 68 percent in the third quarter, according to Lodging Econometrics. 

“The challenge for any hotel franchisor trying to compete with the largest and most established hotel brands is that the other flags have thousands of hotels already in the U.S. with decades-long reputations well known by the public and often in the best locations within the markets,” said Gregory Miller, vice president of lodging and experiential leisure equity research at Truist Securities.  

The biggest brands also come to the franchisee negotiating table with strong loyalty programs, distribution, and marketing reach. A relatively smaller hotel company, whether it’s a start-up or a brand with several hundred properties, can still create a compelling case, Miller said.

“But you still have to win the reputations and market share of customers, hotel owners, and support from hotel lenders,” he added. “Especially in an established U.S. hotel market for select- and full-service hotels, it’s a challenging and competitive arena for smaller hotel franchisors. The biggest hotel brands can continue to scale with little additional cost or by adding tuck-in brand acquisitions and accretive [mergers and acquisitions] over time.”

Radisson faces even more of a struggle on the horizon with its competitors getting bigger through conversions and new construction. 

“Every brand and every brand family’s biggest nightmare is having a frequent traveler who is loyal to their brand going to a location where they don’t have a product to offer,” Lesser said. “That’s why we’ve seen this explosion of American brands going oversees and foreign brands coming here because, again, that nightmare scenario is you get that frequent traveler who tries somebody else’s product and likes it.”

There are levers a company like Radisson can pull to stand out among the competition, typically in the form of lower costs and flexibility with franchise contracts. It isn’t unheard of to see smaller companies offer franchise fees between 1 and 2 percent lower than the bigger brands.

“What do you do if you’re a smaller brand competitor in the U.S.?  In order to win franchises, it’s partly an economic decision for the franchisee,” Miller said. “That hotel owner considers potentially lower fees, shorter and flexible terms, and being perhaps the only flag in that particular market. What you get from the most established brands: possibly higher occupancy and rates but also possibly higher franchise fees, less flexible brand standards, and several other flags within the brand family that can be built in your market.”

The Upside: Radisson does have some advantages, most of which are found outside the U.S. Analysts who spoke to Skift noted the brand resonates with travelers better abroad, and Radisson Blu is one of the most popular upscale brands across Europe. 

“Internationally — especially Scandinavia and much of Europe, sub-Saharan Africa, and some other global emerging markets — their brands fare pretty well,” Miller said. “They have a strong, historical reputation.”

It is akin to IHG having better luck with Crowne Plaza outside the U.S. The same goes for Marriott and how Sheraton properties abroad are much more luxurious than a lot of the ones found domestically. 

But Radisson faces development competition abroad as it does in the U.S. All the major brands, from Marriott to Hyatt, see more opportunity to grow beyond America coming out of the pandemic.

In Europe, the Middle East, and Africa — regions where the Radisson brand resonates stronger — Radisson Hotel Group comprised 4 percent of the development pipeline. Companies like Accor, Hilton, Marriott, and IHG still led the pipeline totals in many of these regions, per Lodging Econometrics.

But that doesn’t mean there’s no place at the table for Radisson. Bigger brands may win over potential franchisees with their global reach and distribution, but smaller brands can appeal simply by not being another Marriott or a Hilton to add to an already saturated city.

The company’s Country Inn & Suites brand is a strong performer in the U.S. and can stand out against competitors like Holiday Inn Express or Home2 Suites.

“There’s always room for new brands because you can only build so many products in a particular market,” Miller said. “If you are the only Radisson-branded hotel in a particular submarket, you don’t have your own competition feeding into you. There are opportunities out there, but again, you’re climbing uphill against the decades-long, very established, very strong brand standards of the biggest chains.”

Hilton Looks Beyond the U.S. for Growth

The latest example of an American hotel company ramping up its global expansion comes from Hilton, which was already active in its Asian growth ambition. 

The hotel company and Jin Jiang International — owner of Radisson Hotel Group — extended a management license agreement through 2034 to create more than 600 Hampton by Hilton hotels in China, according the Daily Loding Report last week. The 155th Hampton in China opened earlier this month in Beijing, and there are already more than 350 in the brand’s China development pipeline. 

Hilton already has an agreement with property developer Country Garden to build more than 1,000 Home2 Suites across China.

Company CEO Christopher Nassetta, like other industry executives, has been vocal about more growth opportunities in markets like Asia due to the U.S. having so much more branded product relative to other countries. 

“I suspect you will see a cycle where, particularly in the U.S., the new construction numbers are going to be much, much lower,” he said on an investor call earlier this year. “That’s obviously long-term healthy for the for the industry. But the good news for us is the world’s a big place, and the pressures are not the same in all places in the world, particularly recognizing that the place where we have the second-biggest chunk of our growth is Asia.”

Hilton isn’t just fixated on China. The company also plans to beef up its portfolio in Saudi Arabia from 15 hotels to more than 75 with new brands to the country like the LXR Hotels & Resorts and Curio Collection soft brands as well as hard brands like Canopy and Embassy.

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Tags: Early Check-In, hilton, radisson, radisson hotel group, Skift Pro Columns

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