Radisson Hotel Group Isn’t Finished With Transformative Strategy

Few hotel companies have changed as much in the past five years as Radisson Hotel Group. The company, which had struggled with mediocrity, did a strategy rethink and retooled itself. The European-based company is still relatively small, with about 1,700 hotels and resorts open or in development. But it aspires to double its portfolio by 2025.

Last year the group signed nearly 200 properties. This year it aims to open 15,000 rooms and sign 330 properties.

Its biggest growth market is Asia Pacific, where it has more than 400 properties in operation and development today and expects to add 1,700 by 2025. The company looks for a mix of organic growth, mergers and acquisitions, master license agreements, and leases.

The growth may make the company more compelling as a merger or acquisition target. Jin Jiang International Holdings, a Shanghai-based tourism powerhouse, became the majority owner of Radisson Hotel Group in late 2018. Jin Jiang also has a 13 percent stake in Accor, and it owns Louvre Hotels Group, parent of the Golden Tulip brand. Jin Jiang has a master franchise agreement with Radisson Hotel Group that let it sign last year more than 25,000 Radisson-branded rooms in Greater China via Jin Jiang’s entities.

To learn more about Radisson Hotel Group’s growth plans, we spoke on Tuesday with CEO Federico González, who took the top job in 2017.

Outsourcing North America

The group didn’t see a path for growing its North American business on its own resources, so this year the group sold it to Choice Hotels for $675 million. Most of the proceeds will go to paying down debts accrued during the pandemic, González said.

In May through August, Radisson Hotel Group generated revenues above 2019 levels in several markets, including the Nordics, the Middle east, Central Europe, and the UK and Western Europe — driven more by growth in rates than occupancy. But González declined to give any forecasts for the rest of the year given uncertainties like inflation.

Saying “No” to Brand Bloat

Since 2017, González reworked and repositioned the group’s nine brands.

“No matter what type of consumer it is, I want to have an option,” González said, referring to having, say, a brand for economy business travelers and a brand for luxury travelers. “But I only want to have one option, for clarity.”

Having completed the re-organization, he doesn’t want any more brands.

“Other global operators use five, six, seven different brands per segment,” González said. “We made the choice to have one best brand for each segment with a clearly articulated value proposition for the consumer and the owner.”

Interest in Conversions

Radisson Hotel Group’s brands used hadn’t all been suitable for new construction, but in mature markets such as Western Europe, owners have increasingly preferred conversions. This conversion trend is likely to continue given how rising interest rates and construction costs are complicating the financing of new built properties. The group put a lot of effort into making sure that all of its brands allow for cost-effective conversion. It has also streamlined the brand standards to remove unnecessary requirements for owners.

The group now offers a more predictable construction or conversion cost for owners and a more predictable return on investment of around 15 to 20 percent a year, González said.

Historically, the group’s brands overperformed competitors on average, according to market intelligence firm STR’s RGI or revenue-generating index. This year to date, Radisson brands generated five percentage points higher revenue per available room, on average, than its relevant competitors. In 2019, the figure was nine percentage points. Disruptions in service because of the pandemic threw off some of the properties.

During the pandemic the group created Radisson Individuals to provide independent hotel owners with the possibility to convert to its brand and gain access to its international distribution platform, while maintain a property’s uniqueness and identity.

“We have also revamped our Prizeotel concept, which has traditionally been more of a new built proposition, to provide easy conversion solution for any type of property, whether it is two-or 10-years old,” González said.

A Lesson From Disney

González, who was once an executive at Disney, said a key component in brand success is “memorability.” All employee business cards are printed with the motto “every moment matters” as a kind of mantra.

“The memorability of a brand has nothing to do about pricing,” González said. “You can have a positive experience at an economy brand, not just a luxury brand, such as with high-quality pillows.”

Early on, González had every property across all of Radisson’s brands get new shower heads for their bathrooms because he wanted every guest to have a positive experience.

“If you travel around the world, you’ve experienced hotels where the showers are kind of attacking you, right?” González said. “I want the consumer to like the shower enough they are wondering how they can get a similar fixture for their own homes.”

“Our brands also have an average GOP [gross operating profit] that’s among the best in the industry,” González said.

Hotel Tech Overhaul

To boost margins for owners and itself, Radisson Hotel Group redid its technology stack during the pandemic with help from companies such as Shiji and Amadeus. It invested significantly to simplify, modernize, and digitalize its tech stack, including its central reservations and property management systems.

“I can see now on my phone how each of the hotels is doing, such as its demand planning and revenue,” González said.

The group rearchitected its systems using cloud-solutions from SAP and Indra, adopted new revenue management tools from IDeaS and Duetto, and began using new tools for managing staff productivity and forecasting and hotel workflow management, such as with software from Workday and Hotelkit.

Market Segmentation Is Critical

Market segmentation for its hotel brands has been a north star for the group in its strategy overhaul. Since 2017, Radisson Hotel Group has been rethinking which properties it wanted to keep and if it wanted to change brands in certain locations to better fit market needs, such as making a property more upscale by moving it from Radisson to Radisson Blu.

“In the company plan, there are total targets for the number of rooms, and fees, and revenues, but I’m not obsessed with meeting fixed targets of Blus, or Reds, or Radissons, etc.,” González said, referring to how business development teams are incentivized.

The executive said it depends on each location’s individual market dynamics, such as the type of travelers a place attracts and the offerings of competitors, to know if one brand will perform better than another. Radisson operates about 40 to 45 percent of the properties in its network, and it has seen successful rebrandings of properties can boost revenue by 15 to 20 percent, the CEO said.

“We try to define for the owner of a property what is the best combination in terms of rates that the market segmentation will allow, GOP [gross operating profit], and construction or conversion costs, and then decide on a brand,” González said. “That’s very different from how many of the global franchise brands grow.”

Radisson Hotel Group already had a broad global footprint, but its expansion requires new hires. González, who has written three business books, said his experience working internationally taught him that practicing empathy and seeking common ground are critical skills, which his team encourages staff to practice.

Lasting Trends

The pandemic has at least temporarily changed some customer behaviors. González said he used to travel about 250 days a year but may reach that level again in October. He said one-day trips of short-to-medium length, such as Madrid to Paris, will become rarer, substituted with multi-day trips where hybrid working is done around a business meeting.

Consumers aren’t yet demanding sustainable offerings, González said, which he partly blamed on the industry not defining sustainability well. But he’s guided the group to be ahead of many peer companies in adopting carbon reduction practices because the climate is clearly changing and the requirements are bound to come. Over time, as corporations are pressured to seek suppliers with lower carbon impacts, Radisson Hotel Group could be positioned to take more market share if it stays ahead of the curve.

González sees industry consolidation as another trend. In Europe, many independent hoteliers will find the struggle to go it alone to be too difficult, creating opportunities. In Asia, a need for help with generating demand internationally makes global companies appealing. As Radisson Hotel Group’s footprint grows, the value of its loyalty program will grow for consumers, which can lead to more direct bookings and reduce owner costs.

“Our path to growth by 2025 is tremendous,” González said.

CORRECTION: The article has been updated to make clear that Radisson operates, but doesn’t own, about 40 to 45 percent of the properties in its network.