IHG Tilts Toward Mid-Market as Owners Balk at Premium Hotels

InterContinental Hotels Group (IHG) has a long-term plan to shift its mix of properties to reflect more premium, lifestyle, and luxury brands. But for now, many hotel investors are balking — preferring mid-market and extended stay brands.

Therefore, IHG is downplaying its upmarket dreams.

"What we are focusing on is the environment for owners, given the cost of interest rates, the cost of operation, the cost of insurance, and all of the issues that really haven't gone away post-pandemic," said Jolyon Bulley, CEO of the Americas region and group transformation lead for luxury and lifestyle. "It's a continued optimization of our owner offer."

Quest to Move Upmarket

IHG operates over 6,300 hotels and resorts — 29% of which are luxury, lifestyle, and premium brands.

Over the next several years, it plans to add 2,000 hotels. It wants more than 40% of these hotels to be under its luxury, lifestyle, and premium brands.

Moving upmarket is tantalizing for a couple of reasons. Fancier brands generally bring in greater fees. They also provide more interesting redemption opportunities for members of IHG's loyalty program. If IHG can make its loyalty program more popular, it can increase direct bookings, which are generally cheaper than bookings through online travel agencies.

What Owners Want Now

IHG is shifting gears to respond to demand from hotel owners and investors for midmarket and extended stay brands.

"Candlewood Suites, which is our midscale extended stay brand, was the brand we saw the most deals for in Q4 and Q1," Bulley said.

Conversions are more appealing to some investors because of obstacles in the market. Last year, IHG saw conversions made up 36% of its signings for new hotels, a higher than usual proportion.

"We're speaking with a lot of owners who still want to do deals and who've got access to capital, but they're hesitant to break ground," Bulley said. "They're mindful that, when the lending environment does improve, everyone will go and break ground, and that could force up the cost of construction as well."

Traction With Garner, IHG's Newest Brand

Last year, IHG introduced Garner as a conversion brand, positioning it just below Holiday Inn Express in amenities and average rate.

"We were already a powerhouse in the upper-midscale through our legacy brands like Holiday Inn and Holiday Express, but we've added Garner in the midscale to meet demand," Bulley said.

The brand caught owners' attention worldwide.

In April, IHG announced a deal with hotel group Novum that will double IHG’s presence in Germany to over 200 hotels. Several of the company's open and planned hotels will convert to IHG’s brand, Garner, while 11 open and pipeline hotels will convert to IHG’s midscale extended stay brand, Candlewood Suites.

Before year-end, IHG will bring Garner to Japan by opening three conversion hotels in Osaka.

Not Abandoning Luxury

IHG's executive team isn't changing its long-term plan despite adjusting its short-term tactics. Luxury and lifestyle deals are still being made. One particular area where IHG has seen growing interest in its lifestyle and luxury brands is Latin America.

"In the Americas outside of the U.S., we've got over 100 hotels," Bulley said. "So far this year we've opened five luxury and lifestyle hotels in Mexico and the Caribbean, including our first Six Senses in Grenada and our first Kimpton in Mexico."

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