Hyatt explores fresh way to play luxury

CHICAGO – By the close of Q2 2023, Hyatt Hotels Corp. will likely fill one of the few holes left in its luxury and lifestyle portfolio with the planned acquisition of Mr & Mrs Smith. The $66-million deal for the highly curated 1,500-hotel-plus direct booking platform would give the Chicago-based giant a vehicle to drive traffic, representation and profits in a space that has long-frustrated big brands: the fragmented top tier of the international boutique hotel sector.

Hyatt CEO Mark Hoplamazian summed up the upside in the company’s Q1 2023 earnings call on May 4. Aligned with its asset-light strategy, this tuck-in move could deliver a 1-million-member boost to the 36-million-member World of Hyatt loyalty program and open a cascade of cross-selling opportunities that would put existing luxury/lifestyle owners’ properties in front of a new audience of travelers.

Hyatt CEO Mark Hoplamazian

The availability of unique stay experiences may help dissuade existing loyalty program members from straying when only a treehouse, cave or underwater suite will meet their needs. It also provides clear synergies with the nearly 135,000 luxury, lifestyle and resorts rooms already operating within Hyatt’s 15-brand-and-growing top-of-the-market brand family.

Equally importantly, it deepens Hyatt’s reach across Europe without cannibalizing its current branded offers. And, for a company that still has dots missing on its world map, it offers World of Hyatt members and other travelers access to stays in 20 countries where Hyatt has no presence.

Think of this as prime incremental revenue in a sphere where Hyatt wants to play. Since its launch in 2003 by cofounders James and Tamara Lohan, Mr & Mrs Smith has amassed a collection of exclusive stays curated by haute monde celebrities and influencers. It evolved from an insider travel club for cool kids and jetsetters to a global booking platform that reportedly pushed annual revenues to nearly $162 million last year, leveraging an industry wide post-COVID lift into a $102 million increase over 2021.

They’re small. So, these are not hotels that would naturally be part of a larger brand company portfolio like ours. We feel like this is a massive expansion in the world with higher numbers access to hotels.

Mark Hoplamazian

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Essential to this deal going forward, Mr & Mrs Smith’s hotels are complementary to, not competitive with, their soon-to-be Hyatt siblings. And they sit at the right rate positioning. “Just to give you a sense for relative quality level, the rate is in the mid-$400 range,” Hoplamazian said. “They’re small. So, these are not hotels that would naturally be part of a larger brand company portfolio like ours. We feel like this is a massive expansion in the world with higher numbers access to hotels.”

It also affords Hyatt overnight expertise in the boutique sector. Under the terms of the deal, Tamara Lohan will assume the post of CEO of Mr & Mrs Smith, while James Lohan will serve as chief creative officer. More than 100 members of the platform’s employees will transition into Hyatt’s commercial team headed by Chief Commercial Officer Mark Vondrasek.

“The planned acquisition of Mr & Mrs Smith presents an exciting and unique opportunity for Hyatt to continue expanding its offerings of luxury, boutique experiences at hotels around the world,” Vondrasek told Hotel Investment Today. “A key factor that drew us to Mr & Mrs Smith is its curated collection of luxury and boutique hotels with unique personalities. We’re excited to offer truly distinctive stay experiences to Hyatt guests as part of this planned acquisition. This can be a huge win for the World of Hyatt program, and we are excited to explore ways in which World of Hyatt members can earn and redeem points at these properties at a later date after the deal closes. We can’t wait to unveil more details at a later date.”

Navigating the bumps

Aligned with its asset-light strategy, this tuck-in move is the latest in a series of acquisitions and affiliations that play directly into Hyatt’s strategy to establish a leadership position in luxury and lifestyle. The company closed fiscal year with a record 6.7% net rooms growth, representing 120 hotels, 20% more than its previous record year in 2021. Since early 2022, the company has already acquired Dream Hotel Group and collaborated with Lindner Hotels to make 30-plus hotels part of the Hyatt portfolio.

Even with that potential, industry watchers such as Paul Slattery, director, Otus & Co, London, describe this deal as “unconventional.” It could prove to be an interesting test of how much Hyatt and the industry at large have learned from previous attempts to bolt together boutiques and brands.

This isn’t Hyatt’s first foray into match-making deals uniting hard and soft brands. In 2018, it formed an alliance with Small Luxury Hotels (SLH) to allow World of Hyatt members to earn points and get exclusive on-property benefits at any participating SLH hotels. That approach got an update in 2022 with the announced “collaboration” with Germany’s Lindner hotels to make 31 of their European properties “visible on Hyatt.com.”

Nor is it Mr & Mrs Smith’s maiden voyage into the branded world. In 2020, the platform entered into a loyalty partnership with IHG Hotels & Resorts to give all tiers of IHG’s reward program members “even wider selection of lifestyle and luxury hotels” and access to a range of on-property exclusive benefits.

The challenge for IHG and for other brands that have tried this type of alliance comes down to two words: participating hotels. Even in the proposed Hyatt acquisition, Mr & Mrs Smith member hotels will not be required to participate in Hyatt’s reservation system.

As Hoplamazian pointed out at the earnings call, “Hyatt plans to unveil direct booking access to properties within the Mr & Mrs Smith platform through Hyatt’s distribution channels, including Hyatt.com and the World of Hyatt app. The anticipated move will have the potential to unlock access to more than twice the number of global boutique and luxury properties within Hyatt direct booking channels, and Hyatt is exploring ways to enable World of Hyatt members to earn and redeem points across eligible hotels in the Mr & Mrs Smith collection. That integration will take time.”

Working through these kinds of logistics makes it less likely these types of transactions will become the deals du jour. “The Mr & Mrs Smith acquisition is about leveraging Hyatt’s existing (and growing) platform to offer customers more options, increase brand loyalty, and realize positive network effects,” said Michael Bellisario, senior research analyst, RW Baird, in an interview with Hotel Investment Today. “The company has highlighted the recent success of the Apple Leisure Group acquisition and how World of Hyatt membership and contributions have grown. Hyatt’s likely thinking is that World of Hyatt’s growth could accelerate with the addition of Dream Hotel Group, the pending Mr & Mrs Smith acquisition, and the roll-out of Hyatt Studios.” Is that likely to set a trend. “No. Aside from what Accor has done historically [and, to my knowledge, has unwound a bit], this trend is pretty unique to Hyatt,” he said.