In Part 2 of our report on the ALIS IREFAC panel, Marriott,
Brookfield, Accor and Morgan Stanley offer particularly interesting commentary about
leveraging opportunities in adjacent spaces.
In Hotel Investment Today’s second report from the ALIS
IREFAC panel (click here for Part 1), leaders talked about how conversions still
rule growth strategies with Marriott International CEO Tony Capuano stating 40%
of their signings in 2023 were for conversions.
Accor’s Group Strategy Officer Gilda Perez-Alvarado offered
some insight into their lifestyle and luxury strategy, Brookfield’s Managing Partner
Shai Zelering talked about their preference for niche products versus traditional
brands, and Morgan Stanley’s Global Head of Gaming & Lodging Michael Bluhm
weighed in on what the investment community is interested in now.
Here are more highlights from their conversation.
Q: Where will unit growth come from?
Tony Capuano: Conversions are going to continue to be a big
part of the growth story and all the other big global brand companies will all
be competing aggressively for those conversions.
About 25% of our openings and 40% of our signings last year
were conversions. Some of that is because of the debt markets for new
construction, particularly in markets like the U.S. and portions of Europe.
Some of it is just because you have owners and a franchisee community looking
to optimize the positioning of their asset. So, conversions will be a big part.
Second, as that owner community and consumers get more
confident that the Fed has navigated a soft landing, that drives owner
confidence in a way that drives transaction volume.
We think we still have a lot of runway for growth here in
the U.S. But over the long haul, when you look at our relative market share
outside the U.S., there is tremendous runway for growth internationally. And we
continue to see that across China, across the balance of Asia, across the
Middle East.
Q: What is Brookfield’s perspective on capital deployment in
hospitality? What’s exciting?
Shai Zelering: The way we view hospitality continues to be
focused on a niche product, trying to stay out of the commoditized space and
diversifying globally. We opened an office in India 10 years ago and today we
have close to 20 hotels, including Leela Palaces – focusing on extreme luxury
in that region.
I also think that the definition of hospitality is getting a little bit broader, and for us Woodspring Suites was maybe for hospitality by name, but it was really workforce housing and it’s escalating for various reasons.
Shai Zelering
I agree with Tony, there’s so much opportunity in the Middle
East that we have to uncover and continue to expand. That’s going to be
fruitful ground for institutional knowledge and some institutional investments
in hotel space there.
I also think that the definition of hospitality is getting a
little bit broader, and for us Woodspring Suites was maybe for hospitality by
name, but it was really workforce housing and it’s escalating for various
reasons.
We’re still undersupplied in resorts, but it’s impossible to
build. So, we try to focus on luxury or niche products and will continue to do
so as we raise opportunity funds. We will probably deploy 25% of our funds into
that space, which is encouraging and based on the feedback we’re getting
investors and based on the results.
Q: How is Accor setting its strategy with so brands across
the globe?
Gilda Perez-Alvarado: Since Sebastien [Bazin] came in about
10 years ago, he’s very much focused on two sectors. One is lifestyle, even
with residential. Within that division, we’re growing in the all-inclusive
resorts segment, which is a very high growth area.
Then on the luxury side, we’re very lucky to own brands that
have a tremendous amount of brand equity. But so far, maybe the strategy has
been a little bit ad hoc, or we need to adapt it to what we’re seeing in the
marketplace in terms of that insatiable appetite from consumers for all of
these extraordinary, very extravagant experiences. Take a brand like Fairmont,
which has its own unique strategy. It’s very important brand for us in North
America, by the way, in terms of one of the priorities. That’s a brand that is
over 100 years old, and we need to keep evolving it to keep it fresh.
We have Raffles, and it’s an iconic Asian brand. How do you grow something that when you’re
thinking Raffles, you think Singapore?
Orient Express is 104 years old and way more than
hotels. How do you make it more relevant? We’re in the process of defining the
business plan and have very big plans.
Marriott’s ability to monetize their database, their customers, the lifetime value of that customer has been incredibly impressive. The business model that public investors continue to seek out is what they continue to deliver, which is effectively the Amazon of travel in some respects.
Michael Bluhm
When it comes to net unit growth, historically, we’ve had a
lot of relationships with owners, but we need to be a little bit smarter in
terms of how we grow. So, we’re going to go through more strategic partners,
with global players, and just be smarter in terms of what we can offer to them,
what they can offer us, and define our growth strategy. But we will also take
into consideration the idiosyncrasies that exist in North America, in Asia, and
in Europe.
Q: How do you leverage opportunities with some of these
adjacent businesses like yachts, villa rentals
Perez-Alvarado: I’m spending time with the financial
community to understand what drives them from an investment perspective.
There’s a lot of secular trends that the hotel industry has been really good
about in terms of adapting and offering something that is very valuable. But at
the end of the day, Shai said it best, we cannot be a commoditized product that
doesn’t add value. The more commoditized we become, the more pressure we’re
going to have with margins, and therefore it becomes a very bad investment. So,
we do need to innovate and become more efficient on technology.
Now with ultra-luxury [Orient Express], you have to turn the
business on its head. How do you define CRM? What kind of systems do you need
to support this type of business? How do you make sure that we really can charge
what we need to make that margin? It’s a lot of discussions with the key
stakeholders, but I need to know what these gentlemen want to invest in so that
then I can create the proper business plan for it.
Capuano: We look at it through two lenses, including the
adjacencies that we’ve added, and that we continue to evaluate whether that’s
Ritz Carlton yachts, Homes and Villas, Apartments by Marriott Bonvoy. Of
course, we need them to be scalable and turn into viable new revenue streams
for the enterprise. But they’re also important strategically in terms of
securing the ecosystem. Many of our decisions are made by what we hear from our
loyalty members, and for certain trip purposes, they will say to us, we need X,
whatever that might be. So, with a lot of the adjacencies we explore, it’s in
an effort to make sure we can capture as close to 100 cents on the dollar of
that travel wallet from those members as possible.
Michael Bluhm: Marriott’s ability to monetize their database, their
customers, the lifetime value of that customer has been incredibly impressive.
The business model that public investors continue to seek out is what they
continue to deliver, which is effectively the Amazon of travel in some
respects… Finding those alternative ways to find extraordinary growth is where
the investor community is looking today.
Zelering: On one hand, as an investor, I’m a little bit
worried about distractions because you have to grow your revenues. But
sometimes, there can be a knee-jerk reaction to what we hear from customers,
and that can create distractions from what we need as investors in a dilution
of interest.
Notwithstanding that, we need to continue to build
experiences and shift from hotel-only to experiences and it’s great to hear
about Gilda’s plans for Orient Express and Tony’s expansion into those with
yachts. That’s welcome news – as long as we stay focused on the day job.
On the flip side of that, it is viewed as a better growth of
revenues than how C Corps have trained the market to just look at unit growth
because unit growth by itself also causes the dilution of the brand equity. So,
if we have to choose growth of revenues through experiences versus sole focus
on unit growth, where brands get diluted, it is nice to hear.
Perez-Alvarado: This growth has to be very balanced. It’s a
very disciplined approach... There’s also a lot of portfolio management that
needs to be done as there’s a lot of obsolescence in our sector right now. There
are business models that just don’t work. So, we do have to spend the time with
the owners and investors, be quite agile and adapt – not just with what we
learned during the pandemic, which exacerbated a lot of these trends.