Battle of the hotel brands

29 May 2008
Battle of the hotel brands

Pullman, Andaz and St Regis might sound like boutique names, but in fact the biggest operators in the hotel business own these brands. As more of the large hotel chains show a liking for luxury ventures, Christian Sylt asks if the market is becoming too crowded, and the public confused in the process

A few years ago finding a luxury hotel was easy. The famous phrase "take me to the Hilton" would bring guests to one or two addresses in town. Not any more. In the past couple of years Hilton and Starwood Capital have launched new luxury brands to sit alongside their existing upscale ranges. Hilton's new Waldorf Astoria collection accompanies the firm's existing Conrad line and Starwood Capital's Baccarat, a new brand of palace-style hotels, joining its Crillon and 1 Hotel and Residences ranges.

At the end of last year French giant Accor gave its own luxury collection a face-lift by adding a new Pullman chain which, despite its distinguished name, sits beneath its existing Sofitel brand. Not content with this, it has renamed particularly atmospheric properties as Sofitel Legends, while boutique-style venues bear the name So by Sofitel.

The world's financial markets might have been rocked to their core over the past two years as the credit crunch hit home, but luxury hotels have been expanding. In the USA, as a recent report by PricewaterhouseCoopers showed, there were 18 new luxury brands introduced between 2005 and October 2007 - the most in a three-year period since 1982. In the rest of the world, the upscale segment currently accounts for more than 40% of the hotel market, representing one million rooms with revenues of €45b (£22.7b). It is the fastest-growing segment of the market, with annual growth of 5%.

Yet business travellers might be left wondering which really is the top tier to book. Furthermore, the brand equity of a chain's only top-of-the-line product could become eroded unless delineation between products is clearer.

There is no doubting why the new luxury brands have suddenly sprung up. Record average daily rates, demographic changes and availability of financing have all played a part, according to PricewaterhouseCoopers.

"The returns from a luxury hotel are higher than from hotels at other market levels, plus there are more investors wishing to put up the money to develop luxury," says Trevor Ward, managing director of the W Hospitality Group. But this is still the tip of the iceberg.

Increased margins are to be made from operating several brands in the same category, in fact. Buying in bulk can lower procurement costs, while a premium price is applied to the end product. Employment costs alone are one of the biggest overheads of any hotel chain, and Michael Hirst, London consultant for CB Richard Ellis Hotels, says that operating several luxury brands also offers multiple economies of scale at a staffing level, too. These are in head office services, personnel and training, purchasing and technical services. "Synergies from harmonising loyalty points and databases also amount to a key saving from introducing new brands to a chain," he adds.

Having multiple luxury brands theoretically allows a chain to better service different types of high-net-worth travellers, too. Accor is pitching its Pullman chain at business travellers while moving Sofitel into the luxury segment. But this could cause yet more confusion as the chains seem to presume that travellers know which brands are appropriate for them.

"Waldorf Astoria is all about traditional luxury, with some history and notable architecture, whereas Conrad offers more contemporary luxury and chic styling," insists Ian Carter, Hilton's president of global operations.

Heritage at the heart

Named after the fabled New York landmark, the Waldorf Astoria brand has heritage at its heart and, accordingly, all the hotels in the collection were already famous before joining it. The Arizona Biltmore, California's La Quinta, the Grand Wailea in Hawaii and Qasr Al Sharq, a Jeddah palace, are joined by the brand's New York namesake and are all different in their way. However, Carter says, common branding brings much more than an umbrella name.

"They may be classics in the city where they are situated, but they could benefit from being part of a global network of other such properties, with the backing of a global hotel corporation with a great loyalty programme and reservation system. They enjoy the benefits of the infrastructure but retain their identity," he explains.

From a meeting planner's perspective, a branded property can be comforting, as it gives an avenue of recourse in the event of any problems. Planners might also be attracted to the idea of using the same luxury brand in multiple cities, as they currently do in the midmarket sector, where Hilton competes for business against Marriott and Starwood. Indeed, Hilton's launch of Waldorf Astoria will see it compete head-to-head with these rival brands on all luxury levels.

Just as Conrad is a more glitzy and upmarket extension of the core Hilton brand, Starwood Hotels & Resorts (not to be confused with Starwood Capital) owns St Regis hotels, which are the shinier big brothers to its Sheraton hotels. And Waldorf Astoria is Hilton's weapon to take on Starwood's Luxury Collection - a grouping of about 80 independently famous hotels, such as Venice's Danieli and Vienna's Imperial, which arguably have better-known names than their umbrella brand. The strong emphasis on heritage helps Starwood to differentiate between the two brands.

"The kind of guest who looks to stay in a Luxury Collection property wants something that isn't replicated anywhere else," says Michael Wale, senior vice-president at Starwood, adding that the hotels have "a sense of history or design and an ambience that really communicates the hotel's locale".

By contrast, location is at the heart of St Regis. "The certainty of being in the best place is central to St Regis positioning," says Wale. The two brands compete in few locations and have different selling points for Starwood.

Like Hilton, Starwood manages rather than owns the bulk of its portfolio, and Wale explains that on receiving proposals for new developments in the luxury segment, Starwood consults with the owners or developers on the best brand fit. However, he adds that when the project involves an existing hotel with a well-known reputation, tagging on an international brand "wouldn't work on any level".

The benefit for Starwood of taking the hotel under its Luxury Collection wing is driving sales through its network, and Wale stresses that scale and exposure are the key draws for the hotels. Starwood's Turnberry hotel and golf resort in Ayrshire, currently under its Westin banner, is one that will be placed in the Luxury Collection portfolio next year.

"The Luxury Collection… enables them to market themselves independently but offer guests the benefits of Starwood's service, culture, training, brand standards and loyalty programmes," says Wale.

St Regis, on the other hand, is ideal as a method of planting Starwood's flag in new markets with concentrations of high-net-worth travellers. The brand can be traced back to New York's St Regis hotel - a Beaux Arts landmark built in 1904 and famed for its soaring lobby, dripping with gold leaf and marble. The hotels reflect this glitzy origin, and so it's logical that more than half of St Regis's 15 openings in the next four years are in Asia and the Middle East.

Wale says that branding is the key to ensuring that business travellers are not confused by the two chains. Each Starwood brand has detailed descriptions of its characteristics and target market, but given that two luxury lines must generally meet equivalent standards of excellence, it raises the question as to whether the fine points are picked up by travellers and corporate buyers.

Wale admits that it can be a tough task to ensure this. "Our main challenge is ensuring that we have brand clarity, so that our guests and customers understand clearly the personality of each brand," he says.

Brand difference

Hirst says that the key challenge for any chain operating two luxury brands is "making the distinction between the two and delineating the target market". He adds that "the real danger is that there will be too many high-end brands and then they will have to start trading down, which would be self-defeating."

Many of Accor's Pullman hotels have been rebranded Sofitels, which could spark confusion with travellers who have long frequented a Pullman property.

However, when the changes are sweeping enough they can become a selling point in their own right, as guests walking in to the lobby of London's Great Eastern Andaz hotel soon find out.

Andaz is an Urdu word meaning "personal style", and the Great Eastern is certainly quite different. Mirrors cover one wall of the foyer but there are no check-in or concierge desks. Instead, staff carrying hand-held computers act as personal hosts and, as well as breakfast, the internet plus juices, laundry, movies and iPods are included in the rate.

Andaz is yet another luxury brand with a twin brother under the same roof - this time the US chain Hyatt. However, Andaz's target market is perhaps the most specific of all luxury travellers: the young and wealthy jet set who prefer to travel in shorts and trainers than a shirt and tie. Other operators are taking note.

"We are seeing travellers getting ever younger across all our markets. This younger type of traveller uses hotels differently. They place much more emphasis on style and innovation, for example," says Belinda Pote, senior vice-president of international brand marketing for Marriott, which also has two luxury brands, Ritz-Carlton and JW Marriott, under its wing.

"The younger traveller has grown up with technology. They adapt quickly to new technology, so we need to ensure we are providing technology solutions in-room and in public spaces to meet their needs as they travel," adds Pote. There should be more to come.

"At this end of the market there is plenty of scope for originality and creativity, which will guarantee a continual flow of innovation, and there is always the fact that customers want to try out new products and be seen in the latest places," says Hirst.

Standing out

But as the market becomes more crowded, it will become tougher for any of the brands to stand out, let alone those that sit alongside several luxury brands within their parent chains.

Marriott's current estimate for growth in revenue per available room this year is between 3% and 5%, down from estimates in October last year of between 5% and 7%. Starwood has made similar predictions. It highlights that supply might soon outstrip demand - a situation sure to sift out the weaker brands.

To stand out, Wale says it is essential to have "clear brand clarity, so the potential and existing guest knows that they are guaranteed a certain experience when buying into a luxury hotel brand". He adds that it is crucial to be "treated as a guest, not as a reservation booking number". The Luxury Collection takes this to an extreme, since the branding can be so subliminal that guests "may not realise the hotel is part of a global hotel company".

However, even with the clearest brand delineation, the new luxury labels still face an uphill battle to become established.

Waldorf Astoria and Crillon are set to roll out in major gateway cities to drive brand recognition and market penetration. The danger is that the more hotels they open, the less exclusive the brands will become. Hirst believes that this "applies more to one per city rather than a finite number globally", however, adding: "Four Seasons is a good example of being able to maintain high standards but expand internationally in large numbers."

Wale believes that market saturation is a brand-specific issue. "We would look to grow St Regis to 30 or 40 properties, but no more. On a larger scale the brand would lose its exclusivity and key attributes of address and bespoke," he says. "The Luxury Collection has more potential for growth, because these individual properties are found the world over - and as we find ones that fit into the collection then we can include them in the portfolio to offer our guests more choice."

Soft branding

But perhaps the most unavoidable problem that the new luxury brands face is that a global chain of independently famous hotels could be seen as a self-contradiction.

The top corporate clients, which Waldorf Astoria, Pullman, Crillon and their rivals target, are business travellers, who might say they are "Savoy men" when in London, "George V men" when in Paris and "Eden men" when in Rome. One thing they aren't likely to say is that they are travellers who stay with a chain. "Sometimes it would devalue the brand if the corporate name of the management company were to be used, especially if its core brand is operating in the midmarket sectors," says Hirst.

The result could be that the new brands eventually follow the Luxury Collection's tried-and-tested lead of being soft-branded, with the property name taking precedence over the umbrella brand. In a battle over brands this would, perhaps, be the ultimate irony.

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