Skift Take
It will not be a simple job, but Option Hotels moving beyond the sectors that gave it sturdiness throughout the pandemic makes good sense for the recovery– if it manages to construct the best upscale portfolio.
Cameron Sperance
The mix of economically priced, drive-to hotels that provided Option Hotels a leg up during the pandemic isn’t enough for company leaders. They wish to elbow more into high-end lodging.
Option wasn’t far behind the extended-stay hotel sector, which drew financier interest early in the pandemic due to its capability to remain open when so many other hotels dealt with momentary closures. Option was the very first significant hotel brand throughout the healing to outperform 2019 levels.
Choice’s portfolio, dominated by brands like Comfort and Econo Lodge, was well-poised to take upon drive-to leisure travel along with roadway warrior organization travel– health care employees, facilities groups, and other groups that can’t rely on remote work technology to carry out organization– that continued throughout the health crisis.
It is curious then that leaders at Choice Hotels are pushing more funds into beefing up the company’s presence in higher-end hotels. The business earmarked $750 million of its corporate balance sheet to grow its Cambria brand, one of Option’s two high end brand names in addition to the Ascend Hotel Collection. However leaders at Choice Hotels are also wanting to go an action even more– and higher.
“We have actually discussed it internally, and we have a mergers and acquisition group that’s out looking … If you look at our portfolio, it ‘d be nice to have an upper-upscale, full-service brand name, potentially,” Mark Shalala, senior vice president of development for high end brands at Option Hotels, informed Skift throughout the Americas Accommodations Investment Top before confessing with a laugh: “Although, a full-service brand today might not be the right play.”
Look no more than the company’s latest annual 10-K filing with the U.S. Securities & Exchange Commission to see what tier Choice Hotels might be aiming for.
Shalala gave no mention of what specific brands Option might be eyeing, but the upper-upscale chain scale breakdown in the company’s SEC filing consists of brand names like Sheraton along with the namesake brand names for Marriott, Hilton, and Hyatt– hotels often tailored towards business tourists that aren’t always viewed as winners throughout the pandemic. Should Choice wish to go a step further and elbow its method into the high-end sector, the business would be competing against the likes of Four Seasons, W, and JW Marriott.
The business isn’t always just pursuing an acquisition, however.
“We’re constantly out there taking a look at different things [and] various options. Never say never ever,” Shalala stated. “It’s not off the table that we may do that, but we have actually also been a business that has been able to introduce and grow brands naturally pretty effectively. We do not necessarily have to get brand names to grow.”
But obtaining a high-end brand can help Choice Hotels achieve its high-end objectives a lot faster than organic growth. It takes a lot more time and money to release a new high-end brand than something more cost effective like Everhome Suites, an extended stay brand name Option introduced in early 2020.
“If it’s sort of mainstream, it’s not too difficult to sort of simply pull it out of thin air,” Richard Clarke, a managing director covering global leisure and hotels at Bernstein, stated. “It’s very hard in the high-end end of the market.
Most of the brand name launches seen in the high-end sector throughout the pandemic have involved soft brands, collections of hotels that retain more of an independent feel rather than sticking to a particular brand name and the different requirements that go with it. Accor released the Emblems Collection and IHG came out with the Vignette Collection in the last year.
But Option already has its Ascend Hotel Collection, indicating there is more space to introduce a difficult brand name. That’s where an acquisition may make more sense offered the funds and perseverance needed to develop something in the higher-end sector. Marriott’s Edition, initially announced in 2008, and Hyatt’s Andaz, exposed the year prior, are the only two new high-end, tough brands announced by major hotel business in the last 15 years that came to mind for Clarke. Marriott spent $800 million on the very first three Edition hotels to jumpstart the brand.
“If you want to remain in that area, you sort of have to do [a merger or acquisition],” Clarke said. “You need to do what IHG has made with 6 Senses and Regent.”
The issue Option has that IHG didn’t is that Option’s portfolio is substantially more focused in the U.S. than IHG’s. IHG, which likewise has the Global brand name, could look worldwide for an ultra-luxury brand to present to its international customer base. It is most likely to be a smaller sized prospective brand name swimming pool for Choice, which would need to bring in something that its mix of American customers and potential owners quickly recognize.
“It is a problem due to the fact that it comes back to that theory of introducing luxury brand names and why natural development is tough due to the fact that many luxury brand names have some sort of existing heritage,” Clarke stated. “It’s extremely tough to increase to an owner and state, ‘Would you be willing to invest a huge quantity of cash to build a hotel for a brand name that you’ve never ever heard of?'”
That stated, there is still lots of intention for Option Hotels to wish to chase after the high-end market. The sector is the most underserved for the company. Option has even changed its Cambria development prototype to allow the brand name to broaden more into smaller sized U.S. cities– a pattern the hotel market has actually significantly adopted for higher-end hotels throughout the pandemic.
Moving beyond two brands and elbowing into the higher-end market makes a great deal of sense. One of the worst things that can happen to a hotel company when it pertains to clients or potential franchisees is not having a brand name that can fit their requirements and losing the business to a competitor that does like Hilton or Marriott. If both desire a high-end hotel, Option can’t afford not to head out and discover– or develop– one to offer.
“Owners do desire in that area, and if you take a look at where worldwide building is going on right now, yes, select-service is doing well, extended stay is doing well, and things like shops are succeeding. But high-end is likewise doing effectively,” Clarke stated. “The growth rates at a few of the luxury brands is extremely strong because the abundant keep getting richer, and there is a lot of demand.”