Though we think of the hospitality industry in general terms, combining hotels and restaurants together when we speak of hospitality, there is an important difference between the two sectors that we don’t usually consider.
The hotel industry is dominated by chain hotels. Such chains as Marriott and Accor have properties all over the world. Many have grown and multiplied their portfolios through acquisition. Accor, a French company, has swallowed up many smaller chains to become a monolith in its own right. Marriott was always a biggie but ever since it acquired Starwood, it has become the largest hotel company in the world. Much of this is thanks to the Starwood portfolio. Long before Marriott bought it, Starwood had become a giant in its own right by acquiring such companies as Westin, Meridien and Sheraton.
If you look for a hotel in most global cities, the majority of the choices that will show up on your computer screen will be properties run by big hotel chains. This may not be immediately obvious because they use different brands. For instance, you could stay in a Westin, Sheraton, St Regis, Meridien, Ritz-Carlton, Moxy, Edition or W and you would still be staying in a Marriott hotel. It no longer has to be called Marriott or JW Marriott; the company has now gone beyond brands that bear the name of its founders.
At some level, this is happening with most big chains. If you stay at a Six Senses resort, you are staying at a hotel run by IHG, the group that owns Intercontinental. Likewise, if you are staying at a Holiday Inn Express; it’s still IHG. The aggregation of brands and the takeover of smaller chains is now so absolute that the global hotel business is controlled by a handful of huge chains.
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This is certainly not true of the top end of the restaurant industry. If you were to count each McDonald’s outlet as a single restaurant and then do a calculation, treating every fast food operation as an individual restaurant, you would find that a growing chunk of the restaurant sector is controlled by a few big corporations.
But here’s the difference: Hotels run by the big chains tend to go all the way from luxury properties to motels. An example: London’s The Savoy hotel is run by Fairmont, a luxury chain. But Fairmont is owned by the giant Accor corporation which also runs Ibis, a two-star brand.
On the other hand, there is a clear distinction between the top and the bottom of the restaurant industry. Very few top restaurants are parts of international chains. If you look at Michelin‘s list of restaurants or even the World’s 50 Best Restaurants, you will find the most of the places that feature are still independently owned. Successful chefs and restaurateurs may have expanded and opened other restaurants—say Nobu or Alain Ducasse. But none of them runs a giant multinational corporation in the way that the big hotel companies are managed.
I was looking at the recently announced list of Michelin-starred hotels in London to see how the big chains had done. As far as I could tell, none of their own brands, not even the luxury names solely created by the big companies so that they could dominate this sector, made the list. There were no Waldorf Astorias, no Park Hyatts, no St Regis no Ritz Carltons, no Ws.
Instead, the list recognised the rise of the smaller luxury chains. And, in particular, it recognised the rise of Asian hospitality. Many of the hotels on the list were either run by small- to medium-sized luxury chains or companies established in the Far East.
On the Michelin London list, the majority of hotels that get three keys (Michelin calls its hotel ratings keys rather than stars to distinguish them from the restaurant ratings, but the principle is the same) belong to small luxury companies or to Asian groups.
It was such groups as Mandarin Oriental, Peninsula and Raffles which dominated the top end of the list. The other winners tended to be companies that specialised in luxury like the Dorchester group, owned by the Sultan of Brunei, or Rosewood, which is Chinese-backed.
In some ways, this was a setback for the big hotel companies which have tried to create luxury properties of their own. When Hyatt launched the Park Hyatt chain it meant for it to compete with the best in the world. So, it is with Hilton and Waldorf Astoria or with Marriott and St Regis (which it inherited from Starwood).
So far at least, the evidence suggests that while many of these are very good hotels, they simply lack the edge to make it to the top grade. It’s the luxury companies that dominate the luxury hotel sector. Even the list of the World’s 50 Hotels gave its top ranking to the Bangkok outpost of Capella, a small luxury company. When it had to rate beach resorts, 50 Best picked Soneva which has just four hotels, three of which are in the Maldives.
It’s not as though the big chains, with their billions, have not tried to crash into this sector. Often, acquisition has worked better than creation from the bottom up. For instance, Raffles which was a Singapore-based group named after the iconic hotel, is now owned by Accor. The Fairmont chain is also now part of Accor. The one luxury chain that can be said to be started by the big boys is Bulgari which is jointly owned by Bulgari and Marriott.
It’s not the same for us in India. The Taj group, India’s largest, has always run properties at all ends of the market. Currently its Mumbai hotels range from the flagship in Colaba to a very successful budget Ginger near the airport.
When Biki Oberoi took over the Oberoi group from his father, he tried to remodel it on the great Asian luxury hotel companies, reserving the Oberoi brand only for the very best properties. For instance, the Oberoi Towers in Mumbai which had long been the company’s cash cow, was downgraded to a Trident (five stars but not necessarily luxury) because Biki would only give the Oberoi name to the best hotels.
Nakul Anand did something similar at ITC , branding the company’s great hotels (the Maurya, the Grand Chola, the Gardenia) as luxury properties and running them to those standards. Five-star properties without the luxury edge became Welcomhotels.
The drawback with this approach is that while the luxury hotel market in India is not really speeding ahead, the demand for basic five-star hotels and those in the three-star and four-star segments, especially in non-metropolitan cities, is booming. No company can afford to ignore this segment and concentrate only on luxury.
The phenomenal growth of the Taj group over the last few years has been largely dominated by non-luxury properties. So it is with most other groups. The Leela is not building many more luxury hotels. ITC is concentrating on the non-luxury sector.
Only the Oberoi seems to be going ahead with building new Vilas properties and greenfield luxury hotels. But even there the rapid expansion of the Trident brand continues.
So, here is my question: Will the global emphasis on celebrating brands that are only associated with luxury have any impact on our own hotel industry? Will we see hotel companies either spinning off or separating luxury properties from their main structure or even, will new small Indian luxury chains develop? It’s significant that the only Indian hotel to make the list of the 50 Best Hotels is Sujan, part of a small luxury mini chain that is privately owned.
As of now, the consensus is that the big chains will continue to manage all their properties as part of the monolith.
And yet, if the monolith structure persists and the biggies continue to run everything themselves in the same way, will they ever be compete effectively in the super luxury sector?
The trends are now clear, hoteliering at the very top end of the business is going the way of the restaurant sector. The chains dominate the bottom and middle ends of the market. But at the very top, giant corporations do not fare as well.
For a more detailed analysis of how Michelin and other ratings will transform the hotel industry, read Rude Hotels this weekend.
