How does your garden grow? Marriott and Hilton’s tale of two models 

The hotel sector is one of the most exciting investment opportunities available in the known world for myriad reasons: daily revenue backed by uplift in asset value, as many price points as you can conjure, the opportunity to expand into almost any locational whim.

But by far the most exciting part is the limitless volume of models you can use. Owning, leasing, franchising, managing, hybrids of all of them, combining all of them, specialising in one of them. The ways to approach making money in hotels make Spaghetti Junction look like a meatball sub. 

Of course the agony of choice is a feature here and that does not always make for a restful 3am. 

But, as long as companies are convincing their employees that flexible working means remote working, you’re not making any cash in offices, so it’s time to take a breath and jump.

As befits the hospitable sector, it’s here to help and this year we are going to be enjoying the NUG wars, courtesy of Marriott and Hilton. NUG being the only language we can understand when revpar is up by 17.4% (Marriott, Q3 2023, international). 

Last week we enjoyed Hilton forecasting that NUG would accelerate to the high end of its guidance range of 5.5% to 6.0%. This week, Marriott is forecasting net rooms growth of 5.5% to 6%. For those with depth perception issues, they’re the same. EXCITING.

But how will they get there? Hilton caused a big old kerfuffle (which we encouraged) around its deal with SLH (these are popular at the minute, with Mews this week being selected as SLH’s preferred PMS partner), which it hoped would add 25 to 50 basis points to its NUG. But, president & CEO Chris Nassetta said, was not a sign that it was going to move away from organic-only growth. No no no. 

Well maybe, it might do some small ‘tuck in’ acquisitions, a phrase which veers from images of something you do with a teddy bear to something you do before the Super Bowl so you don’t endanger your chances of a future family with Taylor Swift. See? The sector is now mainstream enough to sustain the occasional Taylor Swift gag. 

But really, it’s sticking with organic. So stop looking winsome, Soho House and Ace. 

At Marriott, expansion is any way you care to mention it. Last year it added rooms and a segment with the City Express transaction. Then it did a deal with MGM Resorts. It is your flexible friend. But that’s not to suggest that it is random and easily led, no. The overarching appetite to be filled is that of its loyalty programme, which must be satisfied. 

Of course a loyalty programme is also a collection of people, so really that’s like saying you’re providing hotels that people want to stay in (but not economy, for crying out loud). And that doesn’t sound like too terrible a business plan. 

And Bonvoy was clattering ahead, with 196 million members at year end, which is just over 122 for every Marriott room. Let’s hope they stay for three nights each. Because that’s what growth is all about: attracting owners and then filling rooms as cheaply as possible so that owners can feel all profity and stop thinking traitorous thoughts about the OTAs, or, like that naughty SVC, doing it themselves. 

Are loyalty – or frequency – programmes worth it? The answer to that depends on what sort of hotel you have and that, as noted above, is as varied as the ways you can participate. 

Is it cheaper to make up your own brands to meet this demand? Or is it cheaper to buy a load of brands and have a giant portfolio to feed your loyalty programme? (And enjoy co-branded credit cards, with 31 cards across 11 countries and global card spend increasing a remarkable 11% over the prior year in 2023). 

Conversions are perhaps the greatest test: during the year, Marriott added nearly 81,300 rooms to our distribution, with one in four organic rooms from conversions. Hilton saw 30% of last year’s NUG from conversions. Owners have tasted one brand and decided to make the effort to change neon signs, suggesting that it’s not a case of ‘they’re all as bad/good as each other’ in their minds.

Size may feel like the deciding factor, but, as the ChoiceHam antics have shown, owners get worried when a company gets too big. 

So as we head into 2024 and those matching NUGs get tested, the only thing we can truly conclude is that, despite the OTAs best efforts, hotel rooms have not been entirely commoditised. There are perceivable differences. And that can only be good for the future of the sector, if not the 3am headaches of owners. 

Image:Nujuma, a Ritz-Carlton Reserve

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