Replace organic with intensive growth 

We are entering what economists do not call the stabby part of the cycle. This is the area in which high interest rates mean that it’s tricky to buy and build, but companies  – particularly brands whose KPI is pipeline – still need to expand.

Last week we heard Whitbread talk about how the supply picture would not recover for five years: which was lovely for its expansion strategy of picking up failing mid-market hotels. This week we heard from IHG, which was explaining to analysts that it could for sure reach its 4% target for system size growth this year, yes it could.

IHG is known for its moderate approach. The board is not keen on flashy deals or, indeed, deals over a certain size, so including it in fantasies over colossal M&A is not wise or productive, no matter how thrillingly entertaining it may be. 

(Even Accor is divvying itself up rather than encouraging Marriott/Hyatt merger thoughts after all. But then imagine if ChoiceHam decided to pick up its economy business. IMAGINE). 

But IHG still has a pipeline to think of and like a good brand parent it must feed its stable.

For IHG, this has meant partnerships. Elie Maalouf, group CEO, told the call: “The Iberostar partnership is giving us the platform to work on similar opportunities. We obviously will not comment on anything that may or may not be under discussion, but it is a long-term strategy that we have. 

“We have been in partnerships for well over a decade, starting with the LVS partnership in Las Vegas. Then we expanded to Macau and now with Iberostar. There is more opportunity there over time.”

Time to buddy up, buttercup.

The more stabby angle for IHG is one which we will see more of across the sector while organic growth is constrained: conversions. When fewer hotels are being built, you have to grab the ones which are already there. 

Elie Maalouf, group CEO, told the call: “IHG’s ability to increasingly capture conversion opportunities is an important highlight. Conversions are obviously quicker to market in terms of delivering system growth and they have increased this year to represent over a third of both openings and signings. As well as being a higher proportion, the 125 conversion signings so far this year represent a record level in absolute terms and almost double the level over the last decade.”

One tip top way to help push this is by adding more brands to feed the fervour, which it duly has, with Garner. It’s, well, helping it garner new hotels and we look forward to a similar trend across the sector. Maybe a Gather, a Hoard, an Accumulate from the other global hotel groups. Upper or lower case branding, spelling to taste. 

Maalouf was, “very excited about the levels of owner interest we are receiving and its growth prospects and further accelerating the number of conversion deals for IHG” and added: “We launched Garner Hotels with an intent of converting independent hotels first in the Americas and then beyond. Also those of, let us say, lesser delivery systems.” Ouch. 

Maalouf was eager to reassure analysts that we would be looking at good old organic growth before look. He said: “The growth of our signings, 27% year-on-year for the quarter, 16% year-to-date over last year, is a positive indicator of the confidence of owners, not just in our brands and in our system delivery but also in the wider development market. 

“The supply environment has been low which is a precursor to supply growth. We do see this accelerating going forward. We do not know how more interest rate increases are out there, but I think we all agree we are getting closer and closer to the end of those. 

“So yes, we definitely see the light at the end of the tunnel, and we are getting closer and closer to that light every time.”

Does that light include a sunburst of M&A? Maalouf would not comment. But it’s early in results season. Others may be chattier as the pressure to hold onto growth builds. 

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