Global hotel brands shift focus to South America

By Jason Q. Freed – News Editor-Americas – HotelNewsNow – 18 September 2012

LIMA, Peru—Global expansion has been a top priority for the major hotel brands and franchisors for many years, particularly after the recent economic downturn halted most supply growth in the United States. Most recently, U.S.-based brands are beginning to make inroads south, aiming to boost their presence throughout Latin America.

Brand leaders discuss boosting their presence throughout Latin America. From left to right: Daniel del Olmo of Wyndham; Thorsten Kirschke of Carlson Rezidor; Jaume Tàpies of Relais & Chateaux; Ted Middleton of Hilton Worldwide; Patrick McCudden of Hyatt; and moderator Stephen Rushmore Jr. of HVS

Because few of the largest brands develop their own real estate, finding local, well-capitalized partners is crucial. Executives from some of those brands were in at the South American Hotel and Tourism Investment Conference last week, hoping to find those right partners.

Target locations
Colombia and Brazil remain the standout locations for hotel development because of the cities’ increasing traveler demand and muted supply, executives said.

Wyndham Hotel Group recently announced the opening of the group’s 100th hotel in Latin America, said Daniel del Olmo, Wyndham’s senior VP and managing director of the region.

“That’s a surprise, I think, for people,” del Olmo said. “Wyndham will open 25 hotels (in Latin America) by the end of year.”

He said Wyndham’s focus remains on Brazil, Colombia and Peru.

“Peru is one of my favorite countries; there are a ton of opportunities here,” he said.

Del Olmo said there are 33,000 rooms in Latin America’s construction pipeline, and Wyndham is responsible for 8,000 of them. The company is about to embark on research whitepaper, he said, which will help identify emerging markets.

“Then we’ll go to investors with that information,” he said. “Not only hotel investors, but the people with capital.”

Several franchisors are looking beyond the typical capital cities. Francesco Cefalu, Hilton Worldwide’s director of development for South America, said Hilton is exploring secondary and tertiary markets in the region.

“Cities of medium and small size that cannot support a full-service hotel because of the cost of development and return on investment,” he said. “We have seen a lot of investors interested in these markets in Hilton Garden Inn and Hampton Inn and Suites.

CEO Jaume Tàpies of France-based Relais & Chateaux said the company is on a similar mission. The collection of independent properties already counts 20 in South America, he said.

“Since 2006, South America has been a priority for us,” he said. “Relais & Chateaux is not in cities—we are outside cities so we are looking for special places in every region.”

Outside of capturing demand within the region, brands look to boost their presence in South America for the residual effect branding has on outbound travel. As more travelers leave South America and head elsewhere throughout the world, global brands offer familiarity.

“It’s very important for us to gain recognition,” said Craig Mueller, VP of development in the Americas for InterContinental Hotels Group. “We’ve been very successful in Colombia, and we’re growing in Brazil. Most recently, we see Peru as an opportunity.”

Target segments
However, 90% of travel demand in South America is domestic travel, said Rogerio Basso, executive VP of acquisitions and development with Terranum Hotels. That’s why Terranum is high on the select-service segment.

“This rising middle class are taking their vacation for the first time, and the select-service product provides that choice,” Basso said. “It’s good quality, branded and requires the service and amenities at a construction cost that allows you to make the returns.”

Select-service growth is the goal for Hilton Worldwide, too, said Ted Middleton, senior VP of development and finance in the Americas. Hilton currently has 15 hotels in South America—nine franchised and six managed. The company has an additional seven under construction in the region.

“The focus is primarily on Hilton, DoubleTree, Hampton and Hilton Garden Inn,” he said. “Going forward in the region, most of our activity will be centered around Hilton Garden Inn and Hampton, which were recently redesigned specifically to target South America.”

Much of Wyndham’s growth in South America will come in the economy and midscale segments, del Olmo said.

Hyatt Hotels & Resorts has eight properties in Latin America. Asked about the resort market, Abel Alves de Castro, Jr., senior VP of development for Hyatt, said resort development is difficult because of government regulations and licensing.

“Everybody from abroad thinks Brazil is a very good market for resorts, but the environmental license can change from five to six to seven years, and then the regulations can change in that period of time,” he said. “Also, the operational costs are pretty high. You would have to get a person to work all year long.”

Getting deals done
Brands aren’t growing in South America without finding the right partners, and many executives said the task can be challenging.

Hilton’s Cefalu said many of the smaller investors have a lack of understanding of the whole model.

“Franchise and management agreements have a level of complexity that needs examined closely,” he said.

Building relationships is critical to establishing a brand presence, experts said.

Carlson Rezidor Hotel Group has been in South America since the 1990s and today has 40 hotels in the region.

“We see a good pipeline,” said Thorsten Kirschke, president of the Americas for Carlson Rezidor. “It all comes down to minimizing risk for investors. Also, there is value in being in the right markets and not spreading yourself too thin and trying to be everything to everyone.”

Del Olmo said it’s critical for brands to contribute to revenue generation. Many times, inexperienced investors don’t understand how to best compete in a tough marketplace, he said.

“A lot don’t know the hotel industry, so they’re looking for us to help them manage the property and, in some cases, help them develop,” he said. “We can manage or help find a suitable management company.”

Tàpies said Relais & Chateaux’s goals are a bit different. The company finds partners who understand the local space and help transform the hotel into experience.

“We are helping them do the last step—take the hotel to the last level and promote it,” he said.

Middleton said there isn’t a deep pool of experienced hoteliers in South America.

“It’s very different than building an office building,” he said. “So we feel that relationships are critical for the success of Hilton in the region. We work harder than we probably do in the U.S. to maintain that relationship.

“It’s difficult to work in these markets with little or no supply,” he continued. “But if you roll up your sleeves, you can really find some opportunity.”

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