Hyatt Opens Competitive Front With AmeriSuites Buy - Business Travel News

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Hyatt Opens Competitive Front With AmeriSuites Buy

January 17, 2005 - 12:00 AM ET

By Bruce Serlen

The viability of all-suite hotel brands last month received a major boost when Hyatt Hotels Corp. announced it will acquire AmeriSuites from affiliates of the Blackstone Group, a New York-based private equity investment firm. Blackstone purchased the chain in October as part of its acquisition of Prime Hospitality (BTN, Sept. 6, 2004). Neither Hyatt nor Blackstone would disclose the terms of the deal, which is expected to close later this month.

Entering the all-suites midprice category is the latest indication that Hyatt plans to remake itself as a multi-brand, vertically integrated hotel company. Hyatt already covers the deluxe, upper upscale and upscale niches with its Park Hyatt, Grand Hyatt and Hyatt Regency brands, which operate in 43 countries. In adding a midprice all-suites option, Hyatt would compete more aggressively with Starwood Hotels & Resorts Worldwide, Marriott International, Hilton Hotels Corp. and InterContinental Hotels Group.

The structure for Hyatt's new parent company, which is to be called Global Hyatt Corp., was in place by year-end, said Thomas Pritzker, chairman and CEO. The new structure includes the former Hyatt International. A single national salesforce will sell all Hyatt brands, AmeriSuites included, starting as early as April.

Elsewhere in the all-suites category, upscale Embassy Suites Hotels, which is part of Hilton, in 2005 plans to concentrate on expansion, while midprice SpringHill Suites by Marriott will focus on rolling out a new-generation prototype designed to make guest rooms and public spaces feel more residential and contemporary.

"The all-suite format remains a big advantage for business travelers," said U.S. Franchise Systems chairman and CEO Mike Leven, explaining AmeriSuites' appeal to Hyatt. USFS in 2000 became a Hyatt subsidiary when the Pritzker family, which controls Hyatt, acquired a majority stake. Hyatt charged Leven with overseeing AmeriSuites' operations during the transition.

"Compared to the regular-size rooms of traditional transient hotel brands, the extra-size room that constitutes a suite is a definite plus for travelers," Leven said. "Both travelers and travel managers continue to view all-suites as a good value. The extra space allows travelers to use the room as a surrogate office or just to give them more room for relaxing."

The advantage goes beyond cycles in the economy. "Whether the market is in a downturn or rebounding the way it was in 2004, the price/value equation of an all-suite product still applies," Leven said.

All-suites' price/value proposition gives Hyatt an advantage that its midprice competitors, with the exception of Marriott and its SpringHill brand, do not share. "AmeriSuites gives Hyatt a big leg up against such brands as Hilton Garden Inn, Courtyard by Marriott and Four Points by Sheraton," Leven said.

Hyatt understood it needed to be able to present its corporate accounts with such midprice options, if it wants to retain—much less grow—market share in its 214 full-service hotels. "When salespeople approach large corporations for business today, travel managers demand hotel brands in various price points and segments, so they only have to deal with one sales person," Leven said. "This wasn't the case 10 years ago. Travel managers don't have time to deal with one salesperson looking for their full-service business and another who's after their midprice bookings. Consequently, Marriott, Hilton, IHG and Starwood have an advantage because they cover different segments. Hyatt has been disadvantaged, a situation it's now moving to change."

In light of Hyatt's goal to have a national midprice brand, it was more expedient to acquire an existing chain than create one from the ground up. "Considering AmeriSuites' existing distribution of 143 hotels, it could take 10 years to build that amount of inventory," Leven said. "It will be much easier to expand the chain from its current size to the next level, say, to 250 hotels, than to go from zero to 143 because they already have a successful model to build upon."

Given Hyatt's proposed new reach, travel managers who have a chainwide deal with the hotelier would be able to negotiate rates in the midprice range at any AmeriSuites as part of the same negotiation for their deluxe, upper upscale and upscale room night requirements. Most of the AmeriSuites are in suburban or highway locations outside major cities, as well as in secondary and tertiary destinations, so buyers can work with Hyatt and get the benefits of this expanded coverage. The brand has especially strong distribution in Florida, Georgia and Texas, where it has saturated certain markets. In the greater Dallas area, for example, it operates 10 hotels, including one on either side of DFW Airport.

Once the change in ownership is completed, Hyatt expects to rebrand AmeriSuites, though Leven said the timing was undecided. Hyatt either will add its name as part of the main brand or as a sub-brand. "Once a concept for rehabilitating the brand is put together, they'll decide whether the H goes in the front or the back," Leven said. AmeriSuites' locations all are in the United States. An issue in terms of a future name is whether Hyatt decides it wants to take the brand outside the United States and, if so, whether the AmeriSuites name is viable in international markets.

The hotels' physical prototype is likely to change as well. Much of the basic box will be retained, but service and amenity standards will be upgraded. Typically, all-suite brands offer complimentary breakfast—a full, cooked-to-order breakfast at upscale Embassy Suites, a continental breakfast at midprice SpringHill Suites. Embassy Suites also offers a complimentary manager's reception in the evening to which guests are welcome to bring business associates. Aside from the convenience, these amenities represent savings for companies since travelers are spared the expense of purchasing the food and drink separately. Leven said the target date for Hyatt to implement any AmeriSuites upgrades is the end of 2006.

Given how powerful a marketing tool frequency programs have become to the multi-brand companies, Hyatt is eager to bring AmeriSuites into its Gold Passport program, according to Doug Geoga, president of Global Hyatt. "AmeriSuites will start awarding loyalty points in Hyatt's program in April, the same time cross-selling of the chain through the reservations system begins," Leven said. "Hyatt's hope is that up to 25 percent of AmeriSuites bookings eventually be by Gold Passport members."

AmeriSuites has participated in its own frequency program as part of Prime called Prime Rewards. "It was much smaller than Gold Passport, however, and Prime didn't have any full-service resort properties in its portfolio for redemption," Leven said. "You've got a much bigger situation now. Hyatt has six million members in its program, who now will be able to earn points for AmeriSuites stays."

At Embassy Suites, the focus for 2005 clearly is on expanding distribution. "While we're currently at 175 hotels, we have the strongest development pipeline in our 20-year history," said David Greydanus, senior vice president for brand management. More than 30 hotels are scheduled to open before the end of 2007, representing an almost 20 percent increase in distribution. Development plans by the end of the decade get even more ambitious. Greydanus' goal is to have 300 hotels in operation.

Traditionally in suburban locations, Embassy has targeted sites adjoining convention centers in secondary markets. Examples have been built in Dallas-Frisco, Hampton, Va., and St. Charles, Mo. These hotels tend to have more meeting space than the usual Embassy because of their convention center connection. Consequently, they are more likely to attract group bookings. Occasionally, a convention center-related project will make sense in a primary market. One of these already has been built in Washington, D.C.

Greydanus and his team are targeting downtown urban renewal projects as well. Developers in these instances typically are interested in including a hotel as an anchor along with retail, residential or office development.

While Embassy Suites is represented all over the country, California and Florida are especially popular locations. California already is home to 28 properties with five more in development. The brand also is venturing outside North America. "One of the urban renewal projects we're working on is in Mexico City," Greydanus said. As with international development of any U.S.-based brand, the Embassy in Mexico City adheres to brand standards, but also allows for local tastes and customs.

Embassy Suites in 2004 began promoting a more modest prototype so developers can build on smaller pieces of land. The original prototype featured an atrium design that required a larger site. "What hasn't changed is our commitment to a full two-room suite where the bedroom can be closed off from the parlor area," Greydanus said. By contrast, many midprice all-suite products, including AmeriSuites and SpringHill, feature more spacious studio suites.

SpringHill Suites in 2004 introduced a new-generation prototype, but also redid the suites. Of the 121 SpringHills open, four—in Billings, Mont., Detroit/Southfield, Mich., Lexington, Ky., and Norfolk/Virginia Beach, Va.—incorporate elements of the new design. All SpringHills opening this year will feature the new prototype.

"Our market research indicated that the Generation X traveler we're targeting places more emphasis on progressive design and style than the previous baby-boom generation," said Chad Waetzig, Marriott senior vice president for select service brand management, which includes SpringHill Suites and Courtyard. "Accordingly, we realized we needed to open up the living area in the suite to make it more of a multi-use space."

The brand's engineering and construction team adjusted the suite's layout, flipping the position of the bathroom and moving the door to the suite from the center of the room to the corner. "This added a foot to the length of the bay in our king room, which may not seem like much to a lay person, but allowed us to create a better balance between the living and sleeping spaces," Waetzig said.

A more modern décor accompanied the expanded suite layout. Changes also were made to the hotels' public space, primarily near the lobby. "In earlier generations, that space was used as a breakfast area, which meant it was underutilized for two-thirds of the day," Waetzig said. "We redesigned what we're calling the hub of the hotel. It's now a large eclipse, containing a mix of hard and soft seating. It's a more social, engaging space.

"At the same time, we were sure to retain features of the earlier generation that continued to score highly in our research," Waetzig said. "For example, we retained two-compartment baths and the hospitality stations in the suites, which are a combination of wet bar, mini-fridge and microwave. Every suite also still comes with a sleeper sofa."
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