U.S. Hotels To Grow Brands On Other Side Of The Pond

<B> U.S. Hotels To Grow Brands On Other Side Of The Pond</B>

By Cheryl Rosen

Like tourists flocking out of town in the heat, American hotel chains headed for Europe this summer in a trend so strong it seemed more like a rush. From Howard Johnson to Hawthorn, from Radisson to Ritz, well-known domestic brands have set their sites across the Atlantic in a wave of master franchise agreements and joint ventures designed to bring American-style hospitality to the European market.

In August alone, the industry saw a flurry of activity. Days Inn announced a franchising agreement with Premier Hotels Plc that initially will bring 19 hotels to the United Kingdom and one to Budapest, followed by 35 more by the end of next year. Carlson Hospitality announced it is "aggressively targeting Europe for continuing expansion of all three of its hotel brands," Regent International Hotels, Radisson Hotels and Country Inns & Suites. And Hawthorn Suites signed a master agreement to bring 10 extended-stay properties to the British Isles, while Ritz-Carlton was "looking at a few takeovers in Germany and several projects at the major gateways in Europe."

Those announcements come just a month after Howard Johnson's debut on the European scene with its first master franchise (BTN, July 19).

Hospitality experts and insiders agree that the time couldn't be more right for American brands to expand abroad. At home, capital for big projects is shrinking as the REITs lose their steam on Wall Street and the harbingers of a softening market begin to appear. Big corporate buyers are looking to consolidate their hotel purchasing with fewer global suppliers. The airline alliances have proven the pull of global frequency programs. And on the horizon, the Internet promises that a good brand name can lure a global audience to a cheaper distribution channel.

In Europe, the experts say, a new breed of global road warrior is emerging: a weary middle manager looking for a safe haven at a fair price.

"There truly is a midmarket traveler now all over the world," said consultant Robert Mandelbaum of PKF Consulting. "We've talked to hotel companies that desperately want to grow in the key cities in the U.S. and there just aren't many market opportunities. So they are looking overseas to expand their brands."

Agreed Jason Ader, senior managing director at Bear, Stearns & Co. Inc., "Hotel brand owners are looking to Europe because the growth opportunities in the United States are limited, where the rest of the world, including Europe, is wide-open territory."

Not to be outdone, the Europeans are heading west across the Pond. Millennium & Copthorne, which just spent &pound;500,000 (about US$800,000) buying 43 Asian hotels, is prepared to spend another half million for properties in the United States. Said chief executive John Wilson, "Our objective is to be a major global hotel company. At the moment we are only represented in New York. We are looking for a purchase that would give us hotels in all the key gateway cities, such as Boston, Chicago, Los Angeles, Dallas, Atlanta, St. Louis and San Francisco."

U.K.-based Forte Hotels in July bought its first U.S. hotel, the Hotel Nikko in Beverly Hills, which it reflagged Le M&eacute;ridien at Beverly Hills. Chief executive Antoine Cau said he is "committed to building an extensive network of hotels in leading gateway cities."

Added Le M&eacute;ridien president Bernard Lambert, "More and more, international travelers are buying brands."

For the Americans, the overseas migration is being fueled by simple arithmetic: where 75 percent of all American hotels operate under the brand name of a hotel chain, in Europe less than 20 percent do. As European travelers become more global and travel farther from the independent properties they know, many believe, they will increasingly turn to the comfort and guarantee of service offered by a brand they recognize.

"We recognize that we're in a global economy and that brands need to be global too, both on the Internet and physically," said Days Inn president Joe Kane. A Cendant brand, sister to Howard Johnson, Days Inn initially will bring 19 hotels to the United Kingdom and one to Budapest under a franchising agreement with Premier Hotels Plc. By the end of next year, it will add 35 more.

"This was a natural segue for us," Kane said. "We'll be 30 years old next year, and we have close to 1,800 hotels in the U.S., so where do we go from here? There's a lot of demand for good midmarket lodging outside the U.S."

At Carlson Hotels Worldwide, president and COO Eric Danziger said there are "several factors" behind Carlson's three-pronged move into Europe this year. But chief among them is the desire to grow a strong global brand.

"When you make a decision to be a global company, you need to be in the places the traveler wants to be in. The U.S. market is slowing down, but also the branding opportunities in Europe are infinitely greater than in the U.S. In Europe, only 15 percent of hotels are branded, and they have realized the advantages involved in having a recognizable brand."

That's especially true for Carlson, which also owns the nation's second-largest corporate travel agency, Carlson Wagonlit Travel. "We're the only company on the planet that's a travel company and also has hotels. We send people all over the world, and it follows that we should have our product represented throughout the world."

To that end, Carlson in August announced it is "aggressively targeting Europe for continuing expansion" of all three of its hotel brands, Regent International Hotels, Radisson Hotels and Country Inns & Suites. Radisson, which has had a presence in Europe for the past 10 years through joint ventures, now will grow in its existing markets in Scandinavia and Germany, and expand into England, France, Italy and Eastern Europe, and key cities like Athens, Madrid and Rome.

The Regent International brand, acquired by Carlson from Four Seasons, for the first time will focus on the European market in general, and the United Kingdom in particular. And Country Inns & Suites has established a European headquarters in Frankfurt, Germany, from whence to target Europe, as well as Australia, India, the Middle East and South America. It opened six overseas properties in 1999.

Country Inns will be franchised, at least in the short term, to build the brand quickly. Not so Regent. "Regent is a five-star brand, and its equity is all in how it's managed. I wouldn't want to give that up," Danziger said.

Even those who personally cheer for the independents are coming to believe in the power of global brands. "I'm a convert to this, but I do advise clients that global brands are growing, and that hotels that try to operate independently are at a disadvantage," said Alistair Graham, director of hospitality and leisure consulting for Europe at PricewaterhouseCoopers. "I often hear people say they want to stay at independent, non-Americanized hotels, but in the end they go to the Sheraton or the Marriott, where they know they will find all the services they need--like Internet access and corporate card acceptance. I also think the European corporate traveler is fairly addicted to frequent flyer programs--and that as global brands spread into Europe, we can expect that same sort of addiction to hotel loyalty programs."

Another new model that the Europeans find themselves facing is the suite hotel, arriving courtesy of Hawthorn Suites and its new master franchisor, GBI Hotels. Until now, "upper-market limited service hotels are almost nonexistent in the British Isles," said GBI president Dr. Frank Sanderson.

For Hawthorn, like the others following this model, franchising allows a quick development schedule that the hotel chain does not have to finance, and, hopefully, a long-term and reliable flow of fees. Charles Pereira, director of international development at Hawthorn's parent company, said US Franchise Systems--already "in about 20 countries"--also is "talking about doing five-star Hawthorns" abroad.

"The middle ranks are now traveling, and they don't want to pay $500 a night," Pereira said. "Where once people going overseas didn't want an American flag, now they are looking for an American brand where they know what to expect. The best thing for the business traveler is that there are no surprises--they like to know the type of room and the price point."

In addition to truly global brands, suggested Bjorn Hanson of PricewaterhouseCoopers in New York, "we'll also begin to see companies like Preferred Hotels begin to act more like chains as they attempt to add value. We'll also see brands take equity positions to get into new markets. I think we're going to see an explosion of models. Some won't succeed--consistency and conformity don't always work well globally. But if we look at the power of distribution, marketing, contracts with high-volume users, tie-ins with airlines, it's hard to find any reason to think global branding won't be a growing trend.