The push by the US majors outside of their domestic markets is becoming increasingly intense as they realise the only way to radically increase the rate of system growth is to head overseas.
Marriott, Hilton and Starwood are all making aggressive noises about growing internationally as they realise their domestic pipelines have a finite capacity. But they need to remember that such growth is a long game.
Marriott International said last week that it plans to open 50 new Courtyard hotels in Europe over the next five years. The comments came at the unveiling of its new European prototype in Paris. Currently there are just 43 Courtyards in Europe.
Hilton too wants to expand its mid market offering and has ambitious plans for its Garden Inn brand, which it is to debut in Europe this autumn with an opening in Stuttgart.
But like Marriott, Hilton is also growing its upscale offering and, for example, last week signed a franchise agreement for Moscow’s Leningradskaya Hotel which is to be operated by US management company InterState.
Starwood’s announcements in the past week include management contracts for Meridens in St Petersburg and in Shanghai, the latter being a 770-room monster.
The ambition of the US majors is reflected in the growth of their development teams. Hilton, for example, has grown its team in EMEA from five to 20. Most recently it has pounced on Nick Smart, prising him from Radisson Edwardian to head-up its UK development.
The key factor in the current interest is the potential for international growth to start making a meaningful contribution to the bottom lines of US groups for the first time.
Analysts at Citigroup, for example, estimate that, for Marriott, the addition of 5,000 more rooms each year internationally, half of which are upscale, over the next 10 years, would add almost $150m to EBITDA.
This rate of growth represents a net present value of $1.22bn or about $3 per share, on a discount rate of 10%. This is not small change.
Nor is the contribution that Hilton International now makes to Hilton or, to a lesser extent, the contribution of Meridien to Starwood.
The challenge overseas, however, is more complex than in North America. Europe, for example, already accounts for about 40% of the world’s hotel room stock and there is comparatively little opportunity for new build, especially for upscale hotels in central city locations.
It is a case of gently persuading the current owners of hotels to part with their property, a difficult task if the hotel in question has been in family hands for generations. Patience and long-term relationships matter in such negotiations.
And while Asia clearly has many more development opportunities, prising them open requires long-term relationships rather than the more straight-forward US approach to doing business by numbers.
Historically, the US operators have tended to lack the staying power to win over such owners, of hotels or land. The prime example was the reaction of the US companies following the downturn in 2001.
Despite the hotel development teams being a relatively minor overhead, the companies slashed and burned these operations, which in some cases had been built up over years. The relationships with Europe’s slow moving owners or Asia’s landlords were struck with the individuals employed by the US groups. When the development teams were cut back, the loyalty of the owners followed the individuals being made redundant out of the door.
There is a growing sense among operators that the real opportunities will appear as the next downswing takes hold. They need to hold their nerve and hang onto to the means to grow even if the trading numbers get much tougher.