Holiday Inn, the brand family that is the foundation block for InterContinental Hotels Group, is being given a $1bn spruce up as the tired feel, particularly of the core brand, is given an overhaul.
Within the next three years all Holiday Inns in the IHG system (including Express), amounting to more than 4,000 properties either open or in development, will have adopted the new look.
The investment at each individual property will be a minimum of about $200,000 encompassing items such as triple sheet bedding, bowed shower rods and better lighting. Externally, the biggest change will be a new logo both for the core brand and Express.
For IHG, getting the Holiday Inn family right is crucial. It accounted for 86% of profit (EBIT) last year in the Americas, a region that accounts for 72% of group EBIT. The cost to IHG is comparatively small at just £30m but the risk is in winning over the owners, overwhelmingly franchisees.
The need for change has, however, been recognised by the International Association of Holiday Inns, an organisation that represents the interests of nearly 3,000 owners of InterContinental branded hotels. It said it strongly supports the rebranding initiative.
The scale of the problem should not be underestimated. Research by analysts at ABN Amro, in an in-depth note on IHG published last week, found that, at the end of 2006, around 36% of Holiday Inn and 23% of Express properties in North America were failing to meet brand standards.
As the analysts pointed out, there is a trade-off between de-branding the hotels quickly for the long-term health of the system and keeping hotels in the system in order to retain revenue.
Over the last three years about 20% of the Holiday Inn branded rooms in the system have been churned. But at the same time, fee income has been increasing thanks to a faster rate of new additions.
The situation for the Holiday Inn family in the US is distinct from that for IHG’s more upscale brands, Crowne Plaza and InterContinental. The upscale brands have comparatively small market shares. Holiday Inn core brand dominates its midscale with food and beverage segment with a share of 30.2% according to ABN Amro. And Express is almost as strong with a 17.0% share of its midscale without f&b segment.
Although the main problem with quality standards has been the core brand, Express is also to receive a new feel to become Holiday Inn Express again (at least outside of the US as inside it never shed that moniker). The signage change for the core brand, overseen by agency Interbrand, is the first since it was established back in 1952.
As well as the physical look, the properties are to be changed in how they sound (through music) and smell (through a new scent). In addition, there is a requirement on owners to invest in staff training to enable a new level of customer service.
IHG believes it can push up the revpar of Holiday Inn core brand by between three and seven per cent, moving it closer to more upscale rivals.
The original Holiday Inn system was built up by Kemmons Wilson who rolled out the chain alongside the then developing road network in the US. This motel concept has long since faded, however, and the last of the motel-type Holiday Inns will disappear as part of the rebranding exercise.
IHG reckons it will continue to shed around 20,000 Holiday Inn rooms a year as properties that fail to make the brand standard are kicked out of the system or choose to leave.
Andy Cosslett, IHG CEO, said in a statement announcing the Holiday Inn rebranding: “The brand is the largest and one of the most successful in the hotel industry and its relaunch will ensure that this position is maintained.
“We want our guests to get as much enjoyment from Holiday Inn hotels over the next 50 years as they have over the last 50.”