• Virgin’s second bite of the hotel cherry

Richard Branson's Virgin Group is to make a second attempt at the hotel market with the return of Virgin Hotels, after establishing a property venture with entrepreneur Alberto Beeck and hospitality and real estate investor Diego Lowenstein.

The venture aims to acquire up to $500m in properties over the next three years, with North America's major urban markets the initial target for what the group hopes will be another successful brand extension. However, Virgin may find that it has come too late to the hotel sector to make its strategy of shaking up a staid industry work.

Although apparently a new entrant to the market, Virgin Hotels dates back to 1988, when it was created by combining three properties in the UK: the Norton House Hotel in Edinburgh, the Crathorn Hall hotel in North Yorkshire, and the Rhinefield House Hotel in Hampshire.

This early incarnation, which reached seven hotels, then became Hand Picked Hotels after being sold to Guy and Julia Hands in 1999 for around £20m.

The company has dabbled since then, most recently talking about working with existing chains and re-flagging sites under the Virgin brand. The concept was expected to launch with a hotel in Atlanta, but failed to materialise.

For most nascent hotel chains, the issue is creating a brand and then building a sufficient profile to leverage it. However, Virgin Hotels returns to the market under a globally-recognised umbrella brand which has 300-plus companies currently under its belt and all the baggage that comes with 40 years of history.

In this year's Superbrand report, three of the group's brands – Virgin Atlantic, Virgin Media and Virgin Mobile – were in the Top 500 (Virgin Atlantic at 11 – BA was at four). The first hotel brand to rank was Hilton at 27, highlighting the sector's relatively late adoption of branding against the rest of the consumer market.

Virgin is planning to use these brands, in addition to its holiday companies, to feed into Virgin Hotels, telling potential developers that it can market to its millions of loyalty card members to feed occupancy. The brand will help turn Virgin into a one-stop shop. You can book your Virgin flight on your Virgin mobile, using your Virgin credit card and then stay in a Virgin hotel.  

What Virgin must now decide is what its name means in the hotel sector. It said in a statement that it wanted to target the high income, well-educated, metropolitan ‘creative class'. Leaving aside what ‘creative class' means (a euphemism for ‘cool' one suspects although presumably this won't be policed at check-in) that sounds not dissimilar to the aspirations of many other four-star operators.

For that other airline-to-hotel-via-credit-card company, EasyGroup, their brand is obvious: cheap.

Virgin, in its own words, stands for "value for money, quality, innovation, fun and a sense of competitive challenge". It added that, when starting a new venture, it asked, amongst other questions, ‘is this an opportunity for restructuring a market and creating competitive advantage? What are the competitors doing? Is the customer confused or badly served?'.

Other markets which Virgin has moved into, such as the airlines and trains, suffered from badly-served, confused customers, giving the group a chance to stand out. However, the "high income, well-educated, metropolitan" is increasingly well-served in the hotel sector, particularly in the urban North American markets in which the group hopes to launch.

The brand is less well-known in the US than it is in the UK, where Branson is a rent-a-quote on entrepreneurship and may find that it has to start from a lower base of brand recognition than it might like.

Virgin Hotels may, conversely, find that having an established brand is a hindrance. As one industry commentator who spoke to Hotel Analyst said, the Virgin brand is very 80s and while the 80s are enjoying a resurgence, this may not attract hotel guests. But those who found Virgin cool in the 80s may now be its most eager customers, even if they are not the young hipsters it would like to see toting their iPads in reception.

In the group's property spec, it makes much of the "ample" communal spaces (W, anyone?) where guests can "work, nourish themselves .. and meet interesting people". The group is looking to site these in 150 to 400-room hotels, in "interesting, authentic" buildings, with signature restaurants.

Virgin Hotels will be based on the Clubhouse, Virgin's premium passenger lounge, where the group was aided in its development by Nick Jones, creator of Soho House, with Heathrow and Gatwick also featuring a Cowshed spa – a Soho House brand. Soho House, which has its own hotels, may find it in competition for the same consumers.

Operationally Virgin Hotels will be overseen by Anthony Marino, who has been with Virgin Group since 2006, overseeing its North American growth. The hotels expertise comes in the form of president and COO Raul Leal, previously president of Desires Hotels, the boutique operator, and Paul Whetsell, an executive director who founded CapStar Hotel Company, the hotel REIT which was sold to Blackstone in 2006. Whetsall then went on to be chairman and CEO of Interstate Hotels & Resorts, the management company.

The level of REIT expertise would suggest an interest in the structure for Virgin Hotels, however, the brand is open to most operating structures, commenting that it could operate as a third-party manager, team with owners or acquire properties directly.

With hundreds of companies, Virgin has inevitably had its failures, most recently Virgin Cola and Virgin Vodka – both brands where the market already had dominant and lifestyle-friendly players.

Marino told Bloomberg: "It is a competitive market with very savvy competitors. But if you look at Virgin's history, we have come into markets with big powerful players, where customers are generally satisfied but not in love, and we have been able to cut through that."

While that was certainly true for Virgin Atlantic, hotels, where customers live and work (against merely going from A to B) provoke stronger emotions. They may find there's plenty of love in this sector already. And they will find out whether there's enough to go around. 

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