Radisson will need more than a new CEO to get back on track
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It’s even more of a dog-eating dog world than usual in the hospitality industry in the wake of the pandemic. Small marks have targets on the back.
Radisson Hotel Group Americas is in the midst of an executive reshuffle, as former CEO Jim Alderman – who had worked at Radisson since March 2020 – left the company this month. Tom Buoy, the company’s chief commercial officer, was appointed interim CEO last week as the company seeks a full-time replacement.
The change in management comes after Radisson split into two companies following pressure from the US government to keep data from China. The previously fully intact Radisson was owned by a Chinese state-owned enterprise, Jin Jiang International.
The management reshuffle also comes at a time when large hotel companies like Marriott, Hilton and Hyatt are growing and analysts are beating the drums that hotel companies of all sizes, but especially smaller ones, must have brands and operations that stand out from the competition. excel in the recovery from the pandemic.
It is not impossible for small brands to grow. Sonesta International Hotels Corp. has grown into one of the largest hotel companies in the United States virtually overnight this year through conversions of existing hotel brands as well as the company’s acquisition of RLH Corp., parent company of Red Lion Hotels.
But Sonesta offers a distinct line of brands at varying price points, while Radisson can leave customers – and potential franchisees – scratching their heads.
Some of Radisson’s brands include the namesake brand as well as the Radisson Collection (featured as an “upscale lifestyle / affordable luxury” brand in a corporate franchise document), Radisson Blu – a premium brand, Radisson Red (another upscale offering but with more of an emphasis on design) and Radisson Individuals (more of a mellow brand where hotels retain a more independent feel).
“Do the traveling public really understand the difference between these different brands? Dan Lesser, CEO of LW Hospitality Advisors said before adding that it’s not just a problem limited to Radisson: you know, that brand and that brand in my own portfolio. ‘ I mean, if a franchisor tells you that, what does it say?
It can be quite confusing to figure out what the difference is between Accor’s 40 brands or Marriott’s 30 – and these all have different names unlike Radisson’s overlapping nicknames.
But these companies have a larger network than Radisson, which makes them more attractive to potential franchisees of new hotels as well as existing assets.
Start your conversion engine: Construction funding is tight for hotel developers due to declining travel demand, so hotel companies are placing more emphasis on conversions – a type of deal where the owner of an existing hotel takes a brand new affiliation – to fuel growth during recovery.
Executives from companies like Wyndham, Choice Hotels, Marriott and Hilton have all made it clear that they are targeting independent hotels and smaller branded properties to satisfy their appetite for conversion. A company like Radisson is a logical target.
“We are attacked by our competition, just like everyone else,” Alderman told Skift earlier this year. “It’s a very, very, very competitive company. It is a very insular business. Almost everyone in a franchise business has worked for one of the other franchise businesses, so you know everyone’s customers.
Radisson Hotel Group Americas declined to speak for this article. The Radisson Hotel Group management team – which operates beyond North, Central and South America – has pushed back several interviews and requests for comment with Skift since July.
The Americas business as well as Radisson Hotel Group, perceived as the stronger of the two entities, have a tiny part of the hotel industry’s development pipeline. Radisson Hotel Group Americas doesn’t even represent 1% of the development pipeline in the United States, while Marriott, Hilton and IHG made up 68% in the third quarter, according to Lodging Econometrics.
“The challenge for any hotel franchisor trying to compete with the biggest and most established hotel brands is that the other flags already have thousands of hotels in the United States with decades of reputation well known to the public and often in the best locations in the markets. “said Gregory Miller, vice president of housing equity research and experiential recreation at Truist Securities.
The biggest brands also come to the franchisee negotiating table with strong loyalty programs, distribution and marketing reach. A relatively smaller hotel business, whether it’s a startup or a brand with several hundred properties, can still be a compelling case, Miller said.
“But you still have to gain the reputation and market share from customers, hotel owners and the support of hotel lenders,” he added. “Particularly in an established US hotel market for select full-service hotels, this is an exciting and competitive area for smaller hotel franchisors. The largest hotel brands can continue to evolve with little additional cost or by adding integrated brand acquisitions and [mergers and acquisitions] overtime.”
Radisson faces an even tougher struggle on the horizon with its competitors growing in size through conversions and new builds.
“The biggest nightmare of every brand and every family of brands is having a frequent brand-loyal traveler to a place where they don’t have a product to offer,” Lesser said. “That’s why we’ve seen this explosion of American brands going overseas and foreign brands coming here because, again, that nightmare scenario is you get that frequent traveler trying someone’s product. else and love it. “
There are levers that a company like Radisson can pull to set themselves apart from the competition, usually in the form of lower costs and flexibility with franchise contracts. It’s not uncommon to see smaller companies offering franchise fees between 1% and 2% lower than larger brands.
“What do you do if you are a small competitor brand in the United States? Part of winning franchises is an economic decision for the franchisee, ”Miller said. “This hotel owner considers potentially lower fees, shorter and more flexible terms, and perhaps being the only flag in this particular market. What you get from more established brands: Maybe higher occupancy and rates, but also maybe higher franchise fees, less flexible brand standards, and several other flags within the brand family that can be built in your market. “
The advantage: Radisson has some advantages, most of which are found outside of the United States.
“Internationally – particularly in Scandinavia and much of Europe, sub-Saharan Africa and some other global emerging markets – their brands are doing quite well,” Miller said. “They have a solid historical reputation. “
It’s as if IHG has better luck with the Crowne Plaza outside of the United States. The same goes for Marriott and how Sheraton properties abroad are much more luxurious than many found in the country.
But Radisson faces development competition both abroad and in the United States. All the big brands, from Marriott to Hyatt, see more opportunities to expand beyond America as the pandemic emerges.
In Europe, the Middle East and Africa – regions where the Radisson brand resonates most strongly – Radisson Hotel Group represented 4% of the development pipeline. Companies like Accor, Hilton, Marriott and IHG continue to lead pipeline totals in many of these regions, according to Lodging Econometrics.
But that doesn’t mean there isn’t room at the table for Radisson. Big brands can entice potential franchisees with their global reach and distribution, but smaller brands can entice simply by not being another Marriott or Hilton to add to an already saturated city.
The company’s Country Inn & Suites brand performs very well in the United States and can set itself apart from competitors like Holiday Inn Express or Home2 Suites.
“There is always room for new brands because you can only create a limited number of products in a particular market,” Miller said. “If you’re the only Radisson-branded hotel in a particular submarket, you don’t have your own competition fueling you. There are opportunities out there, but again you’ve skyrocketed against the very established, very strong brand standards of the biggest chains for decades. “
Hilton looks beyond the United States for growth
The latest example of an American hotel company accelerating its global expansion comes from Hilton, which was already active in its ambition to grow in Asia.
The hotel company and Jin Jiang International – owner of Radisson Hotel Group – have extended a management license agreement until 2034 to create more than 600 Hampton by Hilton hotels in China, according to the Daily Loding Report last week. The 155e Hampton in China opened earlier this month in Beijing, and there are already more than 350 in the brand’s development pipeline in China.
Hilton already has an agreement with real estate developer Country Garden to build more than 1,000 Home2 suites across China.
Company CEO Christopher Nassetta, like other industry executives, spoke of more growth opportunities in markets like Asia as the United States has a lot more branded products per compared to other countries.
“I suspect you will see a cycle where, especially in the United States, the numbers for new construction are going to be much, much lower,” he said on an investor call earlier this year. “It’s obviously healthy in the long term for the industry. But the good news for us is that the world is big and the pressures aren’t the same all over the world, especially recognizing that the place where we have the second most of our growth is the Asia.
Hilton isn’t just obsessed with China. The company also plans to strengthen its portfolio in Saudi Arabia from 15 hotels to more than 75 with new brands in the country like soft brands LXR Hotels & Resorts and Curio Collection as well as hard brands like Canopy and Embassy.