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1995-2005: Ten years of growth for the hotel groups worldwide

The year 2005 marks MKG Consulting’s 20th anniversary. It also marks the publication of the tenth worldwide ranking of hotel brands and groups in HTR Magazine.The time has come to assess the development of these hotel groups…

The first positions in the ranking did not experience any great upset in the last ten years: of the top ten groups in the ranking of 1995, eight are still among the Top 10 in 2005. Nonetheless, growth is strong: in ten years, the number of rooms for these groups, saw average growth by nearly 85%, nearly doubling their supply worldwide! Strong growth in supply is mandatory for holding a position among the sector’s world leaders. Yet, of the top 20 groups in 1995, only 13 are left in 2005. Most of the others were bought by leading groups and integrated into their supplies. Among the major deals may be observed the 1998 buyout of Promus, which ranked seventh at the time, by Hilton Corporation, and the disappearance of the British group Forte / Granada – fourteenth in 2001 – whose brands were separated and acquired by several groups. One may also observe the absorption of the groups Westin, Renaissance and Doubletree by Starwood, Marriott and Hilton Corp respectively.Among the best evolutions, two chains– NH Hoteles and MGM Mirage – developed their supply mostly through the buyout of other brands. If we look at the overall ranking of chains, other major evolutions may be observed. The first prize goes to AmeriSuites, which multiplied the size of its supply by 14 in ten years. Half of these chains have a supply that is mostly in the United States and managed as a franchise. These chains that are in a full growth period have attracted the covetousness of large groups. Five of them have been absorbed by one of the leading groups in the last ten years: AmeriSuites is now part of Global Hyatt; Homewood Suites joined Hilton Corp; Tryp Hotels was bought out by Sol Melia; Sleep Inn is now a Choice brand, and Park Plaza belongs to Carlson. Despite switchback economic growth cycles – a succession of periods of strong growth and depressions – this decade has not upset the ranking of chain hotel and groups. The positions on the top rungs of the ranking have been the haven of the same actors for ten years. The dominant theme of this decade was concentration as the means growth preferred by leaders. The trend does not look ready to come to a close… While the United States were incontestably the key market in the last ten years, what do the next ten years have in store? Now that the American market is settling down, what zone will leading groups prefer? Europe, which concentrates the greatest share of the world’s supply and demand? Asia – and China in particular– where the prognostics for growth in the economy and tourism are a source of dreams? Or the Middle East, where tourism appears to have become the preferred alternative to petrodollars?Mergers and acquisitions have been the preferred means for achieving growth for the big international groups. The biggest wave of absorptions occurred between 1997 and 2002. Since then, the trend for the leaders has been to stabilise their supply, while aiming mostly at the organic growth of existing brands. For some major groups, Cendant and Best Western in particular, the trend is even towards a decrease in the supply: for a few years, these two giants have been shrinking the size of their supply by disposing of those hotels that no longer correspond to their quality standards.The group that grew its supply the most in the last ten years is Marriott International. Between 1995 and 2005, the American group grew its supply by 285,000 rooms – meaning a multiplication in its number of rooms by 2.5. This is thanks to steady organic growth of its brands, the buyout of brands such as Ritz- Carlton or Renaissance and the creation of new brands (Spring Hill Suites, TownePlace Suites). The Hilton Corporation grew by more than 260,000 rooms, mostly thanks to the acquisitions of the groups Promus and Doubletree. The American group thereby multiplied its global supply by 3.8 during this decade. Marriott International and Hilton Corporation each climbed two rungs in the ranking between 1995 and 2005. Accor, although it is relatively stable in the ranking, grew by more than 200,000 rooms. The French group relied heavily on the organic growth of its economy brands. It also finalised its implantation on the American market by acquiring the brand Red Roof, a few years after it bought out Motel 6.In terms of evolution, the award goes to NH Hoteles which. Backed by its acquisition of part of the group Golden Tulip, it multiplied its supply by seven in ten years. The Spanish group climbed up 52 rungs in the ranking to the eighteenth position at the beginning of 2005.The drop in the number of American groups among the Top 100 may be explained by a pronounced phenomenon of concentration of American groups among themselves. Many chains have been bought out and integrated into the supply of larger groups. In addition, the booming hotel-casino sector has been concentrated in just a few years into the hands of two giants, MGM Mirage (merger MGM / Mirage then acquisition of Mandalay Resort Group) and Harrah's Entertainment (merger with Caesars Entertainment).The number of British groups among the top one hundred doubled in ten years. The assent of large groups such as Whitbread (Premier Travel Inn), Millennium & Copthorne or TTLC (Travelodge) and smaller groups such as De Vere or MacDonald Hotels explain this progress.Economic growth in Spain allowed for strong development of the hotel sector, particularly in major cities. Moreover, the good health of Spanish tourism has brought on the creation of many chains offering a resort supply.In France and Germany, the number of large groups has regressed. The domestic markets in these two countries lie in the hands of large groups that are well established, which does not make it easy for competing groups to emerge. The number of Japanese groups is also down: their growth rate is well below those of their Western competitors and acquisitions are less frequent. This is primarily because these groups remain very concentrated on their national market. Japanese groups are thus growing more slowly than the others and the smallest ones are disappearing from the ranking.The groups from these six countries represent nearly 95% of the room supply of the top one hundred groups worldwide. American groups own nearly 60% of these rooms. This has grown over the decade, particularly thanks to many mergers and acquisitions effected by the multinational groups (eight of the Top ten groups worldwide are from the United States) and thanks to their systems of management through franchises, which can be developed very rapidly. The national champion in the United Kingdom is of course InterContinental Hotels Group, former Bass Group, now the leader of the world ranking of hotel groups. But while the country’s share in the supply of the top one hundred groups appears to be stable for the period, it actually experienced a major drop in 1996 that it rose up from little by little. The disappearance of the group Forte had a major impact on Britain’s share of the market and it wasn’t compensated for by the progressive rise of Hilton International.France’s share relies enormously on its two primary groups, Accor and Louvre Hôtels (ex-Envergure). The growth of these groups is just sufficient to maintain France’s position in the ranking with a constant positionning. Nonetheless, recent Starwood Capital’s acquisition of Louvre Hôtels could change this position.Spanish chains are very dynamic: Sol Melia and NH Hoteles have grown a great deal and are positioned respectively in the twelfth and eighteenth positions in the most recent ranking. This strong development, accompanied by the birth of many chains, strengthens Spain’s presence in the ranking. Japan is following an inverse development schema: Japanese groups, whose supply isn’t growing, represent more than 2% of rooms belonging to the top one hundred groups worldwide. Growth in Germany, meanwhile, has been timorous, handicapped by a limited number of national chains and by the absence of large groups. Only TUI succeeds in climbing to the thirteenth position in the worldwide ranking of hotel groups. Nonetheless, the touroperator giant’s hotel supply has not grown since 2001 and it has very few hotels in Germany. In fact, unlike other countries in the ranking, the national chain hotel market mostly consists of foreign groups.The other countries rely mostly on one or two national groups, thus their share re- mains weak. Their presence in the ranking varies with acquisitions, because many groups that do well locally are bought out by bigger competitors that want to enter the country. For example, in Europe, Accor joined forces with Dorint (Germany) and Orbis (Poland), and Hilton International bought out Scandic AB (Sweden).In ten years, the ranking of hotel chains has not evolved much. Of the top twenty in 1995, fifteen reappear in the Top 20 at the beginning of 2005. The order varies from year to year, but the six chains in the lead have remained the same for ten years: Best Western, Holiday Inn, Comfort Inns & Suites, Marriott Hotels & Resorts, Days Inn, Sheraton Hotels & Resorts (in the order of the most recent ranking).Concentration has had much less impact on the ranking of chains because the brands maintain their integrity even if they change owners. Some chains even changed group several times during the decade: the record goes to Le Méridien which changed hands five times in the last ten years, not to mention its recent buyout by the group Starwood Hotels!Sometimes when a brand is bought it is suppressed to integrate its hotels into a betterknown pre-existing brand, or sometimes a new brand is created to replace two old entities. Such practices are increasingly common. Thus, the brand Posthouse, bought out by InterContinental Hotels Group from Forte, disappeared after its hotels were integrated into the brand Holiday Inn. In the United Kingdom, the merger of the brands Premier Lodge and Travel Inn led to the creation of a new brand, Premier Travel Inn. Holiday Inn (also known as Holiday Inn Express) has the wind in its sails. The chain has grown by over 100,000 rooms in ten years and climbed 29 rungs in the ranking to find itself among the Top 10. The brand primarily targets North America’s economy market and franchises almost all its hotels. Alone it represents 60% of the growth of InterContinental Hotels Group in the last ten years. Hampton Inns, second in the ranking of strongest growth in room supply, has not stopped growing since 1995. From 1995 to 2000, under the aegis of the group Promus, the chain already posted annual growth by at least 10%. The trend continued within the Hilton Corporation, which brought it up to seventh place in the ranking of chains. Like Express by Holiday Inn, Hampton Inns leads on the North American market, with franchised economy hotels.The chains Marriott, Courtyard and Fairfield Inn perfectly reflect their group, Marriott International. Their organic growth was spectacular and explains a good share of the group’s dynamism. These hotels are located mostly in the United States, on the mid-range segment. Unlike competitors’ groups, the franchises represent less than half of their hotels. The group Accor confirms its strong development by placing three European chains belonging to different categories– Ibis, Mercure and Sofitel – among those with the best progress.The ten chains that experienced the strongest growth in capacity all belong to one of the Top ten groups worldwide. For the most part they developed organically. Half of these chains are leaders on the economy segment and have a preference for franchise management. Except for Mercure and Ibis, they are located mostly in North America. Moreover, the upmarket segment is not well represented among those with the best growth. There are no Asian chains among the Top 10: the brand that has developed the most, Shangri- La, ranks only thirty-eighth in the ranking of the strongest growth in room supply.Among the best evolutions, two chains– NH Hoteles and MGM Mirage – developed their supply mostly through the buyout of other brands. If we look at the overall ranking of chains, other major evolutions may be observed. The first prize goes to AmeriSuites, which multiplied the size of its supply by 14 in ten years. Half of these chains have a supply that is mostly in the United States and managed as a franchise. These chains that are in a full growth period have attracted the covetousness of large groups. Five of them have been absorbed by one of the leading groups in the last ten years: AmeriSuites is now part of Global Hyatt; Homewood Suites joined Hilton Corp; Tryp Hotels was bought out by Sol Melia; Sleep Inn is now a Choice brand, and Park Plaza belongs to Carlson. Despite switchback economic growth cycles – a succession of periods of strong growth and depressions – this decade has not upset the ranking of chain hotel and groups. The positions on the top rungs of the ranking have been the haven of the same actors for ten years. The dominant theme of this decade was concentration as the means growth preferred by leaders. The trend does not look ready to come to a close… While the United States were incontestably the key market in the last ten years, what do the next ten years have in store? Now that the American market is settling down, what zone will leading groups prefer? Europe, which concentrates the greatest share of the world’s supply and demand? Asia – and China in particular– where the prognostics for growth in the economy and tourism are a source of dreams? Or the Middle East, where tourism appears to have become the preferred alternative to petrodollars?

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