Globalisation of Hyatt   In August 2006, Global Hyatt Corporation…

ChefHippopotamus6551 Globalisation of Hyatt   In August 2006, Global Hyatt Corporation…Globalisation of Hyatt In August 2006, Global Hyatt Corporation opened the world’s first Hyatt Place hotel just outside Chicago in Lombard, Illinois. The Lombard location was the first Hyatt Place-branded hotel to open following Global Hyatt Corporation’s recent acquisition of AmeriSuites, an upscale chain of all-suite business-class hotels, from affiliates of the Blackstone Group hotel chain. The hotel corporation was scheduled to open more than 140 additional Hyatt Place hotels that year and the next in the United States as many AmeriSuites properties continued to undergo renovation and repositioning under Hyatt’s newest selectservice brand. After acquiring AmeriSuites and rebranding it, the leadership of Global Hyatt Corporation was also thinking about the internationalization of new brands. “Growth potential in the upscale limited service category is significant both in the U.S. and internationally. Hyatt will analyze opportunities for expanding the new brand in strategic markets around the world,” announced Steve Goldman, Hyatt’s executive vicepresident of acquisitions and development.2 In 2011, Hyatt Hotels Corporation announced that its select-service brands were expanding internationally. Among other issues, the leadership of the corporation now needed to find answers for several questions: What modes of entry should be used in brand internationalization? How should new internationalization opportunities be pursued for Hyatt Place while maintaining the company’s premium brand? HYATT HOTELS CORPORATION Hyatt’s several hundred properties were owned through a web of private holdings controlled by three generations of Chicago’s Pritzker family, whose head, Jay Pritzker, had purchased Hyatt von Dehn’s share of Hyatt House on September 27, 1957. Over the following decade, Jay’s younger brother Donald was responsible for the day-to-day operations and Jay for the financial strategy and acquisitions. They made Hyatt the fastest-growing hotel chain in the United States. After Donald’s death in 1972, Jay continued the business and shaped Hyatt into a major competitor in the hospitality industry. In 1969, Hyatt opened its first overseas hotel, the Hyatt Regency Hong Kong. The Hyatt Regency Maui, which the company opened in 1980, was the company’s groundbreaking resort-as-destination concept.4 In 1980, Hyatt introduced its higher-level service brands Grand Hyatt and Park Hyatt. In June 2004, all of the hospitality assets owned by Pritzker family business interests, including Hyatt Corporation and Hyatt International Corporation, were consolidated under a single entity called Global Hyatt Corporation. This created a hospitality company with a single balance sheet, a single organization and a single focus. On June 30, 2009, Global Hyatt Corporation changed its name to Hyatt Hotels Corporation. The company ranked among the world’s top hotel corporations with the highest total sales.5 To help disentangle these holdings, the family called on Mark Hoplamazian, a Pritzker executive and honorary family member. Navigating the family’s fractious politics, Hoplamazian worked to weave together the multiple strands of the hospitality business now known as Hyatt Hotels. As the CEO since 2006, he also shepherded the company through its late 2009 initial public offering and oversaw its subsequent growth into a multi-brand lodging firm.6 In 2006, Global Hyatt Corporation created two select-service brands, Hyatt Place and Hyatt Summerfield Suites. In 2007, Hyatt introduced its Andaz brand and opened its first hotel without the Hyatt name — the Andaz Liverpool Street in London, England. Despite its brand awareness, the company was 10th in the list of the top worldwide hotel groups with the greatest number of rooms (see Exhibit 1). As of the beginning of 2011, Hyatt Hotels Corporation managed, franchised, owned and developed Hyattbranded hotels, resorts and residential and vacation ownership properties around the world. The company’s worldwide portfolio consisted of 453 properties in 45 countries, under brand names that ranged from the ultra-luxury Park Hyatt and upscale Grand Hyatt and Hyatt Regency to the lowercategory Hyatt Place and Hyatt House. The company’s net income was $66 million (see Exhibits 2-7).7 China and India were the second- and third-largest markets for Hyatt Hotels Corporation, after the United States. Hyatt opened its first overseas hotel, the Hyatt Regency Hong Kong, in 1969. Before 2011, Hyatt had 11 hotels in China in first-tier cities such as Beijing, Hong Kong, Macau, Shanghai, Shenzhen and Taipei. In 2010, Hyatt had 22 properties under development in China across all of its full-service brands, including Andaz. Of the 22 properties under development, four properties — the Park Hyatt Ningbo, Hyatt Regency Jinan, Hyatt Regency Guiyang and Hyatt Regency Hyatt had been managing hotels in India since May 1983 and was one of the oldest international hotel brands in the country. Its first hotel in India was the Hyatt Regency Delhi. Over the last few years, the company had introduced the Park Hyatt, Grand Hyatt, Hyatt and Hyatt Regency brands in the country. In September 9, 2011, Hyatt Hotels Corporation announced that a Hyatt affiliate had entered into management agreements with the Russian state-owned company OJSC “Nash Dom-Primorye” for two new Hyatt hotels in the Russian city of Vladivostok, which was one of the main harbours and trading gateways of Russia’s Far East and served as start and end points on the Trans-Siberian Railway. The Hyatt Regency Vladivostok Golden Horn and Hyatt Vladivostok Burny, which would be the third and fourth Hyatt-branded hotels in Russia, were under construction and expected to open in advance of the Asia-Pacific Economic Cooperation summit in the fall of 2012. The other functioning Hyatt-branded hotels in Russia in 2011 included the upscale full-service hotels Ararat Park Hyatt Moscow (opened 2002) and Hyatt Regency Ekaterinburg (opened 2009). Also, the Hyatt Regency Sochi was under development and slated to open in 2013 just before the Winter Olympic Games in the famous Black Sea resort area. The first Hyatt property in Russia, the Ararat Park Hyatt Moscow, was built by Moscow-based restoration and construction firm Lucine. The hotel was built on the site of a legendary Soviet-era Armenian restaurant, and it recalled its predecessor not only in name but also with ethnic touches: artwork by contemporary Armenian artists, a depiction of an Armenian fertility goddess in the atrium, an Armenian chapel with a priest on call and, of course, Café Ararat, which dished up satisfying Armenian fare.9 Other Hyatt-branded hotels were operating or under development in the Commonwealth of Independent States, which was establishing itself as both a force in international business and an attractive tourist destination. UPSCALE SELECT-SERVICE HOTEL CATEGORY The upscale select-service hotel category experienced significant growth until 2011. Hotel chains with that category services were actively growing by increasing their hotel capacity and among them were Courtyard by Marriott, Hilton Garden Inn and Wingate Inn. For example, Courtyard had increased its hotel capacity from 99,669 rooms in 2006 to 131,069 rooms in 2011 and was 11th among the top worldwide hotel brands with the greatest number of rooms (see Exhibit 8).10 Courtyard by Marriott Marriott spent $2 billion in the mid-1980s on building up the Courtyard by Marriott chain in order to target Holiday Inn’s clientele.11 The first Courtyard location was opened in 1983, after three years of research and planning. The two-story, 150-room Courtyard hotel near Atlanta, Georgia, did not offer bellmen, room service or large meeting and banquet facilities, but did offer the high-quality rooms for which the chain was known Courtyard by Marriott, a hotel chain of upscale mid-priced hotels designed for both business and leisure travelers, was in 2006 operating 692 hotels in 42 states in the United States and in 22 countries and territories worldwide and was 13th among the top worldwide hotel brands with the greatest number of rooms.12 At that time, the brand offered more than 10,000 rooms outside the United States. For example, there were 27 Courtyard by Marriott properties operating in eight countries in continental Europe. It was Marriott’s fastest-growing brand, and Marriott was planning to locate two of every five new Courtyards in the next three years outside the continental United States. In India, Courtyard by Marriott opened its first hotel in Chennai in 2006 and in 2011 was among Marriott’s 15 operational hotels in India. The Courtyard brand accounted for nearly half of these. Another 18 Courtyard hotels in smaller towns and satellite cities were under construction. In 2011, Marriott launched two new hotels under its Courtyard brand in Russia. One was in the historic city of Kazan and the other was in the Siberian city of Irkutsk. Also, at the end of the year, the opening of the second Moscow-based Courtyard hotel, which would be the brand’s sixth location in the Russian market, was planned. “We are excited about the expansion of our Courtyard by Marriott brand in Eastern Europe and see strong opportunity to grow the brand here. Last year we announced our goal to double our presence in Europe by 2015,” said Amy McPherson, president and managing director of Marriott International in Europe.13 On February 10, 2009, Marriott opened the 800th Courtyard by Marriott hotel, this one in Shanghai. This was the company’s seventh Courtyard in China. By the end of 2010, Courtyard by Marriott’s portfolio in China consisted of eight hotels totaling 2,474 rooms. Hilton Garden Inn The Hilton Garden Inn brand began in the late 1980s under the name CrestHill by Hilton in four hotels in different U.S. cities. In 1996, Hilton Worldwide reintroduced the brand as Hilton Garden Inn, which at the time operated over 500 properties. The brand, like its competitor Courtyard by Marriott, operated midpriced hotels that were designed for both business and leisure travelers. Hilton opened its first Hilton Garden Inn hotels outside the United States in Stuttgart, Germany, and Florence, Italy, on September 19, 2006, and October 21, 2006, respectively. This segment of the hotel industry was highly competitive, but according to Adrian Kurre, the global head of Hilton Garden Inn, “Research shows there is increased demand by travelers for this type of product.” He also said, “Mid-priced hotels currently offer the greatest development opportunity for their franchise partners.”14 Ian Carter, executive vice-president of Hilton Hotels Corporation, told Russian journalists, “The peculiarity of our strategy is that we do not invest in property. We choose partners — the owners of buildings — to continue working with them as a management company or with franchise agreement. In fact, we invest only in humans and are looking for partners that invest in the building.”15 In the future, the brand’s leadership planned to use a hub-and-spoke approach, as this would expedite development in key target markets. The plan was to be completely reliant on franchising to grow the brand, and then encourage owners to use Hilton Worldwide’s management division to operate the properties.16 Looking at the huge opportunities in terms of business travel in the Asia-Pacific region, especially in emerging economies such as India and China, the leadership of Hilton made a decision to bring the Hilton Garden Inn to these countries. In May 2010, the Hilton Garden Inn New Delhi became the first hotel from this brand launched in India. In February 2011, the Hilton Garden Inn signed a management agreement with Zhejiang Jiacheng Holding Group to manage the first Hilton Garden Inn in China — a 137-room conversion project in Shaoxing. By 2011, the Hilton Garden Inn brand had become one of the fastest-growing brands in the hospitality industry. It operated more than 510 properties around the world and had more than 100 properties planned or under development in the United States, Canada, Chile, India, the United Kingdom, Saudi Arabia and Poland. Wingate Inn The first Wingate Inn franchised hotel opened in July 1996. Since then, all Wingate Inn hotels had been independently owned and operated under franchise agreements with the hotel chain Wingate Inns International, Inc., a subsidiary of Cendant Corporation. The brand focused its service on the upper-mid market and offered consumer-based technology and comfortable, oversized rooms that were created in response to business travelers’ needs. When in the summer of 2001 Wingate Inn opened its first non-U.S.-based property in Calgary, Canada, the president and CEO of Wingate Inns International, Keith J. Pierce, said, “This opening in Calgary just gets the ball rolling on our international development. We are planning to build nine new Wingate Inn hotels in Canada over the next nine years. We would like to see additional international development in places such as South America, Europe and the Philippines.”17 However, these plans were not realized. In 2007, the Wingate Inn brand affiliated itself with the Wyndham Hotels and Resorts brand and officially changed its name to Wingate by Wyndham. Hyatt Place In December 2004, Global Hyatt Corporation, with its existing portfolio of 214 upper upscale and luxury hotels in 43 countries around the world, announced that it would acquire AmeriSuites, an upscale chain of all-suite business-class hotels, from affiliates of the Blackstone Group. “The addition of this leading, upscale limited service entity will enable us to create a new brand extension that will benefit the Hyatt brand and the owners and customers of our existing hotels, as well as the owners, franchisees and customers of AmeriSuites,” said Thomas Pritzker, chairman and CEO of Global Hyatt Corporation.18 To implement the AmeriSuites strategy for Hyatt, industry veterans Jim Abrahamson and Mike Leven were appointed as the company’s senior managers. Before joining Hyatt, Abrahamson had spent 13 years with Hilton in its franchising, development and operating groups. Among his other responsibilities at Hilton, Abrahamson had led the creation, development, implementation and franchising of Hilton Garden Inn. Leven previously served as president and chief operating officer of Holiday Inn Worldwide and as president of Days Inn of America. At Hyatt, Leven would be responsible for the provision of high-quality franchise services to AmeriSuites franchisees. Following the acquisition of the AmeriSuites hotel chain in January 2005, senior executives and design teams at Hyatt Hotels Corporation, along with industry-leading architects, interior designers and brand consultants, set out to revitalize the chain and launch a new leading-edge hotel concept in the upscale select-service segment. The renovation and repositioning of existing AmeriSuites hotels into Hyatt Place hotels began in the fourth quarter of 2005, with the rebranding of qualified corporate and franchised hotels due for completion in early 2007. In 2011, Hyatt Hotels Corporation led the development effort for newly built Hyatt Place properties and the new brand operated about 170 properties with 20,434 rooms in the United States (see Exhibit 8). HYATT HOTELS CORPORATION’S MARKET EXPANSION STRATEGY Hyatt Hotels Corporation intended to expand the presence of all its brands in attractive markets worldwide. First, the company wanted to focus its expansion efforts on under-penetrated markets where it already had an established presence and on locations to which its guests were traveling but where it did not have a presence. Hyatt Hotels Corporation was planning to expand its presence by increasing the number of hotels under the Hyatt brand affiliation, primarily by entering into new management and franchising agreements. Hyatt Hotels Corporation made significant progress in expanding its presence in 2010 through the development of new hotels and conversion of existing hotels. For example, in New York City, the company opened two Andaz properties and signed contracts for new properties, which would expand its presence to six hotels. Also, the company announced five conversions of existing hotels in North America to four different Hyatt brands. In 2010, Hyatt Hotels Corporation continued to grow its presence in India and announced development plans to expand into 15 new Indian markets over the next five years. In 2011, Hyatt Hotels Corporation intended to establish and expand its select-service Hyatt Place and Hyatt Summerfield Suites brands worldwide. The company intended to grow its select-service presence through the construction of new franchised properties by third-party developers, the conversion and renovation of existing non-Hyatt properties, and, in certain cases, participation in the development of properties that would be managed by Hyatt Hotels Corporation’s brands. During the year ended December 31, 2010, Hyatt Hotels Corporation opened 16 new Hyatt Place hotels and four new Hyatt Summerfield Suites hotels in North America, most of which were franchised properties. The company also announced 15 Hyatt Place hotels under development in India and Panama. Hyatt Hotels Corporation intended to increase its franchised hotel presence for its Hyatt and Hyatt Regency brands too, primarily in North America. The company’s management declared, “By increasing our focus on franchising, we believe that we will gain access to capital from developers and property owners that specifically target franchising business opportunities. To pursue this strategy, we have established an internal team dedicated to supporting our franchise owners and to driving the expansion of our franchised hotel presence. We plan to expand existing relationships and develop new relationships with franchisees who demonstrate an ability to provide excellent customer service while maintaining our brand standards.”19 In the hotel business, it was widespread to receive contracts for management, but many well-known players, especially players that operated low-category hotels, were using franchising agreements during their global expansion. While a management contract does not involve as high risk and can yield higher returns for the company, a franchising agreement involves lower levels of resource commitment, and levels of control are less, but returns are lower, as a significant part of income is returned to the franchisee. In the beginning of 2011, Hyatt Hotel Corporation had 132 franchised hotels, four of which the company previously managed itself. In the same period the previous year, the company’s franchised hotels totalled 109. In 2011, Hyatt Hotels Corporation also sought to acquire other brands or hospitality management or franchising companies as part of its efforts to expand its presence. “These acquisitions may include hotel real estate. We expect to focus on acquisitions that complement our ability to serve our existing customer base and enhance customer preference by providing a greater selection of locations, properties and services. Furthermore, we may pursue these opportunities in alliance with existing or prospective owners of managed or franchised properties to strengthen our brand presence,” the company’s management explained.20 Greenfield start-ups and joint ventures might also strengthen the company’s presence in markets. As well, joint ventures might have benefits in terms of higher returns for the company than franchising. In 2011, Hyatt Hotel Corporation started to expand some of its service brands internationally and to select countries to enter (see Exhibit 9). The company’s management announced, “We believe that the opportunity for properties that provide a select offering of services at a lower price point than full service hotel alternatives is particularly compelling in certain emerging markets, such as Brazil, India, China and the Middle East, where there is a large and growing middle class along with a meaningful number of local business travelers.”    Analysis of the above case study in pointersBusinessBusiness – Other