Often times in this industry you’ll hear executives say, “We’re not going to grow just for the sake of growth.” It may be cliché and overused, but it’s absolutely the right strategy in my opinion, not to mention the best way to avoid bad deals. It’s also a luxury generally confined to smaller, privately held companies, which don’t have to answer to Wall Street.
Let’s face it: When you’re a large, multibranded, publicly traded company, “measured or strategic growth” just won’t do, especially in these frothy times. The industry was reminded of this once again with the recent ouster of Starwood’s Frits van Paasschen as president and CEO. The board of directors insisted that the company’s net rooms growth—and thus its profitability—wasn’t where it needed to be, and the CEO’s fate was effectively sealed.
The move surprised many in the industry as van Paasschen, who spent some seven years at the helm, seemed to be a perfect fit for Starwood in many ways. He brought an extensive consumer branding background, fostered an innovative culture and placed a strong emphasis on technology, as well as international growth.
However, all the while, Hilton, Marriott and others continued to launch new lifestyle, boutique and soft brands infringing on the turf that previously belonged to Starwood. This stands as further proof that, more than ever before, it’s about growing distribution at all costs. Despite the rhetoric from the franchisors, the new brands being launched are less about the specific consumer needs they meet and more about the brand company’s ability to put more dots on the map in specific markets.
Whether or not this is good for the industry overall is certainly up for debate. Overbuilding will likely come into play before long, if it’s not starting to already, and don’t be surprised if the next recession results in some serious brand consolidation.
But, in the meantime, the brand companies will battle it out with both new flags and well-established brands in major urban markets, as well as in secondary and tertiary markets. More than even before, it’s very clear that losing this battle is simply not an option.