Hyatt’s growth strategy finds foundation in operations
 
Hyatt’s growth strategy finds foundation in operations
12 OCTOBER 2016 8:50 AM

Operational excellence is a key element for Hyatt Hotels Corporation’s global expansion plans, according to executive Jim Chu.

PHOENIX—The best way for a hotel company to achieve portfolio growth during any economic cycle—good or bad—isn’t rocket science, according to Jim Chu, the newly appointed global head of select service and franchising strategy for Hyatt Hotels Corporation.

Taking care of guests during their stays is just as essential for a company’s development arm as it is for its operational personnel, said Chu—who was appointed to the newly created position on 20 September—during a break at the recent Lodging Conference.

“We’ll continue to focus on our operations because good hotel experiences and good hotel performance drives future growth more than anything else,” Chu said.

Jim Chu,
Hyatt Hotels Corporation

The biggest challenge for Hyatt and its 670 hotels around the globe is maintaining the discipline to focus on the historical revenue per available room and margin performances of its brands while also growing its branded footprint, according to Chu. The company’s 11 hotel brands include Park Hyatt, Grand Hyatt, Hyatt Regency, Hyatt, Andaz, Hyatt Centric, the Unbound Collection by Hyatt, Hyatt Place, Hyatt House, Hyatt Ziva and Hyatt Zilara. 

“You can’t just focus on growth and forget about (operations),” Chu said, adding that the hiring of Susan Santiago as SVP of global select service and franchise operations will help achieve that goal.

Expansion on the select-service side of the business with its Hyatt Place and Hyatt House brands is an important cog in the Hyatt machine because of the ability to move quickly on projects, said Chu, who spent 17 years with Wyndham Worldwide Corporation prior to joining Hyatt.

That development prowess enables the company to react quickly to market conditions. For example, when the Hyatt Place brand was launched in 2005, its prototype was developed with a focus on suburban, business park and airport locations. Chu said that model took a distinct turn after the Great Recession.

“When the economy slowed and financial markets slowed growth, the market that came back was the urban marketplace—customer demand-wise and rate-wise,” Chu said. “The development pipeline then started highly skewing toward urban markets, which has allowed us to be much more visible to customers with our new brands and allowed us to have dramatic RevPAR and rate growth coming into these urban markets.”

Dual-branded properties, such as this Hyatt Place/Hyatt House complex in Denver, are one of Hyatt Hotels Corporation’s vehicles for growth around the world. (Photo: Hyatt Hotels Corporation)

During its 11-year existence, Hyatt Place has grown to approximately 270 properties open around the globe, including hotels in the United States, China, India, the Netherlands, England, Armenia, Honduras, Panama, Mexico, Chile and Brazil. Hyatt Place has approximately 70 properties in the United States, China and Puerto Rico.

The franchising strategy portion of Chu’s job affects all of the brands Hyatt franchises globally, including Hyatt Place, Hyatt House, Hyatt Regency, Hyatt Centric and The Unbound Collection. He said there are plentiful growth opportunities for all of the brands, including Hyatt Regency, which falls in the upper upscale chain scale segment.

Hyatt has continued to update the Hyatt Regency product and guest experience so the brand maintains relevance with all age groups, including millennials, Chu said. He added that reaching all age groups is more important than focusing on one specific demographic.

“You have to spin plates,” he said. “You can’t address your brands to cater to one specific group … it caters to a mindset. … Our strategy across the brands is to focus on the upper upscale traveler regardless of their age. As we look at revenue programs and service programs we can streamline and home in on a more individual basis.”

The strategy has led to resurgent demand among the development community for the Hyatt Regency brand, Chu said.

“Our largest growth from room count is Regency because of global growth—we don’t anticipate that being different going forward,” he said. “It’s our signature brand on a global basis and the one we’re most well known for.”

A look at the pipeline
Approximately 60% of the properties in Hyatt’s development pipeline are for select-service brands Hyatt Place and Hyatt House, but full-service brands comprise 70% of the rooms pipeline, Chu said. Hyatt’s pipeline includes 100 markets in which it currently doesn’t have a presence.

Included in the pipeline is the development of dual-branded properties that include the Hyatt Place and Hyatt House brands. There are complexes open in Denver and Charleston, South Carolina, with several others in the pipeline, Chu said.

Chicago-based Hyatt likes management, franchising or joint-venture projects for dual-branded properties, he said.

“We like them because there are some operating efficiencies and marketing efficiencies, but more importantly it allows us to bring two brands to bear in one market,” Chu said. “Those brands are urban in nature with high barriers to entry. They don’t necessarily have the same reason of travel so they complement each other.”

The combination works because of the unique business models of the brands, including the 50% of Hyatt House’s business that falls into the extended-stay category, he said.

All-inclusive and sharing-economy exposure
Hyatt executives also like the direction of the company’s all-inclusive resort business, Chu said. The company has a strategic relationship with Playa Hotels & Resorts to be the sole operator of its all-inclusive brands, Zilara and Ziva.

“That’s been a fabulous relationship,” Chu said. “They gave us great insight on not only the direction of the all-inclusive segment but it allowed us to start two new brands at the top tier.

“They had great product and experience understanding—it allowed us to use their background and knowledge and bring the only American branded presence into the all-inclusive market.”

Chu said that because the all-inclusive resorts are being developed in markets where there is heavy American traffic, the model will eventually make its way to the U.S. on a selective basis. But there are challenges to operating in an all-inclusive environment.

“Part of the (all-inclusive) nature is that our hotels are fairly large in scale,” Chu said. “They have the right labor model in places such as Mexico and the Dominican Republic.

Further expansion in the Caribbean and Latin America requires markets with natural resources, sufficient locally sourced food product and available labor.

“When you look at markets that don’t have local sources … those (all-inclusive) hotels have struggled margin-wise,” Chu said.

While Hyatt is growing its hotel business, it ended its foray in the sharing-economy sector in April when AccorHotels acquired Onefinestay for €148 million ($163.6 million). Despite being invested in the sector for just a little more than a year, the exposure proved to be quite beneficial for Hyatt, Chu said.

“It allowed us to understand that there is a group of consumers looking for a different kind of experience—finding lodging in certain locations in upscale residences,” he said. “It allowed us to look at how they were looking, if they were singularly looking for residential experiences as well as the mindset and experience of how they’re shopping.”

Hyatt trades on the New York Stock Exchange under the “H” symbol. It closed Tuesday’s session at $49.33 per share.

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