Hilton doubles down on midmarket bet with Motto launch
Hilton doubles down on midmarket bet with Motto launch
24 OCTOBER 2018 8:40 AM

Similar to the launch of Tru, Hilton officials are hoping Motto by Hilton can expand the company’s presence in the midscale segment, but those two brands represent two distinctively different development approaches for owners.

MCLEAN, Virginia—Encouraged by a growing global middle class, Hilton executives made a bet on the midscale segment with the 2016 launch of Tru by Hilton.

The early success of that brand has spurred the company to double down on that bet, launching a similarly value-conscious brand Tuesday in Motto by Hilton, which they said is perfectly suited to fill in the geographic white space left open by Tru. The announcement of Motto comes the same week Whitbread PLC announced its new brand, Zip by Premier Inn, targeting guests who travel on a tight budget.

Tru “is a wonderful brand, but there is a whole segment of our customers and customers that we want to attract into the system that really are much more focused on traveling to an urban environment,” President and CEO Chris Nassetta said.

“And one day while there may be Trus in an urban environment—and we’re certainly not going to restrict that—the reality is we don’t have any now; and in a lot of markets we want to be in and want to be able to serve customers at that price point, Tru is not as efficient.”

Nassetta said Motto has been “a twinkle in his eye” for roughly five years, and he believes the relatively smaller room sizes—averaging around 160 square feet—will make the brand easier to develop in tightly packed major cities. He said the small rooms also make the brand more owner-friendly once the hotel is fully operational.

“In a market where land is super expensive, operating costs are expensive and cost to build is expensive, being able to get that many more rooms … and doing it with a ground floor, with a public space, that has a vibe allows for owners to make a profit and price it for customers at a lower price point than anything else we have,” he said.

He said seizing on that price point is going to be increasingly important to companies like Hilton, although he did note that the company’s growth strategy is very balanced.

“We want to grow everywhere, and we’re making good progress in all the different segments, but having said that, I will say disproportionately in 10, 20 or 30 years, the bulk of rooms growth in the world is going to be in the midmarket,” he said. “The middle class is where you have the biggest growth and where people are coming into travel opportunities. It comes down to what they can afford. That doesn’t mean they won’t buy luxury occasionally, but the bulk of what they can afford for business and leisure travel is midmarket price points.”

The brand has been years in the making, Nassetta said, noting that ultimately it was worth the wait because he believes it represents an exciting new approach that the company and the hotel industry has not seen before.

“We have a 100-year history of innovation, and I think this is one of the more innovative things that we’ve done,” he said. “You can say other people have done micro-hotels, and they have, but nobody has done it at scale and nobody has done it with the efficiency and flexibility that I think we’ve figured out how to do.”

Nassetta said the flexibility offered to guests by Motto will also be key. This will be Hilton’s first brand to guarantee guests the ability to book adjoining, linking rooms. He said the company has spent the last three years working on getting that system to work in its booking systems and designing the rooms to connect in various configurations.

At launch, about a third of a Motto property’s rooms will offer that connectivity, but the brand is open to tweaking that ratio based on guest demand, Nassetta said.

Multiple Hilton executives acknowledged this pain point has been one reason why some people traveling in groups have opted for alternative-accommodations platforms like Airbnb.

“I want the flexibility to create my own travel experience,” Nassetta said. “And if you don’t create that level of connectivity between rooms, it’s hard to do that.”

He said connecting groups of five or six rooms could be perfect for families or groups of friends who don’t necessarily want to pile into a single room or be separated.

Company officials at the announcement also noticed that food-and-beverage options at Motto properties will connect with their surrounding neighborhoods.

Tripp McLaughlin, global head of Motto by Hilton, said owners will be encouraged to work with “local F&B experts” to come up with offerings that are “appealing to locals and guests alike.”

“What’s exciting is we’re allowing owners to define what that experience should be,” he said.

Timetable for rollout
Given the brand is focused solely on city centers, which present considerably more development challenges than suburban hotels, Hilton executives know they aren’t likely to see a similar opening pace with Tru initially. But Nassetta said he’s confident ramp-up for the brand will happen relatively quickly.

“We will hopefully have at least two or three next year because we have a couple deals that we’ve been working on for quite some time that are under construction or adaptive reuse and even a few conversions,” he said. “Now, that’s a conversion with a substantial amount of capital reinvestment, but when you’re doing that you can do things much more quickly.”

The initial announcement of the brand noted deals in various stages in London; Lima, Peru; Dublin, Ireland; Savannah, Georgia; San Diego; Boston; and Washington, D.C.

“Ultimately, the scope of this brand should be hundreds of hotels,” he said. “You look at Tru, and that will be thousands of hotels just like Hampton is, just because of where it can be. Because this is urban in orientation, there is some limitation, but there are a lot of big urban markets in the world, and by the way, in those big urban markets around the world, you can have more than one (Motto).”

Nassetta said he expects to have a dozen Mottos operating in three years with 50 more in the pipeline.

“Within a few years, you’ll be thinking about getting to 100, which means you’ll have hit hopefully the biggest major urban markets around the country, either with hotels that are open or something that is coming, and it will be a network,” he said.

What’s next for Hilton
Nassetta said Hilton has several other brand launches in the works that he expects to happen in the near future.

Those include two that will come “in pretty rapid succession,” he said.

“The next two that are coming are a premium Hilton brand, and we’ve got a number of deals we’re working on, and a soft luxury brand, LXR,” he said. “Hopefully, LXR will come out by the end of the year, and that premium Hilton-plus will come out during the first quarter of next year.”

He said while it’s not exactly the same thing, he considers the strategic alliance with Playa Hotels & Resorts, focusing on all-inclusive resorts, “almost a sub-brand.”

Without putting a timetable on a launch, Nassetta said the next thing on the to-do list will be a luxury lifestyle brand.

“It won’t be in the next few quarters, but certainly near the end of 2019 into early 2020 you’ll see us get into that space,” he said.

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