InterContinental Hotels Group is zeroing in on Canada, with newer, better hotels
In the years following world war ii, north america was at a crossroads. Weary soldiers returned home to nations on the cusp of change, as the lingering malaise from a half-decade at war gave way to renewed optimism for a prosperous future.
It was out of this new nation building that Holiday Inn was born. In 1952, there were four Holiday Inn properties in and around Memphis, Tenn., but as the road infrastructure started to expand alongside the booming post-war economy, so did the market for hotels. By the end of 1968, there were more than 1,000 Holiday Inns across North America. Even Tennessee legend Sam Phillips, who rocketed Elvis to fame, made a fortune of his own as an early investor in the young company. The hotel industry has continued to evolve ever since.
“Almost everything has changed except the bedroom — essentially, it’s still just a place for someone to stay overnight,” says Patrick Field, director of Sales and Marketing for InterContinental Hotels Group (IHG) in Toronto. “That’s remained the norm, but everything else is different.” Whether it’s the way they’re being sold, developed, marketed or managed, the franchised hotel of 2007 bears little resemblance to its Diefenbaker-era predecessor. And Field should know. While he wasn’t working in hotels in the early ’60s, the hotel veteran has spent the past 31 years building the Holiday Inn brand. He’s watched it rise, falter, and re-establish itself as one of the most recognized hotel brands in the world.
“Holiday Inn went through some tough times,” says Stuart Laurie, director of Franchise Sales and Development for IHG. Prior to being acquired by British company Bass PLC (which later became IHG), the brand lost a bit of its lustre, with some of its product and operators perceived to be old and tired. But by bringing in a host of new quality developers, and owners and operators in desirable locations, the ship was righted.
“The future is only looking up,” Laurie vows. This year the brand experienced a 20-year record for pipeline development in the Americas, of which 80 per cent are new-build hotels. In Canada alone there are 66 Holiday Inns open for business, with seven more in the works.
A global hotel giant, IHG has seven brands under its umbrella, including Holiday Inn and Holiday Inn Express, InterContinental Hotels, Crowne Plaza, Staybridge Suites, Candlewood Suites and newcomer Hotel Indigo. At its Conference for the Americas held in Toronto last October, the message was clear for the 4,000-plus attendees: Canada is a prime growth market. IHG already has 119 hotels open nationwide. Approximately 46 hotels are slated to open across the country by the end of 2008, and more than 90 per cent are new construction.
With the market for hotels as active as it’s ever been, savvy franchisees are eager to add properties to their portfolios. “We have approximately 100 franchisees in Canada, and about 40 per cent of them have multiple units with us,” says Laurie. “And I’ll walk away this year probably doing 30 more deals.” Alberta, the Greater Toronto Area, and pre- and post-Olympics opportunities in Greater Vancouver are Laurie’s best bets for new development.
In terms of worldwide distribution, IHG is a powerhouse. The company has 1,200 hotels in its global pipeline, representing about 143,000 rooms. “That’s a substantial hotel company in its own right,” Andrew Cosslett, IHG’s CEO, told media at the Toronto conference. “Just our pipeline alone would be the tenth-largest brand in the world.”
Speaking to conference delegates, Cosslett detailed why worldwide distribution matters to franchisees in Canada. “English and French are the official languages here, but do you know what’s the third most common language spoken in this country? It’s Chinese. IHG is already the leading hotel company in China, and Holiday Inn is the number-one brand there.”
That’s significant, especially since the Chinese government is in the process of granting Approved Destination Status to Canada. The 2010 Olympics are also looming. By continuing to expand its footprint in Asia — there are 54 IHG hotels there now, which could triple by 2008 — the company hopes its brands will be the first choice of Chinese tourists in Canada. “Guya Chow Dim — that’s Holiday Inn in Mandarin,” says Laurie. “Some Chinese think it’s a domestic brand.”
Many other factors keep franchising a popular option, not the least of which is the availability of investment capital. “In Canada, there’s more money out there than ever before,” says Laurie, citing the huge number of development deals and hotel transactions, as well as Canada’s strong economy for the trend. “Another reason for growth is the acceptance of franchises here,” he adds. “Unlike other countries, Canadians have been franchising since the early 1960s.” With a history of cultivating profitable franchisees, favourable laws, and only two provinces with any type of franchise legislation — Ontario and Alberta — Laurie expects Canada to remain a hotbed for development.
Similar to the rest of the hotel industry, the franchise sector is wary of the current labour shortage and its associated problems. Laurie believes the industry needs to get creative in looking for solutions. “Owners and operators should offer weekend rotation work shifts and flexible hours,” he says. “Some are even using iPods to attract employees.”
Field sits on the board of the Hotel Association of Canada (HAC), and says it’s constantly lobbying the government to revisit the regulations surrounding temporary foreign workers. Tony Pollard, president of the HAC, says those efforts have been a success. Monty Solberg, the Minister of Citizenship and Immigration, recently loosened the rules for temporary workers in Alberta and B.C.
Laurie also believes extended-stay hotels, such as Candlewood Suites, are an excellent choice in spite of the labour crisis. He asks potential franchisees to consider the high cost of construction and the scarcity of labour when looking at new hotel deals. “We can build a Candlewood for less, or equal to a Holiday Inn Express,” he says. He also points out a 120-room Candlewood property doing 70-per-cent occupancy and being operated as a true extended-stay hotel — with average length of stay 10 to 14 days — only needs 12 full-time employees to operate.
Indeed, a hotel that’s cheaper to build and requires less manpower to run is tailor-made for Canada. “Developers love it,” he says. The first Candlewood Suites hotel is currently under development in downtown Montreal, with more planned for both urban centres and tertiary areas. Laurie says the oil patches in Alberta and Newfoundland are very attractive locales.
The shortage of skilled labour in construction and the availability of land are other big issues facing the franchise industry. “When a good piece of land becomes available, everyone chases it,” Laurie says. “Like the saying goes, many Canadian markets are over-supplied and under-demolished.” That makes franchises harder to sell, especially with competing brands zeroing in on the same areas.
When the competition between brands is high, Laurie says a company’s enterprise value is what differentiates it. “Our distribution channels, the benefits from our priority club loyalty program, the benefits from our worldwide sales, e-commerce, training and marketing programs, are all vital to attracting an owner and operator,” he says. Holiday Inn even designed its new, “balanced full-service prototype” to make the hotels more compelling to potential franchisees. The new prototype is more efficient in its use of space, where up to 70 per cent can be used for revenue generation.
Another trend altering the face of the franchise sector is the ongoing specialization of hotels. With spin-offs and sub-sets for almost every hotel category, IHG recently announced its newest brand Hotel Indigo is coming to Canada. “If customers want it, than it’s up to us to see whether it makes sense,” says Field.
Essentially, that’s the genesis of Hotel Indigo — a whimsical boutique hotel chain that a segment of IHG customers were demanding. With creatively designed guest rooms ranging from $120 to $180, the value proposition works. “Research showed some customers were willing to pay the $40 extra for an experience, as opposed to an office with a bed in it,” says Laurie. “Indigo is our branded boutique hotel. It’s hip, stylish, and different.” There are presently five Indigos in the U.S. with 19 more in the pipeline. A new 108-room property is slated for downtown Ottawa next year.
Franchisees were demanding new, specialized hotels as well, wanting to add value to their portfolios, says Laurie. And while it could be a challenge to sell a brand without a footprint in Canada, he isn’t worried. “Typically, the Canadian market is not one to pioneer brands,” he says, “so the educational and sales process takes longer. But Indigo, like all our other brands, benefits from the enterprise value of IHG. And that’s key.”
Perhaps most important to IHG’s success is that franchisees know they aren’t just buying into a building. They’re buying into a culture and philosophy. “Bricks and mortar are important, especially in our business,” says Steve Porter, IHG’s president for the Americas. “But [our credo] ‘people taking care of people’ defines us. It means taking care of guests, yourself and your team.” It sounds simple, but sometimes the best way a company can provide for a hotel’s guests, is to provide for its owners. If they’re happy, they’ll be better at making customers feel the same way.