Despite employing more than 171,000 people, Starwood Hotels and Resorts is far from a household name. But the brands it owns, which include Westin, Sheraton, W Hotels and Le Méridien, certainly are.
Starwood is based in Stamford, Connecticut, and was established in 1969 as a real-estate investment trust. In 2011, the company reported $5.6bn in revenues and $489m in operating profit.
Starwood's brand portfolio puts the company at an advantage when entering new markets, according to Frits van Paasschen, the company's energetic chief executive. “We bring with us the platform of global branding and we literally plug into our system, whether it is reservations or revenue management. We are leveraging a platform of scale that would be impossible to recreate with a single hotel or a small set of hotels,” he says.
That scale includes more than 1200 properties located in 100 countries. In 2012, Starwood invested in 69 new hotels, and according to the fDi Markets database, the company is currently scouting sites for at least 10 more projects.
Starwood executives are targeting 'high-growth markets' for its new hotels, favouring the unsaturated economies of developing countries. In mid-2013, company representatives toured Brazil and Colombia, pledging to increase the company's hotel presence in Latin America by 50% by 2018. fDi Markets data shows nine out of 10 top investment destinations for the company's projects between 2003 and 2013 are in emerging markets, the only exception being the US.
China, the most popular destination for Starwood’s new projects, has received almost one-quarter of all investments made by the company in the past 10 years. “China, just in terms of its absolute size, its economy and the wave of urbanisation, is still the single market that has the most growth,” says Mr van Paasschen, adding that other big markets in the region, notably Indonesia, also look set for an increase in tourism.
Africa is another region being targeted for expansion by Starwood. “We find in Indonesia, China and sub-Saharan Africa the rate of urbanisation is still the greatest catalyst for growth, but the number of very reasonable resort destinations with the appropriate level of infrastructure is relatively low,” says Mr van Paasschen.
Starwood’s closest rivals seem to share Mr van Paasschen’s bullish approach towards emerging markets. As fDi Markets data shows, in the past 10 years Marriott International, which owns Ritz-Carlton and Renaissance, invested heavily in China, India and the United Arab Emirates. Hilton, another US chain, also put its bets on India and the UAE, as well as Mexico and Turkey. Meanwhile, InterContinental Hotels Group, the UK-based owner of InterContinental, Crowne Plaza and Holiday Inn brands, was busy opening hotels in India, Mexico, Russia and China.
However, a growing number of Western companies are realising that conquering mega-markets is not easy. In 2013, UK supermarket chain Tesco and US cosmetics firm Revlon joined the companies that have quit China after years of struggle.
Yet Mr van Paasschen believes his company has a foolproof model for entering big foreign markets. “Our preferred model revolves around managing hotels on behalf of local real-estate investors. We get the benefit of someone who understands the real-estate market and who has the same interest as we do. They get the global branding and ability to bring guests,” he says.
Here comes tomorrow
Discovering new investment destinations is not the only shift that hotel groups need to make to stay relevant. As customers embrace the digital age and become increasingly cost-conscious, the hotel and tourism industry has had to adapt. The number of bookings made online and on mobile devices has risen dramatically, as has the ability to compare the best room rates.
In Starwood’s 2012 annual report, Mr van Paasschen praises his company for being at the forefront of digital changes. He notes that a year after his company launched a mobile app, it has been downloaded more than 600,000 times. Mr van Paasschen adds that the company records high occupancy rates across all its major regions.
Recent years have also brought the advent of the sharing economy, which sees owners rent their unused property for a fee. Few within the hotel industry anticipated that individuals might be interested in lodging complete strangers in their apartment, until AirBNB, a San Francisco start-up reportedly valued at $2.5bn, came to the fore.
Mr van Paasschen says the nature of Starwood-owned chains, the majority of which are focused on business travellers and high-income individuals, prevents the company from the disruption that the sharing economy may cause. “We have not adjusted our strategy to the [emergence of the] sharing economy. More than 70% of our bookings are business to business, and our corporate clients tell us they like our loyalty programmes and they appreciate not just our reliability, but also the experiences that their associates have,” he says.
Yet, AirBNB, six years after its founding, already boasts a similar number of bookings to established hotel groups worldwide. The question remains, will the hotel industry’s reliance on household brands and high-growth markets be sufficient for the years to come, when the sharing economy has opened a completely new market?