Welcome to the hotel megabucks

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The Independent Online

On the face of it, the new Punta Mita resort on a remote outcrop of the west coast of Mexico and the new Canary Wharf hotel in London have little in common barring an extremely high price tag. The former is a sybaritic spa resort in the wilderness, the latter is a crisp business hotel in the urban jungle.

On the face of it, the new Punta Mita resort on a remote outcrop of the west coast of Mexico and the new Canary Wharf hotel in London have little in common barring an extremely high price tag. The former is a sybaritic spa resort in the wilderness, the latter is a crisp business hotel in the urban jungle.

Yet both are symbols of an unprecedented expansion of the hotel market. They are owned by the Canadian group, Four Seasons, but share few "chain hotel" physical similarities. The hotel in Mexico feels local, with woven bed-covers and local decor; the London hotel has stark, modern furniture and all the hi-tech gizmos an investment bank partner could dream of. They are part of a stratification of the booming high-end hotel scene that is transforming the business.

At the top end, Four Seasons, along with groups like Mandarin Oriental and Ritz Carlton, are at the forefront of the biggest changes in the luxury hotel scene since designer "boutique hotels" first started appearing in the 1980s. "People are spending more money on top-end hotels than ever before," says David Crowl, vice-president of sales and marketing for the Four Seasons Group. "There are far more affluent people and companies and people's sense of quality has gone up. That applies not just to the rich but to everyone - people are far more discerning about where they stay." Four Seasons, a quoted company still headed by its founder, Isadore Sharp, is opening more than 10 hotels in the next two years, to add to its 48 current locations, all of which will be at the top end - the average room rate is £360 - to consolidate its reputation as the world's top hotel brand.

Mandarin Oriental expanded its portfolio from 15 to 22 top-end hotels in May this year by purchasing the Rafael group of European boutique hotels for $140m, part of a stated aim of doubling its total room numbers to 10,000 in the next few years. Ritz Carlton is expanding its portfolio from 38 to 51 hotels in the next two years, with all 13 new openings being built from new. It's the fastest expansion the market has ever known.

The three groups all have in common the fact that they developed organically from individual luxury hotels. In a sign of the consolidation of the market, though, none of them remains privately-owned. Guests may well have the impression that they are staying in an exclusive, private grand hotel, but more often than not they are merely contributing to the earnings of a large corporation.

Ritz-Carlton, previously owned by American property tycoon WB Johnston, was purchased by the Marriott Group in 1998, which in turn is controlled by the quoted French food services company Sodexho. (Just to make things complicated, Marriott's UK hotels are controlled by Whitbread PLC, where they form an increasingly important part of the company's newly rationalised portfolio.) Mandarin Oriental, quoted on the Hong Kong stock exchange, is controlled by Jardine's. St Regis, another top-end hotel chain busy adding new properties to its portfolio, was recently bought by Starwood, the American group that owns Sheraton, Westin and W Hotels; as recently as 1995 Starwood was a venture capital company without any hotels in its portfolio, making its five-year rise to being the world's biggest hotel group by market capitalisation even more remarkable.

Maintaining the illusion of individuality is an art. Anita Heathcote, regional director of sales and marketing for Ritz-Carlton, says that "a large proportion of our guests are unaware we are part of Marriott and so far Marriott have presented the brand quite separately." She says the expansion is due to several reasons, mainly linked to the globalisation of the economy. "Firstly the world economy is still very strong and the business travel market is constantly expanding. And people are very much more into experiencing the destination through hotels than ever before." John Wallis is VP of global marketing for Chicago-based Hyatt Hotels, the last privately-owned five-star hotel chain. "We are seeing the major public companies commoditising the industry on a scale never seen before," he says.

"And they are bringing their own set of priorities, tied to shareholder value and keeping costs down." He points to the continuing ownership by Bass of the InterContinental chain, and the creation of the biggest hotel group in the world from scratch in just five years by Starwood.

Wallis says a return on investment of 15 per cent, as demanded by shareholders, could be difficult to attain if the market tightened, while a return of 8-9 per cent is attractive "if you take a long-term strategy and own the property as well as manage it", which is what Hyatt and groups like Mandarin Oriental prefer. In a high-end market which is generally considered to have crystallised into two parts, the "normal" five-star hotels and the "luxury" brands, Hyatt is attempting to straddle both sides. In January it is launching a major publicity campaign, accompanied by an investment drive, to promote its top-end brand, Park Hyatt. "Perhaps we haven't concentrated enough on differentiating the brands," Wallis admits.

Park Hyatt may have some way to go before achieving its goal of being as cutting-edge as Ian Shrager's boutique hotels, (and the plan may be interrupted, if City rumours that Bass is interested in purchasing Hyatt from the reclusive Pritzker family are founded), but it is partly aiming at a new sector of the market: wealthy private individuals.

Jill Kluge, director of communications for the Mandarin Oriental group, says the leisure market is becoming increasingly important for what were formerly business-hotel chains. "There has been a remarkable change in guest profile at the Mandarin Oriental Hyde Park Hotel in London," she says, "and across the board we are adapting to this new market." A key indicator of this development has been the explosion in size of marketing organisations like the Surrey-based Small Luxury Hotels of the World, whose membership - all individually owned hotels - has expanded from 102 in 1991 to 267 this year. Katrin Holtkott, the SLH regional manager, says they are snowed under with membership applications from hotels: "There's been exceptional growth in demand for our type of proposition, which is still quite difficult to get from chain hotels."

One of the key questions facing hotel chains at the top end of the market is how heavily to brand their properties, given inherent fears about the generic, branded hotel chains that originally catalysed the rise of the boutique properties. Should they follow the example of British-based InterContinental, and stick the brand name on everything from the legendary Carlton in Cannes to more prosaic concrete towers? Or should they play down the chain-nature of the hotel, like the small-but-expanding, American-based Rosewood group, which owns, among others, London's ultra-chic Lanesborough?

Lucinda Seamark, global brand director for InterContinental, believes uniformity of hotels is still the best way of maximising the company's revenues. "The consolidation of major brands shows the marketplace is growing and maturing," she says. "The market is very dynamic at the moment and the advantage (of being owned by Bass) is the major investment in the brands." She says the vast majority of the chain's business comes from global business travellers booking through agents who prize brands, and their implicit uniformity, above anything else. "InterContinental is a major global brand and we need to keep the marketplace as easy to understand as possible."

Richard Power is commercial director of RF Hotels, the private, London-based chain set up by Sir Rocco Forte after Granada grabbed the Forte hotel group in a hostile takeover in 1996. RF have recently opened luxury hotels in Rome, Florence and Cardiff, with more imminent. "I think Four Seasons have pulled it off well," he says. "There isn't a Four Seasons badge on anything that is not up to their ultimate standard. A brand is very important for top travel agents, who need to be reassured that individuality still means very good service. Our philosophy is to put the individual hotel's name first, but we'd be disappointed if people didn't know there were other hotels in the group." Power points out that entry costs into the market have dropped with the internet allowing a reservations system to be set up for thousands, rather than millions, of pounds, and suggests more boutique chains could be on their way.

What of a possible economic downturn, though? Ritz-Carlton's Heathcote says she is not worried. "Whenever there's a downturn luxury hotels are less affected than others. Our guests are people like company chairmen and senior partners, and they are the last ones to be reached by a recession."