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The Hilton Puerto Vallarta, which opened last month. (Photo: Hilton)
The JW Cusco, which opened in September, is built on the grounds of a colonial monastery and features ancient Inca artifacts. Here the courtyard, which is surrounded by Inca ruins. (Photo: Marriott)
Wednesday, November 7, 2012
Special Reports

Room to Grow: Latin American Hotel Boom

U.S. hotel chains set their sights on Latin America.

LATINVEX SPECIAL
Knowledge@Wharton  

When Hilton Hotels & Resorts opened its first all-inclusive luxury resort in Mexico on October 2 -- the 259-room Puerto Vallarta Resort -- many U.S. travelers probably reacted with skepticism, given all the fearsome headlines about the drug trafficking wars currently raging south of the border. Yet the news from Hilton was hardly an isolated case of optimism about the prospects for the hotel sector in Latin America. In Mexico, as in other major Latin American markets, the major U.S. hotel chains are expanding their presence in response to strong economic growth, and increasing demand from local entrepreneurs and other business travelers.

In Mexico, for example, Hilton Worldwide now operates 27 different hotels, across its broad portfolio of segmented brands: Hilton Hotels & Resorts, Double Tree by Hilton, Hilton Garden Inn, Hampton Hotels and Homewood Suites by Hilton. Hilton directly manages eight of those 27 properties, with the remainder operating as franchise hotels. Paul Brown, president, brands & commercial services, Hilton Worldwide, says that a great deal of further expansion is in store in the future. “Across all Hilton Worldwide brands, we are scheduled to open in Peru, Panama, Argentina, Brazil, Mexico, Costa Rica and Colombia in the coming years,” says Brown.

Like several other U.S.-based chains, Hilton is also expanding in Brazil, the largest and most populous nation in region. Hilton recently signed an agreement with local investors to manage the new 298-room Hilton Barra in Rio de Janeiro, its first operation in Rio. Like many other hotels, the Hilton Barra was planned to open before the 2014 World Cup and the 2016 Olympics in Rio. “There is a huge deficit of hotel rooms in Brazil,” says Felipe Monteiro, professor of management at Wharton. Sheraton, one of Starwood's nine brands, recently announced plans to develop the Sheraton Reserva do Paiva Hotel and Convention Center in Pernambuco state, in the northeast region of Brazil. The 289-room property will be the first five-star hotel in Reserva do Paiva, located about 30 minutes from the coastal city of Recife in northeast Brazil. The hotel, to be built a block from the beaches, is scheduled to open in March 2014.

“This is a big opportunity for all of these big companies, and they have already secured their lots,” says Monteiro. “We know that demand will be very strong during these events,” and thereafter, as Brazil’s economy continues to expand, not just in the cities destined for World Cup and Olympics events, but other regions such as Bahia, in northeast Brazil.

For its part, Marriott now has a total of 21 hotels in Mexico, including all of the Marriott-owned brands: The Ritz-Carlton and JW Marriott Hotels & Resorts in the luxury tier; Marriott Hotels & Resorts; and Courtyard by Marriott and Fairfield Inn in the moderately priced tier. “Mexico is one of the most important hotel markets in Latin America,” says Kevin Schwab, vice-president of operations for Mexico at Marriott International. “We will continue to aggressively expand our portfolio of hotels in the region.”Marriott’s newest hotels in the region include the five-star JW Marriott Hotel Cusco, in Cusco, Peru; and the Renaissance Santiago Hotel, which will open in Santiago, Chile, next July.

Meanwhile, Wyndham Hotel Group opened the Ramada Encore hotel in Guadalajara, Mexico in September, its 100th property in Latin America. Wyndham operates a diverse portfolio of more than 40 hotels in that country, under such labels as Ramada, Days Inn, and Super 8. Wyndham’s other recent properties include the 81-room Wyndham Garden Hotel Mexico City – Polanco and the 152-room Ramada Ciudad Juarez in Chihuahua. In Colombia,Wyndham opened the newly constructed 250-room TRYP by Wyndham Bogota Embajada hotel in Bogota, this October.

Daniel del Olmo, senior vice-president at Wyndham Hotel Group Latin America, notes that his company’s enthusiasm about the region reflects its steady economic growth, and the emergence of entrepreneurs in such countries as Mexico, Colombia and Brazil. “The Mexican market is similar to all Latin American markets in that there is significant growth in the middle class; people who, five or ten years ago, could not afford mid-scale hotels are starting to travel now.” Not only are middle-class incomes growing but “air travel is more affordable now.” That allows the big chains to expand beyond the major capitals into regional centers.

In Mexico, apart from new hotels in resort destinations or in cities like Guadalajara -- which serve both business travelers and tourists -- Wyndham plans to open hotels in San Luis Potosi and Queretaro, mid-size cities in central Mexico’s thriving Bajio district. In Brazil, Wyndham recently signed an agreement with Brazilian real estate developer EmCorp to launch its Super 8 and Wyndham Garden brands. Already, deals have been finalized to open Super 8 hotels in several midsize cities in the state of Minas Gerais: Betim, Congonhas do Campo, Lagoa Santa, Pouso Alegre and Sete Lagoas.

Del Olmo outlines his two routes for expansion. In the first model, Wyndham converts existing local hotels into one of the Wyndham brands, providing the technology (offline and online) and hotel management expertise. “They can’t do it alone. They ask us to become part of the Wyndham family, and we establish a full franchising relationship once we do a review of the property.” In the second approach, “We work with the people who are doing the building to develop a property improvement plan” fully managed by Wyndham on behalf of the local investor. Successful local entrepreneurs often lack specific knowledge of the hotel sector. Del Olmo says, “The infrastructure and educational system are good, and the existence of NAFTA makes it easier” for global hotel chains to do business in Mexico.

BRAZIL'S "HOTEL DEFICIT"

With the arrival of the big U.S. chains, “we will see a totally different landscape” for the hotel sector in Rio, predicts Monteiro. Until now, the Brazilian market has been dominated by several non-U.S. chains, including Iberostar, Accor and Windsor. There are also numerous traditional pousadas, which reflect cultural traditions derived from Portugal. These non-U.S. chains will also be expanding. Accor hotel group, which has 169 hotels in Brazil (including 16 in Rio), has the most new projects underway in that country, including 55 hotels under its midscale Hotel Ibis brand, according to Lodging Econometrics, a global research firm. Windsor hotel group will open five new hotels in Brazil over the next five years, while Bristolgroup has said that it plans to double its present number of 16 hotels in Brazil.

As Latin America’s hotel sector expands and becomes more sophisticated, hotel chains aim to target more precisely the various kinds of travelers that frequent each of the brands in their portfolios, segmented by travel goals, budgets and tastes. That means targeting not just vacationers to resort hotels but also small business owners and entrepreneurs, who are proliferating in Mexico, Brazil and elsewhere as a result of strong economic growth.

Monteiro notes that it is difficult for local Latin American chains to compete against the major U.S.-based global chains unless they offer other benefits such as lower prices, loyalty program benefits and plenty of local charm. As the major U.S. hotel brands expand their presence in the region, their members will be able to enjoy greater benefits from belonging to those chains than they did in the past. Currently, frequent customers of the Starwood Preferred Guest program (Sheraton, Westin, W, St. Regis, Meridien) have only seven Sheraton hotels in all of Brazil to choose among, notes Monteiro, so loyal Starwood members “cannot count on booking their favorite hotel in Brazil” to take advantage of their loyalty credits or pile on more for later use. “However, once the big chains have established a network all over Brazil, those benefits will exist” for more and more travelers to Brazil, notes Monteiro. “I have no doubt that the big chains will penetrate the big cities. The demand is certain. The harder thing to predict is whether the U.S. chains will prevail in Brazil or whether local hotel chains that are closer to the Portuguese and Spanish hotel model will prevail.”

“Loyalty programs are incredibly important in building customer loyalty,” says Hilton’s Brown. Hilton’s 34 million worldwide members can redeem points for any room at more than 3,900 hotels and resorts worldwide. Last year, Hilton introduced its Global Online Shopping Mall, which offers members a chance to turn their HHonors points into merchandise and various travel experiences. Available in 16 languages, its Shop-to-Earn Mall enables members in Latin America and elsewhere to earn bonus points through retail purchases from more than 1,500 retailers. In July 2012, Hilton launched its alliance with Multiplus, a Brazil-based company that provides consumers with access to various companies’ loyalty programs. Members of the HHonors program can now redeem their points with either of the two programs (HHonors or Multiplus). HHonors members can also use their hotel credits to earn miles with several major airlines in Latin America -- Mexico-based Aeromexico and Mexicana; newly merged Bogota-based Avianca/TACA, LAN.com, and Brazil’s GOL/Varig.

Like the programs of its competitors, Marriott’s Marriott Rewards program is “portfolio wide” – and worldwide. Customers can use the points they earn in the United States -- or Latin America -- to get free rooms or special discounts at any of the 3,800 Marriott International properties across the globe.

A BROAD MIX OF TRAVELERS

At Marriott, notes Schwab, the mix of domestic versus foreign traveler depends on the location of each hotel and the profile of a typical traveler. Schwab adds that Marriott hotels in Cancun, Los Cabos and Mexico City receive more international business travelers than domestic ones, but “destinations like Puerto Vallarta, Puebla, Monterrey, Torreon and Tijuana tend to have more domestic travelers.” At Hilton, Brown says that in the case of Mexico, “75 percent of our business guests are either domestic or regional from neighboring countries within Latin America who stay at our urban specific destinations. The other 25 percent are foreign visitors, predominantly from the U.S. For leisure travelers, more than 65 percent are foreigners who are visiting our resort properties in Puerto Vallarta and Los Cabos.”

In Brazil, some smaller cities are becoming popular locations for local business travelers who are not deep-pocked employees of giant firms like Petrobras and Vale. In the case of Macaé, a city about 100 miles northeast of Rio de Janeiro, Monteiro forecasts a proliferation of business hotels for the growing number of oil sector technicians and professionals employed in the burgeoning exploration and development of Brazil’s promising ‘pre-sal’ deposits.  

Monteiro notes that the new hotels opening in the big cities of Brazil, Mexico and elsewhere in region are targeting the same kinds of travelers who visit other international destinations around the world. As a result, “not much needs to be adapted” from the models that have been established in North America, he says. However, Monteiro wonders if significant cultural adjustments will be needed when these hotels expand into less developed northeast Brazil, which has its own unique culture.  

GROWING ROLE OF INTERNET AND SOCIAL MEDIA

At Wyndham, Del Olmo says that, as a whole, Latin America has traditionally “lagged behind the United States in the adoption of Internet, particularly for booking.” Now, however,the big hotel chains are using an ever broader range of offline and online strategies, targeted to various kinds of travelers, notes Brown. “We are growing our social media activity in Mexico and other parts of the region with our Hilton Hotels & Resorts brand, developing a country-specific plan and regional approach.” Hilton has established an advertising campaign known as ‘Stay Hilton. Go Everywhere,’ featuring photography from Hilton Los Cabos Beach & Golf Resort. “The campaign aims to capture the attention of leisure travelers in all regions of the world by celebrating this property’s local culture and capturing the unique experiences travelers can expect.” The campaign is a good example of “a flexible global campaign that can be easily adapted to Mexico and other parts of Latin America,” Brown adds.

Because Latin American travelers are now more confident about using the web, the Internet plays a vital role in managing relationships with customers, from advertising to room reservations to collecting feedback from travelers. “The Internet is one of our biggest opportunities for driving bookings,” says Brown. “As travelers who have traditionally favored offline bookings begin to feel more comfortable online, Hilton Worldwide is positioned to fulfill the consumer’s online needs with a full suite of web sites.” Hilton also plans to roll out several language versions of its sites in the coming year, says Brown.

In the U.S., more than 80% of Wyndham customers go to Trip Advisor to view ratings of specific hotels. Increasingly, customers in Latin America are also turning to that site and its local competitors in the region – such as Mexico’s BestDay.com – to assess feedback from previous visitors to various hotels, and post comments about their own experiences. Del Olmo says that Wyndham loads guest reviews and comments from Trip Advisor onto the company’s own web sites. “The key is not just reading the ratings and reviews. We expect our general managers to respond to every customer and every comment immediately,” adds Del Olmo.

At Marriott, Schwab notes, “Blogs and sites like Trip Advisor are very important to the service industry” in Latin America just as in the United States. “With blogs and social media being so present in our day to day lives and activities, people look more to other consumer’s opinions when booking a hotel, choosing a restaurant or buying consumer goods, than trusting the word of a journalist or an advertisement.”

Hilton’s Brown agrees. “Research shows that online users in Latin America seek online reviews and recommendations prior to making their hotel selection,” he says. “While Hilton.com and our other brand websites offer our ‘Best Rates Guarantee’ and are the most popular online booking platform for our hotels, travelers frequently trust others’ opinions through social media and sites such as TripAdvisor. Honest feedback from our guests is often the best way we can refine our offerings and ensure we meet the needs of our guests not only at the property level, but throughout their entire experience with us.” Mexican travelers regularly use the Internet during their business and leisure trips, he adds, also accessing the web through their mobile devices for social media purposes. “Use of the Hilton Worldwide websites for bookings in Mexico has grown year over year. For example, bookings through Hilton.com saw a notable increase through July 2012, compared to 2011. Internet usage varies by country, but it is growing significantly in the region as a whole with social networking activity being a significant part of the online experience.” 

Republished with permission from http://www.knowledge.wharton.upenn.edu -- the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

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