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Hyatt has done it again: After the market closed on Tuesday, the company actually announced plans to acquire lifestyle hotel operator Standard International.
The deal will bring Standard International's lifestyle brands, including its namesake brand “The Standard,” and its 21 properties around the world under the Hyatt umbrella. The acquisition is valued at up to $335 million and will add approximately 30 hotels to Hyatt's growing lifestyle hotel pipeline.
The deal is one of several lifestyle brand acquisitions Hyatt has made in the past two years and will reposition the hotel company among competitors such as Hilton and IHG Hotels & Resorts, which are also expanding in the industry.
As companies acquire more and more lifestyle brands, what was once a relatively risk-free space has morphed into a fast-paced field filled with banners that make it hard to differentiate — and it's no longer all fun and games for hotel companies looking to differentiate themselves, one hospitality industry expert says.
Sid Narang, a hospitality industry leader for more than 20 years who is currently managing principal at private investment firm Crescent Capital Ventures and a former executive at SBE, Starwood and W Hotels, spoke with Hotel Dive about what's driving the competition, what hotel companies need to do to stand out in a “busy” space and how brand consolidation is progressing.
All is fair in lifestyle and war
The Standard International acquisition marks Hyatt's latest strategic move in what Narang calls the “lifestyle wars.”
In the current environment, lifestyle brands are “aggressively” competing for customers and their share of wallet, their capital and business, lenders' capital, talent and other critical resources, Narang said.
“Nearly every major hotel company is now not only in the lifestyle sector, but is actively trying to compete in this lifestyle space.”
Sid Narang
Managing Principal of Crescent Capital Ventures, a private investment firm
This competition for resources has been exacerbated by the recent saturation of the lifestyle space, which Narang says “didn't exist” 25 to 30 years ago.
“Most of the major hotel companies are not only entering the lifestyle segment but are also actively trying to compete in this lifestyle segment,” he said, adding that competition has intensified especially since the pandemic.
Brands, brands and more brands
Since the start of 2023, Hyatt alone has acquired several lifestyle brands, including Dream Hotel Group, Mr & Mrs Smith, and German brand Me & All Hotels.
The Dream Hotel Group acquisition added 12 lifestyle hotels to Hyatt's portfolio and long-term management agreements for another 24 future hotels, while the Mr. & Mrs. Smith deal is expected to give Hyatt as many as 1,500 boutique and luxury hotels, 700 of which were added to Hyatt's system in the second quarter of this year.
“The more franchise agreements we sign, the better Wall Street will value us.”
Sid Narang
Managing Principal of Crescent Capital Ventures, a private investment firm
The rapid portfolio growth has led Hyatt's major competitors, such as Hilton, to also explore acquiring the brand.
Earlier this year, Hilton acquired two lifestyle brands: Graduate Hotels, which focuses on college destinations, and Nomad, a design-first luxury lifestyle brand. Hilton also partnered with Small Luxury Hotels of the World, which had previously partnered with Hyatt, earlier this year.
Meanwhile, Accor is merging with Ennismore in 2021 to create an “asset-light, standalone entity” with 14 global lifestyle hotel properties.
Wyndham Hotels & Resorts partnered with hospitality group SBE to launch its “Smart Lifestyle” brand in January, while IHG acquired luxury brand Six Senses Hotels Resorts Spas in 2019 and has recently been working to expand existing lifestyle brands such as InterContinental and Kimpton Hotels.
Narang noted that there are several reasons why hotel companies are expanding through brand acquisitions, one of which is to follow a “value” asset reduction strategy.
Asset-light model
Given the current interest rate environment, companies are focusing on acquiring brands.
Narang explained that rising interest rates have led to higher borrowing costs, which in turn has led to higher construction costs. This has led to fewer developers building new properties from the ground up, “which is bad for hotel companies that rely on management contracts,” he said.
“Once the flow of new development business dries up, they will turn to conversions,” he added. “Hotel companies are looking for brands they can convert as part of their asset-light strategies. It makes sense for them to acquire brands with contracts and then scale through conversions in the short term.”
“In addition to all of this, Wall Street is valuing hotel companies that have asset-light strategies,” Narang said.
“The more franchises you sign, the better your valuation on Wall Street,” he added. “That's why Hyatt is selling billions of dollars' worth of hotels and using the cash to buy brands like Dream and Standard.”
Earlier this week, Hyatt sold the 1,641-room Hyatt Regency Orlando for $1.07 billion. Hyatt said in a statement Aug. 16 that the sale was part of a broader capital allocation strategy to sell hotels it owns and reinvest the proceeds into “asset-light platforms that will accelerate growth.”
Hyatt said the sale brings it to a $2 billion asset disposal target for 2021.
Changing traveller demands
Hotel companies are increasingly making acquisitions, but why are they specifically targeting lifestyle brands?
Narang said that's because they're following a shift in traveler sentiment. Gen Z and millennial consumers are dominating travel and will continue to do so. These travelers are “looking for authentic experiences,” he said. They also value design, uniqueness and hotel restaurants and bars, he added.
Lifestyle hotels tend to prioritize design and position food and beverage as “an integral part of the guest experience,” Jane McKees, svp of luxury and lifestyle brands at IHG, previously told Hotel Dive.
Hyatt's acquisition of Standard International is directly related to changing travel demand, according to Daniel Langer, a professor of luxury hotel strategy at Pepperdine University and New York University.
“In my view, this acquisition is designed to meet the rapidly evolving demands of the next generation of affluent travelers. Today's luxury travelers are looking for unique experiences, creative environments and cultural relevance, all of which the Standard brand delivers,” Langer told Hotel Dive.
“By acquiring select, creative properties in some of the world's most dynamic markets, Hyatt is expanding its cultural resonance and diversifying its luxury hotel offerings to remain relevant in a competitive marketplace,” Langer added.
How to make your brand stand out
Many brands are competing in the lifestyle wars, and “talent, culture and creativity will determine the winners,” Narang said in LinkedIn comments on Wednesday.
He later told Hotel Dive that the brand must prioritize finding the right talent to head the operations of its newly acquired lifestyle brand to ensure quality.
“(Lifestyle) is a different business than what these companies are used to. It requires a different flair. The types of decisions are different. There's a little more volatile nature to running and growing this business,” he said. “If (hotel companies) can't win the lifestyle talent war, they're going to fall behind because the decisions being made about their property, their business, their design, their sales won't be of the quality needed to drive revenue.”
Hyatt announced on Tuesday that with its acquisition of Standard International, it is forming a new lifestyle specialty group led by Standard's executive chairman Amar Lalvani. Hyatt said the group will “provide clear leadership across key functions, including experience creation, design, marketing, programming, public relations, restaurants, nightlife and entertainment.” Few details about the group have been released, but it is expected to lead all of Hyatt's lifestyle brands, including Andaz, Caption and Thompson Hotels.
Narang noted that lifestyle brands need to not only hire the best talent, but also offer creative experiences that are unique to their brand to attract guests, because experience, rather than price, is what determines hotel choices.
Hospitality groups “need to avoid the same old crapshoot of many hotel brands in terms of service delivery,” Langer said. “Customers, especially young, upscale customers, are looking for inspiration, and inspiration comes from offering curated, differentiated experiences.”
“Today's luxury traveller is looking for unique experiences, creative environments and cultural relevance, and the Standard brand delivers all of this.”
Daniel Langer
Professor of Luxury Strategy at Pepperdine University and New York University
Experts told Hotel Dive earlier this year that experiential travel will be a trend that influences guest behavior well into 2024 and beyond.
What's on the horizon?
There are so many brands in the lifestyle sector that even chains under the same hotel company will have to compete with each other, Narang noted.
Yariv Ben-Ari, head of the real estate and hospitality practice at New York law firm Herrick, previously told Hotel Dive that one of the challenges hotels face when acquiring other brands is integrating them into different markets and assessing how they will compete with other brands or their own properties within those markets.
As for Hyatt, Narang said one of Lalvani's first focuses as head of the lifestyle group will be to “create the right flying formation” for all of Hyatt's lifestyle brands, in addition to finding the right talent. Once Lalvani is overseeing all of Hyatt's brands, Narang plans to ensure that each one has a brand story and is clearly positioned to offer unique amenities such as food and beverages.
“[Lalvani]needs to differentiate these well enough for developers and build a community,” Narang said. “Otherwise some of the brands will get lost in the shuffle. There are a lot of brands that will get lost in the shuffle.”
Industry-wide, competition in the luxury and lifestyle hospitality sector will “intensify” over the next few years as more luxury travelers seek customized, immersive experiences, Langer said.
When hotel companies consider acquiring lifestyle brands, they look for brands with “a strong identity, cultural relevance and a proven ability to attract a loyal customer base,” Langer said.
“The value proposition of these acquisitions lies in the brands' ability to deliver experiences that deeply resonate with today's affluent customer segment,” he said.
Narang said he expects lifestyle brand acquisitions to continue, but noted that the supply of brands available to buy is shrinking.
“There's not a whole lot left. The ones that immediately spring to mind are Ace Hotels and Virgin Hotels,” Narang said. “I think those hotels will be acquired and I think the focus over the next 12 months will be on digesting those brands.”
