On a summer afternoon, Frits van Paasschen, president and CEO of Starwood Hotels & Resorts, sat in a suite at the W New York-Times Square discussing the future of his company. “New York recently became the first city in the world to have all nine Starwood brands,” he boasted. In many ways, New York is the epitome of the growth of Starwood over the years. A hotel company with offerings in categories ranging from trendy upscale hotels to innovative lifestyle brands—enough to fill just about every category and fit every need of today’s travelers.
But on this day, van Paasschen was also discussing much more than New York City, or the United States for that matter. In mere hours, he and many of the management team at Starwood were to board flights bound for the other side of the globe. This summer Starwood moved its management to China for one month, addressing the fact that the country, and the entire Asia-Pacific market, has become a center for growth for the company.
Earlier in the day, before discussing the company’s growth plans with Lodging and leaving for Shanghai, van Paasschen and other top executives from U.S.-based hotel companies told the audience at the NYU Hospitality Conference that they now considered themselves global hotel companies, and not just U.S. companies investing overseas. It’s a subtle self-designation that reflects the growing global market for hotels, not only in Asia, but also in emerging markets around the world.
“China’s certainly the biggest market, and at this exact moment, the fastest growing,” van Paasschen says, “but in many ways China is an example of what’s happening in so many places around the world—and not just Asia. If you look at the growth today in Africa—I think the latest projection I saw was that 52 out of 53 countries in Africa will grow in 2011—you see it. India is certainly an opportunity, so is Southeast Asia. And then Latin America, particularly because of the rich commodities they are able to export, is growing.”
In many ways, Starwood’s trip to China is symbolic of a new milestone for the company. The White Plains, N.Y.-based company [the company will soon relocate its headquarters to Stamford, Conn.] has been on the front lines of globalization. For the first time in its history, Starwood has more hotels outside the U.S. than it does inside the U.S. These days, China is at the forefront of that growth. The company has more than 70 hotels in China flying eight of its nine brands’ flags and another 90 properties in the pipeline.
It’s all part of what van Paasschen says is the company’s desire to be “where the growth is.” “You have to keep in mind what our business model is, and that is we work with developers and owners to find and build hotels,” he says. “At this moment, because construction lending is so difficult to get in North America, we’re going where the growth is. If 70 percent of the world’s economic growth over the next decade comes out of emerging markets, and if new hotel capacity is largely a function of greater economic activity, it’s pretty clear that a huge amount of the growth will come from those markets.”
That’s not to say Starwood doesn’t still have significant growth plans in the U.S. and North America. “We have over 450 hotels in the United States and it remains our largest market, and will be for some time to come,” van Paasschen says.
Starwood currently has nine brands: W Hotels, Westin, Sheraton, Four Points by Sheraton, Le Meridien, St. Regis, The Luxury Collection, Aloft, and Element. While all nine are experiencing considerable up-ticks in their pipelines worldwide, according to van Paasschen, Sheraton and Four Points by Sheraton remain the largest pipelines in terms of pure numbers. Sheraton recently culminated a multibillion-dollar refresh.
According to van Paasschen, branding in today’s world is a global effort and many of Starwood’s brands have taken such an approach. “I think we increasingly live in a world where brands have to be global,” he says. “One of the comparisons I draw is when I was a Dutch teenager living in Seattle with a great interest in soccer in the late 1970s, I had no way to act on that interest. There wasn’t much way to have access to the world of soccer. But today Manchester United has a huge fan base in Thailand. Any brand that fundamentally appeals to people has the chance to grow around the world. So, there’s a W traveler in Santiago, as there is in Mumbai, as there is in Hong Kong, just as there has been for some time in New York.”
Part of globalizing the brands, van Paasschen says, is taking advantage of the longevity of brands such as Sheraton and Le Meridien. “Those brands have been in markets around the world since the 1970s,” he points out. “There was a time when ITT (Sheraton) didn’t repatriate profits and they were building hotels in places like Rio de Janeiro or Kuwait. Le Meridien was born not only in France, but also in the destinations where Air France was flying, such as Africa and Southeast Asia.”
Those histories have given Starwood a good start in globalizing its brands in recent times. “We’ve had executives on the ground within these markets. Having local, smart teams in different places around the world with the right relationships and the knowledge of how to get things done, I think is critically important to success,” van Paasschen says.
To wit, he says he and his management team’s time in China was not really about learning about China so he could better manage China from New York, but to better understand what his teams were doing on the ground and to give him a better understanding of how to help them appropriately.
OPPORTUNITIES AND POTENTIAL
For van Paasschen, forecasting is a dangerous game. He admits that hoteliers can only look at the trajectory of what has happened in relationship to the potential of a market. “If you look at China and what’s happened there over the last 30 years, and if that trajectory continues for even another 10 or 15 years, China will be if not the world’s largest economy, pretty close to it,” he says. “I think correspondingly, just given the population, it will then be the world’s largest hotel market.”
That means an enormous potential, and it’s easy to see why, like other major hotel companies, Starwood is heading off to China. He says that between hotels that are open and hotels that are being built, Starwood has about 160 hotels in the country. Compared to 450 in the U.S., the Chinese market still has the opportunity to get three times as big before it reaches the U.S. Considering the population sizes of each country, China still has a great deal of growth opportunity for Starwood. “And by the way, 10 years from now, I don’t expect we’ll be talking about 450 hotels in the U.S., but some number larger than that,” he says.
“We see not only tremendous growth right now in the emerging markets, but also we have a strong belief that if the economic crisis and financial downturn couldn’t derail that, it’s hard to see what would,” he continues. “There are many years still left of strong growth.”
GLOBAL POINT OF VIEW
Globalization of the hotel industry doesn’t only entail exporting hotel brands to emerging countries, but also the growth opportunity those countries present to the tourism market of the U.S. At some point, particularly with the onset of the Travel Promotion Act and the U.S.’s effort to promote itself, the increased wealth of foreign travelers will help build business for U.S. hotels.
In addition, those travelers will also increase their travel within their own countries. “Hotels around the world in the past were essentially outposts for western and American travelers,” van Paasschen says. “Hotels today in places like China are largely serving local travelers.
“The next phase will be, with the growth of outbound travel, particularly from emerging markets, the benefit of the relationships we have with travelers coming into the U.S. market,” he continues. “So SPG [Starwood Preferred Guest] outside of America has its largest membership in China. Our SPG occupancy in Asia-Pacific is as high as anywhere else in the world. So we know that we have a loyalty relationship with travelers and as they travel more out of their markets, they come and stay with brands they know.”
Building those relationships with outbound travelers is one of the premises behind Starwood Personalized Travel, a program of initiatives designed to serve the unique preferences of Chinese travelers. Debuting at 19 Starwood hotels in gateway cities around the globe, it offers a variety of touches that matter most to the Chinese guest, including in-room tea kettles, slippers, translated welcome materials, and on-site translation services. Restaurant menus will also be made available in Chinese and feature familiar favorites like congee—a popular Chinese breakfast delicacy.
While in many cases, it would seem that American branded hotels would need to be different for different cultures, van Paasschen says brands such as W translate well. “They’d be more similar than different,” he says. “We have a W in Hong Kong which is a spectacular example of the brand. You can’t translate ‘well, hello there’ in Chinese, but it makes sure the W hotel in China has the same feeling that it has anywhere else in the world.”
And that is all part of branding hotels globally.