In a recent interview at IHIF, we talked with Nick Smart and John Rogers from Hilton about the current trends shaping the hospitality industry, particularly with the launch of Spark by Hilton. They emphasized the prevalence of conversion activity within the sector, driven by financing challenges for new builds and the rise of soft brands tailored to diverse consumer preferences. Discussing the evolving landscape of consumer preferences, they noted a growing demand for individualized experiences, innovative design, and seamless technology integration among travelers.
Ifeoluwa Taiwo:
Hello everyone. Today we are joined by Nick Smart and John Rogers from Hilton. Hello both.
Nick Smart:
Hi.
Ifeoluwa Taiwo:
First of all, the first question we're going to ask is what trends are you seeing at the moment in the hospitality sector?
Nick Smart:
I think we're seeing an awful lot of conversion activity across all systems, and partly as a function of lack of debt funding for new build in many markets, or at least the cost of that capital and construction costs. But I think we're also seeing the emergence of soft brands where effectively the owner can retain the equity within their own name and plug into a bigger system in terms of us delivering customers and strong distribution globally. John.
John Rogers:
Yeah and then on the consumer side, I guess we are seeing increasing desire for more individuality from customers. They're looking for more exciting design, they're getting more discerning and more demanding from a food and drink perspective. So yeah, we're finding we're having to up our game. And also on the technology side, consumers more and more wanting to be able to manage their stage to some extent from a technology perspective. So owner perspective and consumer perspective. There you go.
Nick Smart:
So now I would say developer perspective, brand perspective, that's what you get if you ask a developer and a brand guy.
Ifeoluwa Taiwo:
Thank you. Speaking of brands, I want to talk about Spark. What was the inspiration behind the creation of Spark and how does it differentiate itself from the rest of the portfolio?
Nick Smart:
Look, I think we recognize that from time to time there are segments of the market that we are not addressing. We call that white space. And our entry-level brand till this point has been Hampton by Hilton, which globally is an absolute category killer, but there's an awful lot of space beneath that in the premium economy space. Hampton's a mid-scale brand, and I was looking at stats earlier, it's something like from STR data 2023, we're talking 700 million room night opportunity. That's 40% of the market and we are not in it. So that's not a good feeling. And then how does it compare and differentiate itself With Hampton? It's exclusively a conversion brand, whereas Hampton is new built. Hampton is a very fixed layout of bedroom, public areas. This being a conversion brand is much more flexible around room size, public areas, bathroom. Hampton is breakfast inclusive, Spark is breakfast exclusive. Get the picture.
Ifeoluwa Taiwo:
Yeah, I get what you mean.
Nick Smart:
Okay. It's clearly different, but the biggest thing is it's hitting the premium economy space. Hampton is in that mid-scale space.
Ifeoluwa Taiwo:
Premium economy. That's it.
John Rogers:
Yeah. And I would add that the consumer that's looking for this kind of brand, this kind of hotel is very value-conscious obviously, but they also need quality, they need a firm quality bar that they can rely on and they look for comfort, looking for cleanliness in a sector where sometimes the product experience isn't what it could be. So our focus is very much bringing the power of our Hilton engine from a distribution perspective, but also making sure that we are giving that customer the quality experience they've come to expect from staying in a Hilton.
Ifeoluwa Taiwo:
Can you elaborate on the key characteristics of the target audience of Spark?
John Rogers:
I'll go first. I mean, as I say, value-conscious travelers. We know that these people typically actually prefer simpler lodging. They don't necessarily like all the fuss that comes with higher-end lodging and higher-end stay experiences. They like to keep it simple. They care a lot about the basics. They want a decent bed, they want a decent shower. Increasingly, they want to be able to use their phone, as I say, to help control their stay, but they're looking for value and they're looking for that quality bar and that absolute reassurance that what they're going to get is a comfortable stay friendly team in a clean and safe environment. And so Spark provides us with an opportunity to really deliver that for what is for us, as Nick was saying, a big part of the market that up to now we've addressed to some extent with Hampton, but this will allow us to address it far more significantly with its additional brand.
Ifeoluwa Taiwo:
And you mentioned technology earlier. How is Spark adjusting to that technological evolution that we're seeing at the moment?
Nick Smart:
Well, look, I think we start in a good place because Hilton has all of its technology in-house. We are in control of that. We're not dictated to by a third party as to what we develop on behalf of our guests, on behalf of our owners or our team members. But in that context, we are well along the way to migrating everything to the cloud, to simplifying things, for taking cost out of the business and frankly freeing up our team members to spend more time on service than on tinkering around with computers. So I think that's a little bit simplistic, but a lot of what we're doing in the hotel, particularly the bedroom, is technology driven in terms of the customer experience, the connected room. Ideally you would walk into a room and it knows what you watch on the telly, how you like the ambient temperature of the room, what music you like listening to. This is all technology enabled.
John Rogers:
Yeah and having that consistent platform allows us to scale faster. So we have digital key in many of our hotels, in pretty much all of our hotels now right around the world. So customers can go in those markets where it's permitted by law, they can go straight to their room with their phone rather than have to queue at reception.
Nick Smart:
Even a dinosaur like myself.
John Rogers:
Yeah, even a dinosaur. And also things like we can guarantee when customers book that they can have interconnected rooms. And particularly for people traveling with children, that's so important. And we can do that at scale because we have a consistent technology platform that, as Nick was saying, we're now migrating to a new platform that's in the cloud that will allow us to be far more efficient and lower owner costs as well. So a big, big part of our strategy is really pushing forward with that technology path.
Nick Smart:
But I mean also technology, we all in our industry struggle with retaining good team members, so technology needs to be really quick to learn, really easy to use, and that's what the move to the cloud enables.
Ifeoluwa Taiwo:
So what factors led to the decision to launch Spark by Hilton in Europe, and what specific markets are being targeted moving forward?
Nick Smart:
Well, as I said earlier, we don't want to miss out on 700,000 room lights every year. That's a pretty good start. So having something in that premium economy space, and I would say that's not just rival brands, that's an awful lot of independent hotels throughout Europe. Where still independent hotels, a much higher percentage of the total hotel stock than for instance in America. And then in geography terms, UK, Germany, France, Italy, and Spain I think would be our start point. But I think fairly soon after that, we'll target the likes of Poland and Turkey where we've had a lot of big growth.
John Rogers:
Worth also saying that we've already got a pipeline of over 140 hotels in the US. So this brand is already establishing itself significantly in the US and then for us inbound into Europe, people being aware of the brand and looking for that lodging in that space. It'll be a front of mind brand for customers coming into Europe pretty soon, given the rate of expansion in the States.
Ifeoluwa Taiwo:
So how does Spark by Hilton align with the evolving preferences and expectations of travelers, especially those in the premium economic segment?
John Rogers:
Yeah, look, I think all the work we do on hotel guests tells us that the two things that are most important are that they get what they expect. The vast majority of customers will tell you the thing that upsets them most about a hotel stay is when it doesn't meet their expectations, and that happens too often. So first and foremost, giving people what they expect. And secondly, they expect to be treated like a human being, not like a room number. So when people arrive at a hotel, they need that friendliness. And for us, culture and the culture in the hotels is incredibly important. So we work really, really hard with our managed hotels and with our franchised owners to build our individual brand culture so that we can give that absolute combination of friendly, a friendly team making you feel welcome and being able to rely on your stay. And those two things combined are absolutely critical in the development of Spark because that's the core of what we're offering that value conscious consumer in that space.
Nick Smart:
I would say without being too pompous, we've got 180 million and growing loyal members. I think the minute you add the by Hilton, there's an expectation there of a certain level of service and quality of product.
Ifeoluwa Taiwo:
Has there been a lot of investor interest in Spark by Hilton?
Nick Smart:
A lot of interest, not least of all... I mean, this is the lowest cost of entry to our system. So you've got all the benefits of the Hilton system, but probably the least CapEx invested. It's still depending on the state of the quality, there'll be some level of CapEx investment. But it's a very good way of coming into Hilton, and I think people see it for that. I think a number of investors and independents haven't really associated there being an opportunity with Hilton. It's not really been front and center of their mind, now that's changed, a lot of interest.
John Rogers:
I think it's opening up new developer markets as well, Nick. People that wouldn't necessarily have got into relationships with big systems like ours are suddenly seeing that opportunity.
Ifeoluwa Taiwo:
Finally, another big question. How does Spark by Hilton position itself against existing competitors in the premium economy space?
Nick Smart:
Well, I mean, there's a bunch of brands there predominantly from the likes of a core Louvre, Sumner, the Wyndham Estate, Choice. They've done very well in that space, but I wouldn't say it's exclusively restricted to that for the reason I've just said about the whole size of the independent market. But it's that space that we're occupying, which is significantly... It's not in the mid-scale where Hilton operates, as I say, it's the top of a premium economy. I think if we weren't going after Independence, then that's all Ibis, Travelodge, Days Inn, that sort of property would be a very good place to have a dialogue. But I think there's a feast of others, and I think it varies by market. So if I had that same conversation in Spain, it'd be a very different set up from say in Italy. What I just said was a very German UK conversation. So I think it will vary market for market, but we all know who operates at premium economy. I don't think anybody's confused about that.
John Rogers:
No. Look, we're focused on getting the basics right in this brand. So there's a hydration cart when you arrive, some complimentary fruit. We're making sure the bedding is absolutely top-notch. We hear a lot in our research that in this category, often the beds disappoint. The bedding is old, the beds are tired. We want to make sure we are delivering a great sleep experience. We are delivering a decent shower experience. And as I said a minute ago, friendly culture and fantastic service. And as Nick mentioned, 180 million honors members. So we have the fastest growing honors program in the world, or the fastest growing loyalty program in the world. And those people want to build their equity in their honors program. They want to add points. And this just gives them an opportunity to do that in more stay experience than they've had performance.
Nick Smart:
I think in a nutshell, it's our opportunity to attack a massive space that we're not in. And after 18 years of doing this, who'd have thought that we're still that massive space to attack. So the fact that it's a conversion brand I think is really helpful in this funding environment. The fact that the Hilton brand has such awareness in this market and such a loyal following is just a huge opportunity for investors that might be a little disappointed with what they've got at the moment or for independents that didn't know they could have what they've got with us.
John Rogers:
Yeah, an opportunity to take an existing asset, convert it at a sensible price and plug it into the best engine in the world.