The name “Hilton” has been through a few incarnations in Hanoi: sarcastic moniker for the jail that held U.S. prisoners of war in the 1960s and ’70s, then a luxury hotel which since 1999 has targeted foreign investors and well- heeled tourists.
Now a key target is Vietnamese yuppies.
Hilton Worldwide Inc. will expand its brand in Vietnam into what it calls the “mid-market,” opening Southeast Asia’s first Hilton Garden Inn in Hanoi’s historic French Quarter in October.
“This is a market where domestic consumers are aspirational about using international brands,” said Guy Phillips, the hotel’s Singapore-based vice president of development for Asia, adding that the company sees potential for Garden Inns in as many as 10 Vietnamese locales.
Hilton, controlled by Blackstone Group, joins Accor (AC) SA, InterContinental Hotels Group Plc (IHG) and Starwood Hotels & Resorts Worldwide Inc. (HOT) in having opened or considering expanding into mid-tier hotels in Vietnam. The moves come as a growing Vietnamese middle class begins to travel for business and leisure, boosting demand for a fully developed industry with a range of choices for every travel budget.
“The hotel market has changed,” said Marc Townsend, Ho Chi Minh City-based managing director at the Vietnam unit of CBRE Group Inc. (CBG), the world’s biggest commercial property broker. “The Vietnamese guests are moving from one star to three stars, and in some cases to five stars.”
Vietnam has transformed from one of the world’s poorest countries during the days of the Vietnam War, when American soldiers such as John McCain were captured and held in Hoa Lo Prison, which they dubbed the “Hanoi Hilton.” There is no association between the hotel chain and the prison -- which is now closed -- and references linking the two are “completely inappropriate,” said Anne Marie Chua, a spokeswoman for Hilton based in Singapore.
Vietnam has now reached a level that the World Bank calls “lower middle-income,” with annual per-capita gross domestic product more than tripling over the last decade to $1,374 last year, based on International Monetary Fund figures. The poverty rate tumbled from 58 percent in 1993 to 11 percent in 2010, a statement from the U.S. Embassy in Hanoi said.
“You need lower-level hotels only when local demand starts increasing,” said Ian Gamse, a director of London-based Otus & Co., which advises hotels including Hilton. “You’ve got to be sure of the level of that demand to make the case for putting in these mid-market and economy hotels.”
Upmarket hotels such as the Hilton Hanoi Opera, listed as 4.5 stars and $185 per night on Expedia.com, typically offer features such as a concierge, banquet facilities, a separate bathtub and shower, a range of restaurants and bars, and 24-hour room service. A Hilton Garden Inn in Costa Rica, by comparison, is listed as three stars on Expedia and priced at $129 a night, with a single restaurant and limited hours for room service.
Accor, whose range in Vietnam includes the high-end Sofitel and mid-range Novotel, plans to debut its budget Ibis brand in Ho Chi Minh City as early as this month. The chain operates widely in Southeast Asia, including in Indonesia and Thailand, as well as in China and Hong Kong.
The Paris-based company plans three Ibis hotels among its range of about 20 in Vietnam by 2015, according to Patrick Basset, its Bangkok-based vice president for Vietnam, the Philippines, South Korea and Japan. Accor plans to charge $50 per night as a promotional rate at the first Ibis, in a newly developed part of Ho Chi Minh City known as Saigon South, and increase it to $70 within a couple of years, he said.
Initially, most Ibis customers are expected to be non- Vietnamese because of its location in an area where international companies are based, said Basset, who expects local guests to catch up to foreigners within three years. Accor’s Novotel-brand hotels outside Hanoi and Ho Chi Minh City have 40 percent to 50 percent Vietnamese clientele, paying about $100 a night, Basset said.
International visitors to Vietnam grew 25 percent in the first quarter of 2012, topping last year’s 19 percent increase, based on data from the General Statistics Office in Hanoi. Last year’s visitors surpassed 6 million for the first time, and this year the number may surpass 7 million.
The average occupancy rate in Vietnamese hotels was 63.5 percent in 2011, higher than in China, India or Thailand, according to Asia-Pacific Hotel Review by London-based research group STR Global. The number fell from 65 percent in 2010. Hanoi’s 71 percent occupancy rate in the first four months of 2012 beat Bangkok, Beijing, Jakarta, Mumbai, New Delhi and Shanghai, ranking 12th out of 20 Asia-Pacific markets, STR Global said.
“There is room in the market for mid-scale hotels,” said Phil Kasselis, a Singapore-based vice president for development for InterContinental Hotels Group, who said the company is considering bringing its Holiday Inn mid-tier brand to Vietnam and is assessing the market for Holiday Inn Express. The U.K.- based chain operates two Crowne Plazas and three InterContinentals in Vietnam.
Starwood, which has three Sheratons in Vietnam and plans to open a luxury Le Meridien in Ho Chi Minh City this year, is in talks to debut its mid-tier Four Points by Sheraton and Aloft brands in Vietnam, according to Lothar Pehl, a Tokyo-based regional vice president for the Stamford, Connecticut-based company.
“Rising domestic demand and wealth creation are driving continued growth in the country’s lodging sector,” Pehl wrote in an e-mail. “We have seen a constant rise in our domestic segment across all our three hotels.”
Vietnam’s hotel sector has “managed to stay positive,” according to hotel consultants Horwath HTL, in spite of an inflation rate that peaked at 23 percent in August 2011, when it was the highest in Asia.
“In a market like Vietnam, where you have a lot of people going back and forth between Hanoi and Ho Chi Minh City, there is enough domestic movement to create demand,” said Robert Hecker, Singapore-based managing director of Horwath HTL Asia Pacific.
Domestic tourism rose 7 percent last year to 30 million, according to the Vietnam National Administration of Tourism.
“I suspect that many Vietnamese are not yet familiar with the international mid-scale hotel brands,” said Kasselis. “It will take a couple of years to educate the market.”
International hotels in Vietnam seek to take advantage of a premium associated with foreign brands and products, according to New York-based analytics and information company Nielsen Holdings NV. (NLSN)
“Branding does make a difference in Vietnam, particularly in the hospitality area,” said Darin Williams, Nielsen’s managing director in Ho Chi Minh City. “In hospitality, it’s both about prestige as well as a certain level of quality and standards.”
Hilton expects foreign guests to “initially” predominate at the 86-room Garden Inn, located a few blocks away from its current Hilton Hanoi Opera, Phillips said.
“But there will be a very healthy domestic component as well,” he said.
--Jason Folkmanis in Ho Chi Minh City, with assistance from Diep Ngoc Pham in Hanoi. Editors: Sheridan Prasso, Lars Klemming
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