Why Hyatt Is Toning Down The GlitzRichard A. Melcher
If any hotel group embodied 1980s glitz and hubris, it was Hyatt. From soaring atrium lobbies to a $700 gourmet picnic it offered atop a Hawaiian waterfall, Hyatt Hotels Corp. oozed excess. Even bloated costs didn't trouble company managers: Anyone who wanted Hyatt cachet, they sniffed, should be willing to pay for it.
But when the go-go market for luxury hotels crashed in 1990, Hyatt got its due. Scores of hotels throughout the industry were saddled with huge debts and unserviceable mortgages. The Hyatt chain, controlled by Chicago's Pritzker family, runs 104 hotels in North America and the Caribbean. The Pritzkers own about one-third of those as well as the land under many other Hyatts. They manage the remainder for other owners--about 30 of whom they had to help restructure after the crash. The Pritzkers themselves had a stake in one of the biggest flops of the 1980s: a $360 million resort in Waikoloa, Hawaii. It was unloaded to Hilton Hotels Corp. for $60 million in 1993.
NEW BOSS. Those experiences have left a much chastened--and far more cost-conscious--company. Although today's Hyatt is hardly a No-Tel Motel, the Pritzkers are retooling the $2.6 billion chain to banish the image of an all-frills hotelier. And as the industry recovers, the Pritzker family, worth an estimated $4 billion, is also expanding again. Since early 1994, Hyatt has bought stakes in several new hotels and moved into franchising and time-share resorts. Through a separate family-held chain of 49 hotels and 16 resorts abroad, Hyatt is also developing 30 properties. "There are huge opportunities," says Douglas G. Geoga, 39, who became president last summer after four years as head of development. "We haven't come close to saturating the market."
Geoga, a low-key lawyer, clearly marks the change. While predecessor Darryl Hartley-Leonard was a garrulous marketer who concentrated on burnishing Hyatt's image, Geoga is a dealmaker who wins high marks from Hyatt's hotel owners for his understanding of tightened industry economics. Though Hartley-Leonard remains chairman--and runs a Pritzker-owned events-management company--Geoga appears better positioned to lead Hyatt in an era in which U.S. growth will come primarily through acquisitions.
QUICK FIXES. But first Hyatt had to go on a painful diet. After two decades spent piling on services regardless of cost, Hyatt risked losing many management contracts in the early 1990s. "New owners were becoming reluctant to hire us to manage their hotels," Geoga concedes. So Hyatt looked at what services guests really wanted. Now, they find wine lists pared from 380 bottles to 38. If they want their beds turned down, they must ask. At the Chicago Hyatt Regency alone, cutting the nightly turndown saves $220,000 a year.
By eliminating many midlevel jobs, Hyatt has trimmed more than 1,000 from a management staff of 7,100. The chain's once autonomous hotels also now purchase goods centrally. That has cut the number of providers of glass, china, and silver from 24 to 4. And after the chain discovered that it was losing money delivering coffee, it put coffee pots in every room. Altogether, Hyatt has cut $100 million annually from its costs since 1991. "The trick is not to cheapen our image," says Thomas J. Pritzker, the 44-year-old family scion who is president of Hyatt Corp. "We're cutting where it doesn't hurt the guest." Those gains are lifting the Pritzkers' fortunes--as is a much improved industry outlook: PaineWebber Inc. Managing Director Bjorn Hanson says innkeepers raised room rates in line with inflation last year for the first time since 1987. Hyatt executives say the chain's revenues are up 13%, to $2.6 billion, since 1990, while gross operating profits have spurted 45%. And owners' complaints about costs have abated. "Our Hyatt properties have come out [of the depression] quickly," says Allen J. Ostroff, managing director of Prudential Realty Group, which owns hotels in Cambridge, Mass., New Orleans, and San Francisco. "We're very happy."
LOOMING FIGHT. Now, Hyatt wants to grow again. Since early 1994, the Pritzkers have earmarked about $70 million to buy stakes in four U.S. hotels and refurbish the Atlanta Hyatt Regency. As the improving industry brings hotels on the market--even the entire Hilton Hotel chain may be sold--they've been studying deals. "We looked at Hilton four years ago, and we'll look again," says Pritzker. "Anytime there's an opportunity to increase our scale, we'll pursue it aggressively."
Still, with formidable rivals such as Sheraton, Marriott, and Radisson also in good shape, the industry is heading into a ferocious battle. All are spending lavishly to woo business travelers and resort customers--and focusing limited construction plans on the same second-tier markets such as Cleveland and Philadelphia. Adding to the fray, all aim to pluck management contracts away from competitors. Marriott Corp. alone aims to add 100,000 rooms worldwide through acquisitions and new management contracts by 1999--and with its Honored Guest program for frequent-travelers already the acknowledged favorite among wandering businesspeople, Marriot appears little worried about Hyatt. "I'm not aware of any management contracts we've lost to them recently," says Marriot International Senior Vice-President Stephen P. Weisz.
What's more, the search for growth is pushing Hyatt into unfamiliar markets. For the first time, the Pritzkers will franchise the Hyatt name. And with the construction of a Key West resort, Hyatt is entering the crowded time-share market. The moves will bring Hyatt head-to-head with well-entrenched foes such as Marriot and Walt Disney Co. Rivals are skeptical that Hyatt can shift to such new segments. "You have to have the culture and quality controls to make it work," says Juergen Bartels, president of Carlson Hospitality Group Inc., which owns Radisson. So far, Hyatt has inked just three deals--and Geoga insists it will do nothing to jeopardize Hyatt's name.
Indeed, his challenge now is to ensure that the Hyatt name still has meaning in an industry where brand loyalty is fading. That's why Hyatt is belatedly stoking up its marketing to business travelers. It only recently put muscle behind its Gold Passport program by offering free air miles. And by blending its fragmented sales force into national teams focused on convention business, Pritzker says, Hyatt has upped group bookings by $250 million since 1993.
Such improved performance is good news for the Pritzkers and their properties--though not necessarily for rivals. "I liked it the way they were," says Bartels of Radisson, laughing. "They are going to be a lot more competitive." Although the challenges are steep, few would bet against the revived Pritzkers.
HYATT'S NEW STRATEGY...IS PAYING OFF
As the hotel industry heats up after four years in the doldrums,
here's what Hyatt did to get ready:
Centralized purchasing, outsourced housekeeping and valet parking, and cut freebies such as mints on the pillow. Savings: $100 million annually since 1991.
Put fax machines and modems in rooms and beefed up Gold Passport program to attract frequent business travelers.
Spent $70 million on stakes in four hotels and Atlanta expansion; is eyeing Las Vegas, Philadelphia, and Cleveland and moving into time-sharing and franchising.
DATA: COMPANY REPORTS
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