To focus on building brands, Hyatt adopts “asset-light” model

The Hyatt property in the Chicago Loop is currently undergoing renovations.  Hyatt has been using capital generated by lightening its assets to make various improvements to existing hotels, to build its brand and to expand the company worldwide.  / megan k. rauch / MEDILL
The Hyatt property in the Chicago Loop is currently undergoing renovations. Hyatt has been using capital generated by lightening its assets to make various improvements to existing hotels, to build its brand and to expand the company worldwide. / megan k. rauch / MEDILL

By Megan K. Rauch

Chicago-based Hyatt Hotels Corp. recognizes that for many business travelers, there are few things distinguishing one hotel chain from another.  And company officials want to change that for Hyatt guests.

“We want to make guests’ experiences at Hyatt different from other hotel chains. We don’t want to be a part of the sea of sameness, where you wake up in the morning and don’t know what hotel you’re in,” said Jeff Semenchuk, chief innovation officer for Hyatt at a Chicago Ideas Week event at gravitytank inc. on Oct. 17.

Hyatt is one of many hotel companies in the industry looking to implement more targeted marketing strategies to strengthen its base of loyal customers. To finance such operations, many hotel chains, including Hyatt, Marriott, Hilton and Starwood, have adopted what’s known as an “asset-light” model.

Using this model, a hospitality company places more emphasis on franchising and managing hotels, rather than being the direct owner of hotel properties. The physical owner of a hotel property pays franchise royalties to the hospitality company for the right to operate under its name.  This strategy requires less capital from the hotel chain.

In the past, Hyatt has drawn criticism from some investors for owning a larger proportion of its properties. But now it’s moving away from that format.

“Hyatt, like many other hoteliers is continuously adopting a strategy of franchising its hived-off properties to grow in a less capital-intensive way. We believe these asset sales are part of Hyatt’s strategy to strengthen its financial flexibility, which in turn will maximize shareholder value,” a September research note from Zachs Equity Research said.

Since 2013 Hyatt has begun taking this approach.  Through the first nine month of this year, Hyatt’s franchise fees in the U.S. rose by 12.7 percent compared with 2013.

The latest example of that strategic shift came in November, when the company announced that it had reached an agreement with Dallas-based real estate investment company Lone Star to franchise 38 existing Hyatt House and Hyatt Place hotels for $590 million. Among the properties in the transaction were the Hyatt Place in Itasca, Ill. and two Hyatt Place hotels near Detroit.

The company also sold 11 properties last year. It continues to manage them and collects franchise fees.

This business model frees up capital for Hyatt and its rivals who use the extra funds to distinguish themselves from the “sea of sameness.”

One group that the company has targeted with this business model has been women business travelers. Hyatt found that the needs and behaviors of women are different from men travelers.

For example, women don’t like to ask for things, the company found. “If a woman forgets to pack her razor, she’s more likely to go out and find one rather than call down to the front desk to ask for one,” said Emily Wright, a member of the brand experience marketing team for the hotel chains.

In response Hyatt created the Hyatt Has It program. A guest can now simply fill out a card with her requests and drop it off at the front desk. “We have everything from yoga mats to razor blades,” Wright said.

A hotel staff member will drop the item off at a guest’s room. There is also an option for private delivery. A staff member will simply knock twice on the room door to indicate that the requested item has been dropped off. Wright noted that this feature was very popular with women, who are often uncomfortable opening the door to strangers.

Hyatt and innovation consultancy gravitytank also learned that women thought the complimentary bath products were “of poor quality.” Now the company offers brand name products.

Women also told the hotel chain that they find it difficult to maintain their health and well-being while on the road. The hotel developed a Healthy Balance Menu, which offers smaller portions. Juices and smoothies have also been added as healthy alternatives to the hotel’s complimentary snack offerings.

Martha Cotton, a partner and researcher at gravitytank, explained that the goals of the innovations were to create “personalized interactions and an effortless experience” for the hotel guests.

In addition to using the asset light model to improve the guest experience, Hyatt also recycles the capital made from franchising into expanding its brand.

Hyatt has announced plans to build new properties in Puerto Rico and New Zealand since entering into the arrangement with Lone Star.

Wall Street, which was long wary of Hyatt shares, has taken notice of the changes:  Since the hotel company began using the asset-light model in 2013, its shares have consistently outperformed the rest of the market. The chart below from Yahoo Finance compares shares of Hyatt with the S&P 500 in the most recent 52-week period.

The chart from Yahoo Finance shows that shares of Hyatt (blue line) have consistently outperformed the S&P 500 (red line) in the most recent 52-week period. / YAHOO FINANCE
The chart from Yahoo Finance shows that shares of Hyatt (blue line) have consistently outperformed the S&P 500 (red line) in the most recent 52-week period. / YAHOO FINANCE