Long a dominant player in the full-service business and leisure hospitality sector, Hilton Hotels Corp. is relaunching an upscale brand in the limited-service segment that appeals to consumers and offers developers a less costly alternative to building full-service hotels.

The Hilton Garden Inn brand is on a major roll. Hilton plans to increase the number of Hilton Garden Inn locations from 220 to 350 by the end of 2007. The 16-year-old brand is already roughly about the same size as the full-service Hilton hotel chain, which includes some 230 hotels.

“By the end of the year we'll have more Hilton Garden Inns in the U.S. than full-service Hiltons,” says Adrian Kurre, Hilton Garden Inn's senior vice president of brand management. “It's the fastest growing brand in the Hilton family.”

Favorable market conditions

The expansion of the Hilton Garden Inn brand comes during a lull in the development of upscale hotels, a far cry from the heady days of the 1990s, say industry observers. In 1999, for example, the supply of upscale hotel rooms jumped 15.3% year-over year. But in 2004, the supply of upscale hotels rose by only 0.2% over 2003 levels, according to Smith Travel Research. Such dramatic swings in construction are not unusual for an industry notorious for boom and bust periods.

Another good sign: room demand in the upscale segment rose 4.9% in 2004. That helped boost occupancy rates 4.7% and room rates 4% for the year. When hotels are still filling up amid rising rates, new construction then becomes justified. The industry is approaching this point in the cycle, says R. Mark Woodworth, executive vice president at PKF Consulting in Atlanta.

Still, it remains difficult for owners to justify building full-service hotels in urban areas where land is scarce and expensive. Instead, hotel companies are working with developers in suburban markets to roll out more affordable hotel products such as the Hilton Garden Inn. These types of properties appeal to developers because they meet the needs of travelers that like to stay in full-service hotels, says Woodworth.

“There is increased demand by travelers for this type of product,” says Kurre of Hilton Garden Inn. “With the hotel industry rebounding and a resurgence of travelers seeking upscale hotel rooms for a value, now is the perfect time to relaunch the brand.”

A viable competitor to Marriott's successful and older Courtyard brand, Hilton Garden Inn also goes head-to-head with Sheraton's Four Points, Hyatt's AmeriSuites, and, in many instances, full-service hotels like Wyndham and InterContinental's Crowne Plaza.

When it comes to growing the Hilton brand name, spreading into suburban markets through new development is where the big opportunity lies for the company, says Arthur Adler, managing director and CEO of Chicago-based Jones Lang LaSalle Hotels.

The company's plan to add another 130 hotels over the next 2.5 years may sound overly ambitious, but it's really quite achievable, says Adler. “A little more than 50 hotels a year is only about one per state per year.”

Signature features

In today's competitive market, hotel owners have a lot of brands from which to choose. Yet, Hilton Garden Inns, which average 125 to 175 guest rooms, strike a chord with both business and leisure travelers.

Known for its signature glass-walled pavilion that houses the registration area, Hilton Garden Inns also feature the Pavilion Pantry, where guests can grab quick microwaveable food. In addition, the spacious and open lobby area includes a casual dining area, a lounge area with a double-sided fireplace and big screen television, and a 24-hour complimentary business center.

Hilton became a trend-setter when it changed the conventional lobby design with the introduction of the open-air pavilion, says Gerry Chase, president and COO of Shelton, Ct.-based New Castle Hotels & Resorts, which operates 20 hotels including four Hilton Garden Inns in the Northeast.

“Our customers like the look and design of the pavilion. It gives the hotels a full-service feel,” states Neil Shah, executive vice president of acquisitions and development at Philadelphia-based Hersha Development Corp., which owns 34 hotels, including four Hilton Garden Inns.

The chain recently unveiled its latest room enhancements, including free high-speed Internet access, complimentary guest remote printing to the hotel business center, new Garden Inn Beds, Herman Miller chairs, as well as high-definition televisions.

Even with the new amenities, the hotels still don't offer as many services as full-service properties. Still, guests are willing to pay the same rates they pay at older full-service hotels to stay at the newer, comfortable Hilton Garden Inns, says Hersha's Shah.

Tom Arnot, who has developed four Hilton Garden Inns in Wisconsin and North Dakota, says that his customers are willing to pay higher rates to stay at a Hilton Garden Inn. Arnot, a managing partner at Beechwood Development in Deforest, Wis., is opening his fifth Hilton Garden Inn in September in Everett, Wash.

The company's Hilton Garden Inns in Wisconsin achieve room rates in the $80 to $90 dollar range — $12 to $15 higher than other mid-market and full-service hotels in the area. Beechwood's new property will command about $110 a night when it opens — again higher than its competitors. “When you walk in the door, you feel like you're home,” Arnot says.

While the limited-service hotels compete with many full-service properties, franchisees are able to build a Hilton Garden Inn for much less than they would spend to develop a Hilton or Marriott hotel. Chase spent approximately $100,000 per room to build the company's newest Hilton Garden Inn in Connecticut in 1999. It would have cost about $200,000 per key for a full-service Hilton in that same Northeast location, he says.

Strict building specs

At a time when boutique hotels are trying to define themselves by daring to be different, Hilton Garden Inn appeals to consumers looking for more of the same — with style. Hilton allows very few conversions to affiliate with the chain, so almost all Hilton Garden Inns are built from the ground up to comply with specific brand and design standards.

Since almost all the hotels are new construction, “they have a level of standardization and newness that will build brand equity over the next few years,” says Shah at Hersha, which is currently developing four Hilton Garden Inns.

“As a franchisee, one of the kisses of death is when a brand starts doing conversions and degrades the brand's standards,” adds Arnot. “The whole brand suffers due to inconsistent quality and design.”

Even as the brand expands, there are still ample opportunities to enter new markets. Better yet, says Chase of New Castle Hotels & Resorts, Hilton and its influential owner advisory committees will not allow the brand to grow too fast at the risk of cannibalizing itself.

Potential pitfalls

Some owners, however, are still concerned that it will become too difficult to maintain rigid brand standards as the portfolio expands. Another concern: Hilton Garden Inn is moving into select urban markets, yet the hotel design hasn't been modified like some of its competitors, including Four Points.

Hersha Development, for example, is considering opening hotels in cities but Shah says he isn't sure whether Hilton Garden Inn is the best-suited flag. Although space may not allow for a large glass pavilion on the exterior of a Manhattan Hilton Garden Inn, the interior would look exactly the same as suburban properties. “Hilton Garden Inn is still a suburban package at its core,” he says.

With that said, Shah as well as other franchisees are happy with the contemporary and fresh design of the hotels — which is one of the main reasons travelers love the brand. Guests not only know what to expect at a Hilton Garden Inn, but they can collect Hilton Honors points. These loyalty points can then be redeemed for trips to other Hilton hotels, even the company's luxury Conrad brand. This helps drive continued traffic into the hotels, say owners.

“Hilton is a growing company with tremendous distribution,” says Chase. “It offers a lot of value to owners.”

Robyn Parets is a Boston-based writer.

UPSCALE CHAINS ENJOY POSITIVE VITAL SIGNS
(Year-end 2004 Statistics)

Occupancy Rate Yearly % Change
68.8% 4.7%
Room Rate
$95.91 4%
RevPar
$65.95 8.8%
Source: Smith Travel Research