Like many hotel companies, Hilton Worldwide has an aggressive growth strategy in Latin America, with a development pipeline that aims to add 60 hotels to the company’s current 45-strong portfolio by the end of 2013. However, Hilton’s brand mix and market position also give it some unique opportunities in the region. Daniel Hughes, Hilton Worldwide’s senior vice president for Mexico, the Caribbean and Latin America, recently discussed with HOTELS some of his company’s priorities and strategies as well as the area’s overall growth potential.
HOTELS: What would you identify as the main reasons Latin America is such a high priority for expansion for Hilton in particular right now?
Daniel Hughes: There are two things, one very specific to Hilton and one that is common to all hotel companies. The economies in Latin America and the political situation are really the best they’ve ever been, and that is encouraging a lot of foreign investment. We’re seeing tremendous growth of wealth, a real growing middle class in all these countries as well. As these economies grow and there’s wealth being created there, we’re seeing not only the opportunity to build hotels to do well in these countries, but we’re seeing the people from these countries as great travelers to visit our hotels all around the world.
For Hilton, for decades, Hilton was two different companies — Hilton Hotels Corp. and Hilton International. Within Hilton International, we had just one brand: Hilton. We now have the ability to expand all of our other midmarket brands like Hampton and Hilton Garden Inn to the extent we never had before.
HOTELS: What are the biggest challenges when it comes to expanding in Latin America?
Hughes: One is creating brand awareness. In Mexico, because you’ve got great proximity to the U.S., there’s greater brand recognition. As we go throughout South America, we have to create awareness of those brands.
I think the development tends to be more high-net worth individuals rather than institutional money. So this is very much a relationship-driven enterprise. Many of the people building hotels are family businesses expanding out of their traditional core industries. They’re starting to develop real estate — commercial, residential and hotels. So there’s a great opportunity for us to identify these individuals and work with them but understand each of them has unique motivations. They tend to be people who are looking for more of a long-term hold. This is part of an expanding family enterprise that will potentially be in the family for generations. So I think it’s recognizing the uniqueness you’re dealing with — high-net worth families that are very involved in the communities they operate in.
I guess the last thing is you don’t have the same level of financing. Traditionally in Latin America you have nowhere near the leverage. This is a cash business. People tend to develop, and then when the business is up and running they can obtain financing on it.
HOTELS: Are certain Hilton brands best suited for certain areas of Latin America?
Hughes: I think there are four brands we’re very focused on. The mother-ship brand Hilton — there are definitely more opportunities for us to have Hiltons in capital cities, major commercial centers and major resort destinations.
The second brand is DoubleTree by Hilton. DoubleTree is a brand that is uniquely tailored and suited for conversions. One of the opportunities we see in Latin America is the opportunity to convert some existing hotels that are local brands or not branded. DoubleTree is a great vehicle for that because while DoubleTree is extremely focused on the guest experience, there’s a greater degree of flexibility in terms of the design and build.
The third brand is Hilton Garden Inn. Hilton Garden Inn is wonderful for this part of the world in tertiary and secondary markets that perhaps couldn’t support a large full-scale Hilton. Hilton Garden Inn is an upscale hotel, but with not as expensive build or operational costs.
The fourth brand is Hampton Inn, particularly in new development sites — business parks, airports, that kind of thing. We think there are great opportunities for multi-unit deals with developers in certain countries to rapidly grow the Hampton Inn brand.
HOTELS: Are there certain opportunies in Latin America that are still somewhat under the radar?
Hughes: There’s definitely more opportunity for resort developments. The north coast of Brazil is an untapped, wonderful wilderness to create great resorts that can draw from both sides of the Atlantic.
One of the areas where we had a lot of success and then it took a hit economically is Costa Rica. We were able to open four hotels in 2008 in Costa Rica — two DoubleTrees, a Hilton and a Hilton Garden Inn. We think maybe there was a little bit of a bubble there driven by real estate from the U.S. That market is recovering.
We think there are other markets in Central America — Honduras, Belize — that aren’t there yet but certainly we think have long-term potential as people are looking for undiscovered, new places. People like to go somewhere new, but stay with somebody they know.
HOTELS: What else can you tell me about the types of partners Hilton is looking for as it establishes its presence in this region? In particular, what must distinguish these partnerships from others in other parts of the world?
Hughes: We spend a tremendous amount of time identifying partners that meet all our values. We want partners that generally have respect for what the brand stands for. This comes back to brand education. Sometimes our challenge is people want to overbuild the brands. I use the example of Hilton Garden Inn. Hilton Garden Inn is a fabulous product, and one of the great strengths of it is consistency. What a Hilton Garden Inn isn’t is a Waldorf Astoria and shouldn’t try to be. But there’s a tremendous sense of pride and personal and family involvement, and sometimes they want to expand upon the basics of the brand.
The other thing as we try to identify partners particularly for Hampton and Hilton Garden Inn, we are really looking to identify partners who have a commitment to build multiple units within a country. It makes it more efficient for all of us.
HOTELS: What do you expect regarding overall future development in Latin America — not just for Hilton, but also for the hotel industry as a whole?
Hughes: There’s a sense of political stability, equality and fairness that perhaps have never been there. Latin America has always been the 1% and the 99% — all the wealth was held in 1% of the population. There has been fabulous success in places like Brazil and Colombia where there’s a genuine middle class being created. The challenge Latin America faces is to ensure that progress continues. I think what will happen is a huge thirst for people to explore these countries. Outbound tourism from the U.S. has been slow for the past three years for all the reasons we all know. That hasn’t dampened the enthusiasm of people wanting to explore. Latin America has a massive opportunity to internally grow business within countries and within the region and attract massive inbound tourism. I think it really could be the decade or generation of Latin America.
