Listen to the market

Development is a charged word. In second world countries such as mine, it is a term that has been used and abused constantly. The private sector talks about development in their board meetings as well as in their Corporate Social Responsibility programs – since one magic word can say “as our shareholders do better, so does our community.” Governments and other public institutions also refer to this word as a synonym of growth (economic and social), generally anchoring it to a dream in which everyone gets a fair shot in life.

Many fail to recognize, however, that sometimes development can be a double-edged sword, or a bear hug that may harm rather than heal. A classic example: when food companies land in less-developed countries, which results in access to cheaper food, but sometimes at the expense of the local agriculture.

Thinking along these lines, there is a trend that is starting to worry me in the hotel business. I see more and more rooms being inaugurated in Latin America – almost always affiliated with the usual multinational chains that so proficiently have proliferated throughout the world. While we owe to them a professional and vast hotel business, we also should raise some grievances about their expansion methods, hoping to promote thoughts for the ways in which multi-nationals will continue to expand.

Today, the hotel development chain starts with a group of well-seasoned professionals in a boardroom who come up with a new concept for a hotel. This could be a new extended-stay that focuses on the business traveler or a joint venture with an eccentric designer that will yield the most extravagant lobbies. Step two consists of test versions and focus groups, with both travelers and employees, to get the concept well defined. It is then presented to the company, from shareholders to suppliers and through a great marketing effort it is broadcasted to the world.

Then, the development teams are charged with finding investors to take this brand and expand it internationally. These are the people who knock on my door every time I have a new property or land, trying to convince me that what their executives created thousands of miles away is exactly what my market needs today. While in the U.S. you have strong owners (Blackstone, Related, etc…) to compensate for the big operators, over here there is a huge asymmetry of size and information between owner and operator.

In the future, I think a market-centric approach to development is essential. Let ´s listen to our city/market and see what we need, and not impose a concept just because it works elsewhere.

Anticipating demand fluctuations and the profile of traveler is key to determining in which segments we should grow. The operator should come to us with an open mind, hear what is it that we want for our city and how, and then either propose to us a concept or gently refuse the offer. This unfortunately is nothing like what happens today.

While I believe operators are the reason why the world has a very professional hotel industry, I think in the future a new trend will emerge. I am working very hard trying to reach operators to start discriminating better on what deals they take and to try to get their hotels more synced with the local community.

Finally, I am pushing locals to create their own hotel brand as a compliment to the great multinational firms. I can already tell you that cities like Bogotá and Santiago, though experiencing a huge rise in visitors (hence on RevPar), will experience a huge decrease due to the enormous supply in the pipelines.

At the same time, that pipeline is not diverse enough to encompass all segments of travelers. As an example, there are Sheratons and Marriott in almost every city of Latin America, but I have yet to see an extended-stay brand. This, I am sure, is due to the lack of investors interested in that concept – not because that segment does not exist. This serves as yet another example of an industry driven by operators – not locals.

There is a race among developers to set their respective flag in as many properties as they can – especially since for an operator it is virtually impossible to have a “bad deal.” Ironically, the people who go around finding investors are part of the “development” team of a hotel operating company.

Let ´s hope development in the future will be done aligning the company objectives with those of the communities it joins.


Contributed by Hugo Desenzani, head of the hospitality division, Territoria, a Latin real estate developer based in Chile responsible for the W Santiago, among others