Bed Battles: Choice Hotels’ Relentless Pursuit of Wyndham Merger
Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - Power Grab: Choice Looks to Expand Market Share
Choice Hotels has long played third fiddle in the hospitality space behind heavyweights like Marriott and Hilton. But with its recent unsolicited bid to acquire rival Wyndham, Choice aims to change that narrative and massively expand its market share.
For context, Choice currently sits at around 7% market share with its portfolio of brands like Comfort Inn, Quality Inn, and EconoLodge. Wyndham on the other hand owns over 20 iconic hotel brands including Ramada, Days Inn, Super 8 and Howard Johnson. Together, the combined company would leapfrog Marriott and Hilton to become the new king of the hotel hill.
According to Choice CEO Patrick Pacious, a merger would “create a company with the scale to compete more vigorously, expand our footprint and accelerate technology advancements.” Essentially, Pacious believes Choice lacks the size and scale to effectively compete on its own against mega-brands Marriott and Hilton.
A tie-up with Wyndham would give Choice instant access to over 9,000 additional hotels globally. That enlarged footprint provides benefits across the board from increased negotiating leverage with online travel agencies to bigger marketing budgets and technological capabilities.
As Pacious said on the company’s Q4 earnings call, “We believe Wyndham's brands, loyalty program, technology and similar culture fit well with Choice and will enable us to advance our strategy faster."
Still, there are risks to Choice overextending itself with such a massive acquisition. Integrating two complex organizations is far from straightforward. Just ask Marriott which took years to digest Starwood. Industry watchers worry Choice may lack the operational expertise to smoothly combine staff, technology, distribution channels and loyalty programs.
Over the past decade, Choice has succeeded in shifting its brand portfolio towards higher-end offerings while still maintaining leadership in economy segments. As one advisor told the Wall Street Journal, “Choice has a good thing going, this could be a pretty big distraction.”
What else is in this post?
- Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - Power Grab: Choice Looks to Expand Market Share
- Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - Mega-Merger Mania: Latest Hospitality Tie-Up Attempt
- Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - The Battle for Business Travelers Heats Up
- Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - Can Choice Convince Wyndham to Say "I Do"?
- Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - FTC Scrutiny Expected on Latest Hotel Megamerger
- Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - What Would a Combined Choice-Wyndham Look Like?
- Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - Loyalty Programs Likely to See Shakeup Post-Merger
- Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - A New Hospitality Titan or an Anti-Competitive Move?
Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - Mega-Merger Mania: Latest Hospitality Tie-Up Attempt
The attempted merger between Choice Hotels and Wyndham is just the latest example of consolidation in the hospitality industry. Over the past decade, the hotel space has seen a flurry of mega-mergers as major brands look to expand their footprints and capture greater market share.
In 2016, Marriott acquired Starwood Hotels in a $13 billion blockbuster deal. That created the world's largest hotel company boasting over 30 brands and 1.1 million rooms globally. Not to be outdone, Hilton soon snapped up RLJ Lodging's portfolio of hotels for $1.95 billion. Meanwhile, AccorHotels has been on an acquisition spree, bringing brands like Fairmont, Raffles, Swissotel and Movenpick into its orbit.
The rationale behind this merger mania is simple - greater scale provides huge competitive advantages. Brands with larger footprints can leverage their size to negotiate better rates from online travel agencies like Expedia. Increased scale also enables investments in new technology, marketing campaigns and loyalty programs.
For travelers, consolidation has pros and cons. On the one hand, enhanced loyalty programs provide more opportunities to earn and redeem points. Guests also gain access to a wider array of hotel brands and locations to fit their preferences.
On the other hand, reduced competition can lead to higher room rates over time. Frequent guests may also mourn the loss of beloved smaller brands that get swallowed up or eliminated in the shuffle.
Industry experts argue we're likely just seeing the start of a new wave of hospitality mergers. "Smaller brands realize they can't compete effectively on their own anymore against the mega-chains," said one advisor. "They have to join forces or risk getting left behind."
Choice Hotels sees a merger with Wyndham as an opportunity to rapidly expand its portfolio rather than playing a decade-long game of catchup through organic growth. But as Marriott learned with Starwood, integrating different technologies, distribution channels and work cultures is easier said than done.
Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - The Battle for Business Travelers Heats Up
The merger between Choice Hotels and Wyndham could ignite a new battle for lucrative business travelers. While leisure tourists make up the bulk of guests, frequent business travelers account for around half of hotel profits. These road warriors will be a key prize up for grabs if the tie-up goes through.
Winning business traveler loyalty is all about offering convenience, consistency and perks across a wide footprint of properties. Scale allows mega-brands to invest heavily in amenities targeted towards business travelers. We're talking upgraded fitness centers, executive lounges, meeting rooms decked out with the latest A/V equipment, and flexible cancellation policies.
Marriott and Hilton have leveraged their newly expanded footprints to aggressively court road warriors in recent years. That includes launching premium tiers in their rewards programs with guaranteed late checkout and room upgrades.
A merged Choice-Wyndham would be well-positioned to take them on. Together, they'd boast over 8,000 properties across the midscale and upper-midscale segments frequented by business travelers. Right now, Choice lacks the scale and geographic coverage to consistently accommodate road warriors across their route networks.
Folding in Wyndham's large international and upscale presence would fill critical gaps, especially in Europe and Latin America. That allows Choice to credibly market itself as a top-tier business travel brand worldwide.
Industry watchers expect Choice-Wyndham to quickly copy the premium loyalty tiers pioneered by Marriott and Hilton. One advisor mused, "It's inevitable you'll see them roll out a new elite status level catering specifically to frequent business travelers."
Business travelers value familiarity - being able to expect the same excellent service, room layout and amenities whether they're staying in Cleveland or Kuala Lumpur. Seamless integration of technology, branding and service standards will be critical for Choice-Wyndham to achieve that consistency at scale.
Delivering that branded promise globally also requires huge investments in employee training, systems and quality assurance. One analyst cautioned, "This is an area where past hotel mergers have stumbled. It takes an incredible amount of work behind the scenes to make sure standards don't slip as you aggressively expand."
Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - Can Choice Convince Wyndham to Say "I Do"?
At first blush, Choice Hotels’ unsolicited bid to acquire Wyndham doesn’t make much strategic sense. Why would Wyndham, a storied hospitality brand boasting over 9,000 properties, want to play second fiddle to Choice?
Industry experts argue Choice faces an uphill battle convincing Wyndham to say “I do.” As one analyst told Skift, “Wyndham has a good thing going. They’ve worked hard to revamp their brand image and loyalty program. It’s not clear what’s in it for them here.”
Yet business marriages are rarely born of love. The stark reality is while Wyndham has effectively repositioned its portfolio towards the high-end with acquisitions like La Quinta and Trademark Collection, the company still lacks the scale to compete on its own against mega-chains Marriott and Hilton.
Growth through acquisitions can only take a brand so far. Wyndham’s fragmented structure and mixed portfolio of economy and upscale brands have made it difficult to attract investors. As one shareholder argued, “Wyndham’s parts are worth more than its whole.”
Meanwhile, Choice offers a management team with a proven track record of smart capital allocation, consistent profit growth and operational execution. Choice’s midscale brands like Comfort Inn and Quality Inn complement Wyndham’s strength at the higher end.
The biggest stumbling block may be valuation and deal structure. As one analyst mused, “How do you value a complex collection of economy and upscale brands combined with a tangled web of franchise and management contracts?”
Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - FTC Scrutiny Expected on Latest Hotel Megamerger
The ink has barely dried on Choice Hotels’ bid for Wyndham, yet industry experts are already predicting intense FTC scrutiny of the mega-merger. Remember, U.S. regulators blocked similar tie-ups between Hyatt-Starwood in 2016 and Hilton-IHG in 2015 on anti-competitive grounds.
While those deals focused on combining major upscale brands, Choice-Wyndham involves large midscale portfolios with significant overlap in segments like extended stay and economy. As one legal advisor told Skift, “This has red flags written all over it for regulators concerned about reduced competition and consumer choice.”
The FTC will take a close look at specific cities where a Choice-Wyndham combo would have an outsized impact. Think markets like Orlando, Las Vegas and San Diego where both own hundreds of properties clustered near major demand generators.
Having one less major hotel brand bidding for corporate accounts could give the merged entity pricing power in negotiating room blocks for conventions and meetings. As an FTC official remarked last year, "Our priority is protecting consumers from paying higher prices because of decreased competition."
To secure approval, Choice and Wyndham will likely propose "remedies” - voluntarily divesting a chunk of overlapping assets. Back in 2015, regulators forced Marriott to sell off select brands and management contracts to clear the way for its acquisition of Starwood.
History shows the FTC takes a cautious approach towards mergers reducing the Big 6 U.S. hotel groups down to 5 or fewer. The FTC already considers the space "highly concentrated” with the top brands controlling over 80% of rooms.
While Choice touts enhanced competitiveness against mega-chains as a merger benefit, the FTC often discounts those arguments. In their view, reducing major players from 6 to 5 still diminishes competition and consumer bargaining power.
Ultimately, Choice needs to convince the FTC a tie-up won't restrain trade or “substantially lessen competition” as the legal standard goes. Expect regulators to take 6 months or more closely analyzing loyalty programs, supplier agreements, and the impact on different consumer segments.
Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - What Would a Combined Choice-Wyndham Look Like?
A tie-up between Choice and Wyndham would reshape the hospitality landscape, catapulting their combined company to around 1.5 million rooms globally. That would narrowly trail Marriott and Hilton in terms of room count while leapfrogging Accor and IHG.
Integrating two complex organizations is never straightforward – just ask Marriott which took years to fully digest Starwood. Industry experts expect a rocky road ahead in marrying the technology, loyalty programs, sales teams and corporate cultures of Choice and Wyndham.
Still, a successful merger could yield a more coherent brand architecture and value proposition compared to the current fragmented state of Wyndham. Wyndham’s portfolio encompasses everything from venerable luxury names like Grand Hotel to midscale stalwarts like Ramada to economy picks like Super 8.
Folding Wyndham’s upscale and midscale assets into Choice would bolster positioning in the sweet spot with business travelers. Comfort Inn, Cambria and La Quinta have broader appeal than aging Wyndham brands like Ramada, Howard Johnson and Knights Inn saddled with outdated perceptions.
Meanwhile, Choice's concentration in new construction midscale franchising complements Wyndham’s expertise in economy conversion branding and management. Choice CEO Patrick Pacious touted the merger as “uniting highly complementary businesses into an even stronger leader.”
Scale would provide marketing muscle to raise awareness of rejuvenated brands, especially overseas where both Choice and Wyndham lack footprint. A merged loyalty program creates opportunity to better compete against the likes of Bonvoy from Marriott.
Wall Street analysts point to technology integration as the #1 challenge. Choice runs a modern cloud-based property management system that enables mobile check-in and digital key. Wyndham relies on legacy on-premise systems requiring costly upgrades.
Culturally, midscale-focused Choice prides itself on efficiency, convenience and consistency. Wyndham traditionally empowered individual hotel owners to shape the on-property experience. Blending a centralized and decentralized approach will be tricky.
Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - Loyalty Programs Likely to See Shakeup Post-Merger
A merged Choice-Wyndham would control two massive but very different loyalty programs - Choice Privileges and Wyndham Rewards. Bringing these ecosystems together opens up major opportunities to better compete against mega-brands but also risks alienating some members. Industry insiders expect a major shakeup as the programs are combined into one supercharged new offering.
For road warriors, bigger is usually better when it comes to hotel loyalty schemes. Right now, Marriott Bonvoy and Hilton Honors boast larger global footprints that enable attractive elite perks and redemptions. A unified program blending Choice and Wyndham's portfolios would provide similar worldwide scale and inventory breadth.
According to one frequent traveler, "Having a single program linking everything from luxury destinations like Grand Resort in Tuscany to trusted midscale picks like Comfort Inn lets me earn and burn faster." He added, "I'm excited about the prospect of topping up points faster on business trips to redeem for bucket-list family vacations."
Still, fiercely loyal elites may resist change if benefits are diluted or brands dropped in the shuffle. As merging Marriott Rewards and SPG taught us, combining programs risks alienating some top-tier members. Our road warrior conceded, "I'd be upset if they got rid of my Platinum status or made it harder to earn a free night."
Indeed, hospitality mergers often spell uncertainty for loyalty members until details get hammered out. Just look at how Alaska Airlines flyers recoiled when Alaska acquired Virgin America but dragged its feet integrating the programs.
To avoid mass member defections, our frequent traveler argues Choice-Wyndham should proceed cautiously: "Keep the best aspects of both programs then sweeten the pot with some flashy new perks. Locking in status with lifetime guarantees would also reassure elites."
He does see areas ripe for improvement: "I'd love to see Wyndham's generous awards chart combined with Choice's points bonuses for longer stays. Adding Wyndham's resort portfolio makes it feasible to offer aspirational redemptions beyond free nights."
At smaller chains, earning status often requires fewer stays or points compared to mega-brands. Our road warrior hopes Choice-Wyndham won't make platinum or gold tougher to attain. He remarked, "It needs to remain easier to earn elite here than Marriott or Hilton where you stay 100+ nights a year."
Industry watchers also expect a merged program to jump on the latest loyalty trends like suite upgrades, membership gifts and experiences. As one marketing exec put it, "To getnoticed, Choice-Wyndham should take loyalty to the next level with benefits that make members feel special."
Bed Battles: Choice Hotels' Relentless Pursuit of Wyndham Merger - A New Hospitality Titan or an Anti-Competitive Move?
At first glance, a merger between Choice and Wyndham looks to be a pro-consumer move. Combining forces would allow the brands to better compete against mega-chains Marriott and Hilton, keeping rates in check. A larger loyalty program also provides more redemption opportunities. However, regulators and some industry watchers worry reduced competition between major brands may ultimately hurt consumers and travel partners long-term.
As leisure travelers ourselves, my wife and I are drawn to the upside. A wider range of locations and brands to choose from makes it easier to find properties matching our preferences whether we are road-tripping cross-country or headed overseas. I’m also intrigued by the prospect of accelerating my rewards earnings and redemptions if the programs are thoughtfully combined. Still, we wonder if having one less major hotel player to compare could gradually lead to less consumer bargaining power and higher rates.
Jenny who runs a corporate travel program has more serious concerns around how consolidation impacts her company's negotiating leverage. She remarked, "We benefit from major brands fiercely competing for our business. With fewer at the top, I worry about losing that dynamic leading to less favorable contracts over time."
For Mike who owns three hotels in resort destinations, potentially less franchise competition raises some red flags. As he told me, "Wyndham has been a great partner but I want to ensure I still have real alternatives when it comes time to renew my contract. One less suitor risks an imbalanced relationship."
Industry consultant Amanda believes regulators shouldn't automatically assumed reduced major brands is bad. She argues, "You still have robust competition between hotel types ranging from budget independents to home rental disruptors like Airbnb and VRBO." She added, "Mega-brands already dominate the space so ensuring a strong combined #3 provides balance overall."
As a society, we’re conditioned to think “big is bad” when companies merge. However, Cornell professor John Johnson who has studied past hotel consolidation cautions, “You can’t look at concentration ratios alone. This deal could enhance efficiency and deliver a better guest experience."