Cendant's Upscale Gambit
The affable, gregarious Peter Strebel has ambitious plans for Wyndham, the legacy hotel brand that marks Cendant's entry into the high-end market. A self-styled “passionate hotelier,” Strebel is president of Wyndham Hotels & Resorts, a collection of upscale, urban hotels that until recently was better known for being on the block than for a future. Perspective is shifting rapidly, Strebel says, noting Cendant's upscale debut has been a long time coming — and the timing is perfect
When Cendant paid an affiliate of the Blackstone Group $101 million in cash for Wyndham last October, it acquired 82 franchise agreements, 27 management contracts and the worldwide rights to the brand for hotel and timeshare development. Strebel says he plans to add 10 Wyndham hotels to that portfolio this year, enhance the synergy between Wyndham and Cendant's timeshare portfolio, expand the flag's international presence and leverage links with Cendant's older brands and programs.
“When you're looking for a four-diamond brand today, you can choose from Hilton, Starwood and Marriott and their brands,” Strebel says during an interview at Parsippany, NJ headquarters. “Based on my speaking with a lot of owners, there's definitely room for another company to get into that space. We see tremendous opportunity. That's why we're trying to refocus Wyndham to better understand the needs of the owners and create a product that works for them.”
To further his mission, Strebel is working with other top corporate minds: Stephen Holmes, vice chairman of Cendant Corp., and Steven Rudnitsky, chairman and CEO of Cendant Hotel Group. Holmes' title will change to chairman and CEO of Wyndham Worldwide, the new Cendant business unit that will cover its hotels, timeshare and vacation rentals, in the third quarter. Rudnitsky, currently chairman and CEO of Cendant Hotel Group, will be CEO of Wyndham Hotel Group. Holmes joined Cendant predecessor HFS in 1990 and has investment down cold. Rudnitsky has headed Cendant hotels since 2002 and is a specialist in branding.
“I bring to the table a love of the industry, and Steve is really a smart strategy guy,” Strebel says. “Holmes gets the whole financial picture.”
RAISING THE HOTEL PROFILE
Just before it acquired Wyndham, Cendant announced its intention to split into four divisions: Real Estate, Travel Distribution, Hospitality and Vehicle Rental Companies. The Wyndham acquisition predated the separation by about a month.
In late April, Cendant executives revised their plans, saying they were considering selling the company's travel distribution business, now called Travelport. Hotel unit plans remain unaffected. What remains unclear is how the division will affect the company's stock value.
In February, Holmes suggested that the Wyndham acquisition was a factor in Cendant's plans to increase the value of shares in the company; according to a late-April article in Business Week, the four Cendant businesses are worth about $24 billion, or roughly $20 a share.
“We've been looking for an upscale brand for 10 years,” Holmes says. “We just had not found the right combination of strength of brand and business model.” Cendant sought a franchised and managed, rather than owned, model, and with Wyndham, “we're adding a new element to our hotel lineup: an upscale product and management capabilities.”
Cendant executives decided to split up the company in response to a marketplace in which conglomerates are out of favor, Holmes says. “For many years, investors liked predictable performance, and our business was built to manage risk by diversity…now, investors want the volatility or potential volatility of a specific industry and they're telling us they'll decide which industry they want to be in.”
In this “market for risk-takers,” hotels will assume a higher profile for Cendant, Holmes says. Creating a separate hotel component is part of a strategy to clarify the different parts of Cendant so Wall Street can rate them more highly, boosting Cendant's stock value.
Over the past few years, Cendant sold off a mortgage company and a fuel service company and did an IPO of its tax preparation company. The idea was to cut back Cendant to a travel and real estate company “so Wall Street would understand the business more easily,” Holmes says. But Cendant discovered it hadn't gone far enough, so it acquired Wyndham and began to flex relatively new management muscles.
Cendant already manages about 140 timeshare resorts, “but the purchase of Wyndham and the Wyndham management group gives us an entrée into the management of upscale hotels.” Heading that group of some 20 Wyndham properties is Greg Ade, who joined from Interstate Hotels and Resorts, where he was vice president of operations.
“We're starting with what we bought at Wyndham,” Holmes says of Cendant's management plans. “We're planning to grow in that business. It's in our skill set now.”
BRANDING WYNDHAM WORLDWIDE
Cendant is known for its economy and mid-scale products, which span road warrior favorite Super 8 and business standout Wingate. Acquiring an upscale brand like Wyndham gives it new range, says Rudnitsky.
“It affords us the opportunity to be a pure-play hotel and timeshare company with great clarity for Wall Street and a very clear sense of who our competition is: Marriott, Hilton and Starwood,” he says. It gives Cendant access to the growing upscale leisure travel market, adding a “brand offering commensurate with the high value of real estate we see out there today.” In addition, it creates mixed-use development opportunities blending hotels and timeshare.
There are several, integrated parts to Cendant's unfolding Wyndham strategy: the three- and four-diamond center-city hotels the brand is known for; Wyndham Garden Hotels, the three-diamond, smaller properties that compete with Hilton Garden Inns and Residence Inns by Marriott; the possibility of an all-new-construction Wyndham to complement Cendant's Wingate flag; and Wyndham Vacation Club, the vacation rental arm of Wyndham.
In addition, there is a strong drive to internationalize Wyndham; Rudnitsky says the opportunities are particularly attractive for Wyndham — and other Cendant brands Ramada, Days Inn and Super 8 — in China. He thinks there are “more than enough brands” to work with; the trick is figuring out the synergy. It's also key to focus on “enhancing the owner value proposition and consumer value proposition to all the consumers who have been loyal to Wyndham over the years,” he says.
In the short term, Rudnitsky expects to terminate some Wyndhams to bring brand standards up and make the brand more consistent. New standards should be out by fall.
“You have to have a consistent product to have a proposition for owners as well as consumers,” he says, “and we're going to continue to make absolutely certain our standards are enforced.”
Buying Wyndham's management was strategic, too. “Management capability is a prerequisite for owning an upscale brand,” Rudnitsky says. “Management company capabilities complete the value proposition required to attract asset owners. They also allow for acceleration of construction projects that go beyond a franchising model.” Cendant doesn't plan to own Wyndhams outright, he suggests, but an “equity sliver” position is one “we would consider on a deal-by-deal basis.”
Helping maintain Wyndham's cachet will be new marketing and training programs, but “the broader play is to make sure you step back and do all your research and understand how consumers view your brand,” Rudnitsky says.
When Peter Strebel began talking to Wyndham owners this winter, he discovered “some frustration” with the brand because its main focus was on its owned assets rather than its franchises. During the past few years, Wyndham “was in more of a sell mode,” so refocusing, let alone refreshing, the brand was not on the front burner.
Shifting that meant adding four people to the Wyndham franchise staff, visiting each property twice to bond the brand to Cendant and improving customer service. In addition, Strebel has strengthened training so Cendant is perceived as “more of a business partner with these hotels.”
Strebel's background — he spent nearly four years as senior vice president of sales and marketing for Cendant Hotel Group before his recent promotion — should stand him in good stead in his efforts to modernize Wyndham.
Helping his marketing effort is a “nice infusion from our parent company” for television and Internet advertising; online spending has already increased 300 percent, Strebel says, noting that in January, reservations through all channels increased by 20 percent over January 2005. He also is reviewing Wyndham's groundbreaking By Request loyalty program to see how it fits with Cendant's TripRewards program — a six-million-member success. By fall, new loyalty guidelines should be in place — and the Cendant name should be retired.
He suggests he understands the Wyndham DNA; what's critical is integration of the brand into the Cendant portfolio, along with a realignment of brand standards, new Wyndham prototypes, service offerings and programs. In late March, Wyndham Worldwide selected Michael Graves architecture and design firms to create a new look for Wyndham, including new prototypes and signature in-room products. Best-known for his work at Target, Graves also will “rework all of the Wyndham prototypes” — to include a property smaller than the typical 300-room full-service Wyndham.
Only back-office systems will be integrated into Cendant; what's “consumer-facing and franchisee-facing will remain in a separate Wyndham organization reporting to Rudnitsky,” Strebel says. His task is to preserve and enhance Wyndham's identity, and he realizes that Wyndham's needs differ from those of Cendant's traditional franchisee base. Wyndham hotels are bigger, the portfolio is owned by “bigger players,” the revenue generation needs are more complex. “We recognize that the ownership and the customer base are different at Wyndham” and must be kept distinct from Cendant's other brands, he says.
One way to draw that line is to beef up Wyndham's timeshare and resort efforts. Strebel says some developments blending timeshare resorts and hotels will “pop up” in key leisure markets and “we're having conversations on new Wyndhams in Asia Pacific, the U.K. and Dubai.” Cendant plans to work more closely with developers on joint-venture new-builds, so there might be “brand-new resort XYZ owned by blank and managed by Wyndham.
“We see tremendous opportunity,” Strebel says. “I think other brands today have a product; our focus will be more ownership-driven. A lot of owners today feel they're being dictated to: You have to do this, this and this. Why? We'll be very sensitive to owner ROIs. It's not all about revenue. It's about how much money these owners make on an individual asset.”
“We're coming out of the block with a leadership position in both timeshare and the hotel industry,” says Strebel's boss, Rudnitsky. “It's going to be fun. The future is bright.”
As Strebel suggests, this is no rescue mission. It's a rejuvenation — for both Cendant and Wyndham.
Visit www.LHonline.com for more information and related articles.
THE BIG IDEAS
Expand your brand offerings
An upscale offering like Wyndham gives traditional Cendant franchisees an opportunity to invest in more valuable, potentially more profitable real estate.
Present management capabilities
Wyndham's management facet provides access to more powerful investors — -and a malleable skill set.
Keep ADR decisions local
Make your sales force more property-centric. Make account choices a local matter.
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