British Company Seeks Bigger Slice of U.S. Hotel Market
The British hotel and catering conglomerate Trusthouse Forte, which counts two lords among its 14 directors, is bracing its stiff upper lip and proper British attitude for an expensive new expansion in the U.S. hotel market.
The venerable London-based concern, which says its philosophy is “to give complete customer satisfaction by efficient and courteous service,” last January hired the former president of Quality Inns, Barry Conrad, to be president of its American subsidiary, Trusthouse Forte Inc. And for the first time, the U.S. subsidiary--which operates TraveLodge, Viscount and Trusthouse Forte Exclusive Hotels--is advertising on U.S. television, spending more than $10 million to promote TraveLodge.
The changes are aimed at tripling the size of the U.S. unit--to $1 billion in annual sales by 1990, said Bernard F. Combemale, chairman and chief executive of Trusthouse Forte Inc.
The lower-priced TraveLodges will get most of the company’s attention in the coming months, with plans to spend $20 million on upgrading several company-owned facilities. Officials also hope to sign several new franchisees in the Atlantic states.
But there is also a push to open more Trusthouse Forte Exclusive Hotels in major U.S. cities. There are now five of the high-priced hotels in North America: the Westbury and Plaza Athenee in New York, the Palace in Philadelphia, the Plaza of the Americas in Dallas and the King Edward in Toronto.
Combemale said his company is eyeing Beverly Hills, Washington, Chicago, San Francisco and Boston as possible sites for their highest-priced luxury hotels.
Finally, Trusthouse plans to increase the number of its Viscount hotel chain, whose room rates generally fall between those of the economy TraveLodge facilities and the high-priced exclusive hotels. At present, 21 Viscount hotel are either open or targeted to open in 1987. Nine more are in various stages of development.
“Trusthouse Forte has made a commitment to become a leader in the U.S. hospitality industry,” the parent Trusthouse Forte’s chief executive, Rocco Forte, said recently in a prepared statement. “We expect to accelerate both through internal growth and strategic acquisitions.”
Trusthouse, the world’s sixth-largest hotel chain with about 74,000 rooms, had largely ignored the U.S. market in the past. After all, company performance was robust: Sales increased 10% for the year ended Oct. 31, 1985, to about $1.79 billion. After-tax profits jumped 12.9% to about $124.6 million.
This year’s figures have not been released.
But with the weakening of the dollar against most foreign currencies in the past year and lingering fears of terrorism, Trusthouse--and many other overseas chains--have been hurt by the drop-off in tourism.
“The industry, internationally, has had a pretty rotten year,” said Steven Eisenberg, a leisure industry analyst for the Bear Stearns investment firm in New York.
What’s more, Eisenberg added, Trusthouse’s U.S. spending spree is being aided by a new realignment in the domestic hotel industry. Many U.S. hotel chains, strapped for cash, have sold hotel properties that have appreciated dramatically in recent years and have retained only a management interest in the property, Eisenberg noted.
That trend has been accelerated this year because, under tax reform, capital gains taxes will increase next year, other experts say. Trusthouse Forte--its pockets bulging with profits--is only too happy to oblige hotel owners who want to part with their property.
In Long Beach earlier this month, for example, Trusthouse paid $25 million to purchase the 200 room Queens Bay Hilton and convert it into one of its Viscount business hotels.
In addition, Trusthouse will build a three-story, 250-room, waterfront TraveLodge on the adjoining eight-acre lot, according to Combemale.
“We want some kind of equity participation in all of our properties,” Combemale explained. “We want to avoid having a difference of opinion between the real estate owners and property managers.”
Maintaining control is a standard practice of Trusthouse, which remains a family-run business.
Begun in the 1920s as a small catering concern by the Italian father of current Trusthouse Chairman Charles Forte, it quickly expanded into the concession business at London’s Heathrow Airport, presaging its current in-flight catering contracts with 120 airlines.
Expansion into hotels came in 1958 when Lord Forte bought the Waldorf in London. A dozen years later, Forte Holdings Ltd. merged with Trust Houses Ltd. to become Trusthouse Forte Ltd.
Forte’s son Rocco, is chief executive, and his daughter, Olga Polizzi, is director of design for Trusthouse Forte, which today operates 800 hotels in 30 countries.
Trusthouse’s expansion in the United States is not without risks.
Company officials note that despite the push behind TraveLodge, average occupancy at the chain is about six percentage points under the industry average of 65%. Officials blame poor management and bad location of some TraveLodges for the below-average occupancy levels.
Although occupancy rates at Viscount and costlier exclusive hotels are about average and above industry average, respectively, analysts say Trusthouse will face stiffer competition as other major hotel chains--such as Holiday Inn and Hilton Hotels--expand their their hotel offerings to include a range of midpriced to luxury hotels.
