Mandarin Oriental Hits South America Amid New-Hotel Push

(Bloomberg) -- Mandarin Oriental is opting for the safe bet over the big bet in South America.

The luxury hotel operator is bypassing Sao Paulo, the region’s cultural and financial hub, in favor of the relatively sedate Santiago. The Chilean capital may not have the glitzy appeal of the Brazilian metropolis -- and the rich travelers that go with it -- but it also doesn’t have the crime.

Santiago’s calm was the biggest factor when Mandarin Oriental International Ltd looked to Latin America, country manager Ignacio Rodriguez said in an interview. Now, the Hong Kong-based hotel chain is working at full speed to refurbish a hotel previously operated by Hyatt for an early 2019 launch. The property, which has 310 guestrooms and 23 suites, will be rebranded as a Mandarin Oriental.

The company plans to open its second location in the country in 2020 in the coastal city of Vina del Mar. It’s part of the strategy set by the group’s Chief Executive Officer James Riley, who plans to double the number of locations around the world. Latin America is an obvious region for growth, Rodriguez said.

Mandarin’s shares rose 0.5 percent today in Singapore to S$2.08. Year to date, the stock is up 3 percent, outperforming a 5 percent loss in the same period for the FTSE Straits Times Consumer Services Index.

Chile is becoming an ever-more attractive location for the region’s luxury market as disposable incomes grow. Case in point: Rolls-Royce Cars has only two dealerships in South America, one in Sao Paulo and another in Santiago. Chile’s association of luxury goods, which includes brands such as automakers Bentley, BMW and Infiniti, cruise company Crystal Cruises, watchmaker Omega and shoe brand Salvatore Ferragamo, reported that sales grew 9 percent last year to $654 million, according to a report in La Tercera.

Chile also has low crime levels in its favor, with a murder rate of 3.5 per 100,000 inhabitants, the lowest in South America to Venezuela’s 56 and Brazil’s 30, according to data from the United Nations Office on Drugs and Crime.

The hotel industry is booming in Chile. Occupancy rates went up to 68 percent last year, the highest in the region, according to Deloitte. Buenos Aires has an occupancy rate of 59 percent. In countries, Brazil has 53 percent, Peru is at 64 percent and Colombia at 57 percent.

Prices in Santiago have trended lower thanks to online services such as Airbnb, but with those high occupancy rates above 60 percent in the last four years, the industry is betting on more growth. Deloitte said 22 new hotels are under construction in Santiago, adding more than 4,000 new beds by 2022.

Mandarin is betting on its brand recognition and attention to service to attract clients, Rodriguez said.

"Fewer hotels are offering something as simple as leaving your shoes out of the room and having them polished by the next day for free, or sending a shirt to ironing and if staff notice a missing button, having it immediately fixed," Rodriguez said.

©2018 Bloomberg L.P.