Hoteliers in Europe are focused on how to grow their brands as the industry navigates a period of healthy performance but also depressed investment levels and almost no new-build development.
During a panel on hotel development at the Alvarez & Marsal’s European Hospitality Investment Conference, panelists said they are looking for white space in their portfolios and for opportunities to grow their demand share, but the going is tough. In Europe, most new hotel openings happen via conversions.
First-mover advantage has always helped in this industry, said Willemijn Geels, vice president of development for Europe at IHG Hotels & Resorts. The major hotel firms that bought or merged before the pandemic are in a good place to capitalize on fresher brands, she added.
“We acquired brands that we saw as a good fit, such as Regent Hotels & Resorts, and what we liked about that [brand] is that we acquired it when it was small. Kimpton, too, and then Six Senses, another white space, and for brands where we knew there would be investors,” Geels said.
All of those brands joined IHG Hotels & Resorts before the pandemic.
Economic conditions are radically different now, panelists said. The hotel brand landscape also looks much different.
“Now we’re looking at midscale in [Europe, Middle East and Africa], which is a big space, and we really did not have much in it, so we launched the Fairfield brand. Twelve have opened, one will very soon, and there is the same number in the pipeline,” said Jerome Briet, chief development officer for Europe, the Middle East and Africa at Marriott International.
“It remains true that during good terms, brands are just one more tool, but during bad times, a brand’s importance is incalculable,” Briet added.
Philippe Bijaoui, CEO for Europe and North Africa at Accor, said this is sound thinking even for a hotel firm as innovative as Accor, which has invested in restaurants, co-working, villa rentals and initiatives that have opened up its loyalty program to non-Accor hotels.
“Yes, we are offering complementary offerings [to hotels], but in challenging times we’re also concentrating on our legacy brands, such as Mövenpick, Mercure and Sofitel,” he said.
Patrick Fitzgibbon, senior vice president of development for Europe, the Middle East and Africa at Hilton, said growing brands for the sake of it is dangerous, even if analysts tend to concentrate on quarterly and annual increases in network size.
“Staying fresh is the biggest focus. … Customers are smarter and more knowledgeable than they have ever been. The biggest challenge we have is commoditization, the guest walking into the hotel and asking what brand are we in? We need brands that answer these questions and that are scalable,” he said.
Margin Pressures
Geels said a lot of thought and work goes into converting an existing property to a hotel and giving it new life.
“This is very exciting, to work with owners and to be smart about how you use space and find less expensive ways of using procurement. There has been a move to make brands conversion-friendly, and much time is spent looking at every owner differently, because their situations are different,” she said.
Briet said in Germany, Austria and Switzerland, hotel brands have a role due to the economic difficulties in that region, notably in Germany.
“It is not about key money but what your distribution will bring. Key money is an easy transaction but often the wrong way of approaching the problem,” he said.
Fitzgibbon said Hilton sees enormous opportunity in the Middle East and Africa.
“There are many places undersupplied. We’ve never really had a project in the area that merges economy and midscale, so we’ve developed Spark, opened the first one [in Connecticut in September] very quickly. That might grow with the acquisition of small portfolios, and this comes with opportunities to raise rates. I see this as one of the most exciting ideas in the last 20 years,” he said.
Accor’s Bijaoui said there has been notable creativity lavished on branded conversions or on the few new hotels that do still pop up.
This creativity changes depending on each market, said Frank Croston, partner of Hamilton-Pyramid Europe.
“What will get you to the right place there might not get you to the same point here. The last thing we want is average-quality products,” Croston said.
Sustainability of a hotel comes into the discussion, and that often starts with the right business model and third-party manager or franchisee, Geels said.
“It is easy to think we have the right plug-and-play model, and revenue will flow, but it is not always like that,” she said.
Bijaoui said due diligence cannot be overlooked.
“We could grow much faster if we were not careful as to who we sign with. Education on brand standards must not come over as a penalty to franchisees but as a tool to add value,” Bijaoui said.
Fitzgibbon said the “bit many hotels do not get right is the general manager, and that has never gone away in all the years I have worked in hospitality. GMs ultimately set the tone.”
He added operators can make a lot of money from a hotel over the course of one year, but making a hotel work in the long term requires all the attributes, tools and experience of seasoned hoteliers.