Chains To Watch In 2001
Whether small and nimble or big and bold, this year's standouts suggest filling niches is the key to growth in the era of consolidation.
By Joan Marsan, Managing Editor -- HOTELS Magazine, 5/1/2001
HOTELS' annual Chains To Watch profiles four-and then some-companies poised on the brink of major change or expansion. It is not a review of the previous year's biggest deal and hottest players. Rather, it is a look into the future, a well-informed guess as to which companies actively will help shape the industry in the year, and years, to come.
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These hotel chains may not be the biggest in size, though, as in the case of Whitbread and Rotana, they may strive to be the biggest in their region. But they draw our attention to trends that affect every player in the hotel industry, from the biggest to the smallest.
Rotana achieves growth through regional specialization. Malmaison enjoys high occupancies and profits driven by keeping its room counts low and exploiting the booming boutique market. Dolce defined its own unique conference destination concept and aims to fill this niche first in Europe, then around the globe. And Whitbread illuminates the benefits of refocusing on core business and working synergistically with a partner to grow a strong brand in a specific region.
Certainly the giants, those several biggest hotel companies to whom we devote our full and well-deserved attention each July, qualify as Chains To Watch. But here, we look to those who, while a little smaller, have something a bit different to say and show about the industry's long-range view.
Rotana Poised To Reign In The Middle East
The year 2000 saw Abu Dhabi-based Rotana Hotels Management Corp Ltd. grow 40%, opening a third U.A.E. property, two resorts in Egypt and a hotel in Lebanon, all within a six month period, bringing Rotana's grand total to 18 properties. Selim El Zyr, president and CEO, expects the pace to continue. He has his hopes set on opening a Rotana property in every major Middle East city within five years.
His is not a blind ambition, however. Conflict in the Middle East has substantially weakened some markets, and El Zyr won't encourage owners to buy simply for the sake of building Rotana's brand awareness. "Our main concern is to be profitable for the owners we work for," El Zyr says. "There are cities now that are not very encouraging in terms of supply and demand. We've had a look and decided that advising an owner to go ahead with a project would be dishonest. People count on us that we are honest operators. We don't advise the owners to make an investment without returns."
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The opening of the 168-room Rotana Gefinor in Beirut, Lebanon, promises to capitalize on a market that has seen a steady growth in visitors since the end of Lebanon's civil war, some years reaching as high as 32%. The increase has come largely from abroad, with non-Arabs comprising more than 60% of Lebanon's arrivals. This growth has built occupancies in Beirut, a city that lost three fourths of its hotels to civil war, but it is also business that is sensitive to the peace process. Instability and an increase in hotel rooms led to declines in occupancy throughout Beirut, to 60% from 65%, and ADR, from US$155 to US$130, in the first half of 2000. While many hoteliers' new Beirut properties were founded with hopes and expectations for some resolution or improvement to the Middle East peace process, El Zyr planned for all contingencies. He expects Rotana's property to rise above the rest, drawing from a strong Middle East client base that depends on Rotana's reliable service.
In a time of uncertainty, Rotana has planned extensive developments in the less volatile U.A.E. market, which despite a doubling of 4- to 5-star hotel rooms in the past five years in markets such as Dubai, has achieved room rates averaging close to US$100. On completion of extensions to the Abu Dhabi Grand and Beach Rotana hotels and construction of the new Al Maha Suites, Rotana will control 30% of the 5-star rooms available in Abu Dhabi. And five Rotana Dubai properties benefit from increased multi-national business travel to the city center and leisure travel to the Jumeirah beach district.
The continual search for good investment opportunities in the Middle East region has led El Zyr to a heightened interest in resort development, expanding properties along the Jumeirah beach front and developing leisure-oriented properties on Egypt's Red Sea. Even business properties should have resort elements, El Zyr says, noting that business travelers value the ability to do things like take a walk on the beach after meetings and increasingly combine business and leisure travel, heightening their appreciation for accommodations that appeal to their families and leisure interests. Spas, fitness centers and outstanding F&B operations have an important place in Rotana hotels and development plans.
Catering to travelers habits and investor's needs has paid off so far. Rotana occupancies for 2000 averaged 74%, including newly opened hotels and resorts. Daily rates averaged US$102, even when suppressed by the new Egyptian resorts with their US$50 ADRs. RevPAR throughout the Rotana chain averaged US$76.
Three factors will continue to drive Rotana's rapid, but considered growth. First, the Rotana brand promises guests consistent, high-quality service. Guest recognition is of the utmost importance to El Zyr, as is valuing the customer, regardless of the size of his or her contribution to the bottom line. "A lot of our profit comes from one coffee," El Zyr says. "There is no small business or big business. So this is our ambition: to make every guest feel he is the star of our world, whether he spends a dollar or a million dollars. If he buys an espresso in the lounge, and he's happy, he'll tell his friends."
Superstar service for every customer doesn't come from disgruntled staff members, however, so Rotana places grave importance on keeping team members satisfied, for they are the second factor in keeping its rapidly growing brand portfolio consistent. Completely confidential employee satisfaction surveys are delivered annually, and have helped Rotana develop incentive schemes and training programs. No hotel with more than 100 rooms is without a trainer, in fact, and Rotana employs 30 full-time members in a training department that serves 3,200 employees on an on-going basis.
"In terms of treatment, training, food, uniforms, and respect, we have 95% satisfaction," El Zyr says. "Respect is the most important, recognition of effort, the possibility of learning and growth, and having a sense of belonging, that this is your company, and the success of the company is yours, no matter where you are on that echelon."
Just as Rotana strives to know its employees better and meet their needs, the company continually researches the region, fostering its intimate, in-depth understanding of the Middle Eastern markets. It pays to be a regional player, El Zyr says, and it is this regional focus that will guarantee Rotana's success. "When you look around," El Zyr says, "you see the best hotels in Asia are the regional hotels, the Mandarin Orientals, the Shangri-Las, the Tajs." El Zyr sees Rotana on a par with such companies.
As such, he doesn't see any reason to expand beyond the Middle East. "We want to remain in the Middle East because this is where we're strong," he says. "An owner wanted to buy a property in southern France. He wanted us to manage it. We said, 'You can get someone better.'" But in the Middle East, El Zyr says, Rotana is the best bet.
Malmaison To Fill The Boutique Niche Abroad
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Big has never been the adjective attached to the UK's Malmaison, a 5-property group of upscale, boutique hotels with room counts never surpassing 180 keys. But big is exactly the way one might describe Malmaison in terms of occupancies, profits and growth potential. London-based real estate group Marylebone Warwick Balfour (MWB) and Radisson SAS joined to buy Malmaison in November 2000 for US$111 million from Dallas-based Wyndham International and have set their sights on aggressive growth throughout the UK and Europe for the strong Malmaison brand.
The US$220,000-per-key chain tantalized its buyers with occupancies consistently in the high 80s and average daily rates of US$147, without the aid of a London flagship. Such results seem to guarantee success as the brand grows beyond its Edinburgh, Glasgow, Leeds, Manchester and Newcastle locations. And grow it will. Already 95 rooms are in development, with a 40-room addition slated for the Edinburgh property and 55-room expansion supplementing the Manchester property. The market should sustain this additional supply, as the Edinburgh property alone, with its mostly Monday through Thursday business clientele, saw an 87% average occupancy rate last year.
These 95 rooms are just the tip of the iceberg. MWB and Radisson SAS also acquired sites in Birmingham and London, which should be developed within two years. Belfast, Cardiff and Liverpool sites have also been identified, as have potential sites in Berlin and Düsseldorf. All told, President and Chief Operating Officer Karl Förster, who joined Malmaison from SAS International Hotels, where he was regional director, Germany, anticipates growing Malmaison to more than 30 properties by 2005. Because of Förster's expertise in Germany, that country becomes a logical next step for Malmaison's continental forays, although he readily admits the intended strategy had been to enter the continent via Benelux, moving from Holland, Amsterdam, the Hague, Brussels and on into France. Amsterdam, with its 90% occupancies, particularly appeals to Förster.
But that same city, Amsterdam, poses barriers in terms of cost of entry, a problem Malmaison faces to a lesser degree than many of its competitors because it searches for smaller, historic properties ripe for conversion. A 1902 apartment complex in Berlin, for example, makes a fabulous Malmaison hotel, Förster says, or, as in the case of the London project, a 102-room historic building on Trafalager Square. The Trafalager Square project, in fact, could have accommodated 224 rooms. But space was allocated to offices when Radisson SAS President and CEO Kurt Ritter reminded designers the Malmaison count never surpasses 180 rooms.
The insistence upon lower room counts helps Malmaison properties deliver the consistent, high style, quality service guests expect. "At this level, even with high occupancies, the general manager can still have 100% control," Förster says. If the property is bigger, administrative problems hold sway over the GM's attention. "This way, they can be involved in what's going on in their house. They can do breakfasts. They can be on the floor. This contributes to successful management."
Just as Malmaison managers are trained to be on the floor in partnership with their staff, Malmaison staff members are trained to treat their guests as partners, in a service style as contemporary and bold, and yet comfortable, as the very décor that attracts Malmaison's clientele. "I was old school," Förster says, describing how he was taken aback the first time he saw a Malmaison waiter perched on the arm of a guests' chair as he recited daily specials and took orders. "But I saw this works. This works very well. It's relaxed, but very polite and professional." To guarantee employees understand how to deliver this special brand of service, every hotel, even the 60-room Glasgow property, employs a full-time trainer.
Such investments in staff development, matched by careful attention to more costly but better quality fresh ingredients in Malmaison's brasseries, a substantial investment in details like quality cut flowers, and updates to the chic décor, keep Malmaison's GOP at 38%. "Somebody else would say we could do 40 and 42 percent," Förster says. But we're not greedy. We want to keep the quality up. Having high occupancies is the way to make this happen. Being in so good a demand, we can afford not to take shortcuts."
Maintaining quality in the face of aggressive growth could prove to be Malmaison's greatest challenge. The brand has had years of slow growth and solidification of its distinctive style, first under the careful attention of its founder, Scottish hotelier Ken McCulloch, and most recently under the hand of Wyndham International, where, according to Fred Stern, the lifestyle approach simply did not fit Wyndham's current strategy, which was to build a profile of upscale, branded hotels and resorts. But with just five properties in their fold, the corporate staff is well-equipped to oversee additional charges. At a pace of six openings per year, "We can handle it all," Förster says. "But we have to be careful we guarantee that they are all Malmaison."
Dolce Grows Conference Concept In Europe
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When New Jersey-based Dolce International announced its pairing with London-based Soros Real Estate Partners , it was the culmination of Dolce's years-long search for fund investors willing to create a US$50 million pool of seed money for growing the company's 3-property base in Europe. Dolce got much more, with Soros buying a US$100-million, or one-third, share of Dolce. The added capital will be directed toward an additional 10 to 12 European assets, as well as additional U.S. assets, tripling its presence in Europe and helping to double Dolce's average size. According to plans, Dolce will own 35 properties by 2003, up from 17 at present, including the February Soros-assisted purchase of Skamania Lodge, located in the Columbia River Gorge, Stevenson, Washington.
The hot spots for Dolce's European expansion are London, which could absorb several Dolce properties, Amsterdam, Frankfurt, Munich, Dublin, Milan, Barcelona, Madrid, and Paris, where Dolce already has holdings. In the United States, Dolce's plans allow for greater penetration into the Southwest and far West markets, in addition to the Southeast. When the company has achieved its initial goals in Europe, attention will shift to South America, where Buenos Aires would serve as a logical launchpad, says Andy Dolce, president and CEO. Because Soros is heavily involved in Japan, an opening there is plausible, but not within three years.
Dolce offers a one-of-kind product, targeting the meetings market with its newly rebranded "conference destination" product. The growth in Europe is driven by the consolidation of the 300-million-person-strong European market, which has in turn fed double-digit RevPAR growth in 2000 throughout the region. With the globalization of business, people are looking at Europe in a different way, Dolce says. Multi-national companies are there and are growing, and they have the same business needs they do in North America. Training sessions, conferences and meetings, and the centers in which they take place, are ever more essential as divergent people and cultures increasingly work with each other.
Though the need and opportunity for conference centers in Europe may be great, the existence of assets comparable to the type Dolce has secured in the United States is rare. At Dolce Chantilly, a 110-room property located 28 miles from Paris, Dolce converted a traditional ballroom into meeting space and supplemented it with another 25,000 sq. ft. (2,300 sq. m) of conference space, along with 90 additional guestrooms and enlargements to the traditional restaurant. Chantilly is a prime example of the type of property Dolce seeks, hotels in suburban areas, 30 to 35 minutes from an airport, ripe for conversion.
While finding such gems may be the proverbial search for the needle in the haystack, buying them is markedly less difficult. There is less competition, Dolce says. "Chains competing are looking for urban properties. And there's less competition from investors." Dolce frequently buys properties from family owners, so it is more of a relationship buy. "The existing owner wants to make sure that the potential owner is compatible to their own values."
Often this means Dolce inherits staff, which necessitates extensive training, bringing international employees to the United States to better familiarize them with the full intent behind the Dolce product. This training, however, goes both ways. European employees have helped Dolce to develop and position the product such that it will sell well in Europe. Rather than describing properties as resorts, hotels, golf resorts or learning centers, all now fall under the moniker "conference destinations."
"It's not about locations," says Jo Ann Swahn, chief marketing officer. "It's about a destination where you go for a very specific purpose." Such specificity about how an employee describes a Dolce property becomes increasingly important in a multi-national environment. Offering a product that is clearly identifiable, describable, recognizable and sellable, is essential, especially when each property has a distinct, individual personality. Dolce's conference destinations offer undeniably regional settings, complete with cuisine enriched with local flavor. "This is certainly a strength," Swahn says. "When people go to Texas, they want to be in Texas, complete with the barbecue. But the conference center element is consistent."
With the U.S. economy in the throes of a slowdown, threatening to infect the global economy with a case of malaise, and corporate budgets tightening, the effects already rippling through the hotel industry, one might argue that now is a bad time to open conference centers, particularly in Europe, where work that takes employees away from home and family is less accepted than it is in North America. But Dolce's European conference centers incorporate leisure elements, such as golf courses, spas, and hunting grounds, to keep occupancies from diving outside of the work week. And worldwide, Dolce says, even when the economy goes soft and hotels inch in on the meetings business, feeding customers' price sensitivity, demand is still there. "The nature of the meetings change," Dolce says. "There are less incentive meetings. Meetings stay more regional. In our company, we've gone through a couple of cycles of downturns in the economy, and the meeting demand has not let up."
Whitbread Focuses on Hospitality, The Marriott Way
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You don't have to be the biggest to be the best, Alan Parker knows. But he's still going to try. "We have a vision to be Britain's leading hotel company, judged by our size, our customers, our employees, and our investors. That's what our goal is, to be number one for each of those groups."
The purchase of Swallow hotels in January 2000 added 28 preoperties to Whitbread's portfolio, which now numbers more than 300 hotels. Whitbread steadily has been converting the former Swallows to Marriotts, the brand to which Whitbread holds exclusive UK franchise rights, courtesy of its 1995 acquisition of the 16-property Scotts' Hospitality. While the rapidly growing budget-oriented Travel Inn group, at 260 hotels strong, composes the bulk of Whitbread's hotel holdings and garners 85% occupancies-among the highest, on average, in the UK--and £32 (US$46) ADRs, Whitbread has grown its Marriott portfolio to 60 hotels, and, as Marriott's largest franchisor, expects that growth to continue.
To that end, the almost 260-year-old Whitbread has refocused its business, which was founded as a brewing company in 1742 and gradually grew to incorporate pub, food and then lodging outlets, as well, and now centers on food and lodging. Whitbread initiated a process of selling what it deemed non-core assets in 2000, disposing of its brewing operations for £389 million (US$555 million) and Swallow Inns and Restaurants for £115 million (US$164 million) in May 2000. March 2001 saw the £1.62 billion (US$2.31 billion) disposal of Whitbread Pubs & Bars. Additionally, analysts anticipate the sale of under-performing restaurants and about a dozen hotels that are unlikely to fit the Marriott brand standards.
Whitbread's current high-profile Marriott projects include a converted air terminal in Liverpool, slated to open in May. Construction of new Marriott properties in Leicestershire and Liverpool has begun. And Whitbread's 285-year-old former head office building in London will become a Marriott Executive Apartments complex. While Whitbread is opening Travel Inns at a rate of one per ten days, the company is also managing about two new Marriott builds per year, in addition to conversions. And Marriotts continue to perform for Whitbread, achieving, on average, 76% occupancies, ADRs of £85 (US$121) and the highest average RevPAR of any UK hotel chain.
Alan Parker, managing director of Whitbread Hotel Company since 1992, when he left his post as senior vice president of Holiday Inn, Europe, Middle East and Africa, has overseen Whitbread's growth from a beer-oriented company to a hotel company with a restaurant business. In that time, Whitbread has gone from overseeing ten hotels to owning more than 300. He says Marriott, with its customer-focused, people-centered, achievement-oriented, and responsible management practices makes an ideal partner for Whitbread. "The values of the two organizations are more than compatible," Parker says. "We come from an organization that has great depth and professionalism. It's not a company with a short-term philosophy or focus. We have a long planning horizon. And we have a great deal of respect for the management team at Marriott."
The synergies between Whitbread and Marriott help fuel the companies' successful growth in the UK. An integral part of that growth is acquainting an ever-expanding employee roster with those very values on which the partnership is founded. The Marriott Spirit To Serve training program, which Whitbread has taken to great heights in the UK, particularly appeals to Parker. "More than a service quality program, it's a cultural program," Parker says. All 10,000 Whitbread hotel associates have participated in the program, accounting for some 100,000 hours of training, both initial and ongoing.
The service quality that the training and standards have engendered is recognized by business traveler clientele, who consistently give Marriott in the UK high preference scores. "We may not be the biggest in terms of other chains, but we've got the highest preference scores," Parker says. And being the best is the top item on Parker's agenda. "Expanding beyond onto the continent is not part of our plan," he says. "We're very happy with our vision to be number one in the UK."
Also Noteworthy
Barceló Hotels Mallorca-based Barceló is making its mark with aggressive expansion plans and solid financial backing. Last spring's deal to buy 16 Wyndham hotels in North America-14 will be developed with Starwood brands-put Barceló Hospitality USA on the map with 18 hotels and 4,089 rooms. This builds on Barceló's previous moves into Central and South America, regions where it continues to expand. Today, Barceló's hotel division stands at 76 properties worldwide. This family-run business has grown from its leisure hotel roots to include city hotels and an increasingly sophisticated travel group. Consultants say the deal with investors to form Grubarges signaled a new, more predatory direction for Barceló.
The introduction of new co-presidents last year confirmed the group's new vision, which calls for improved operational performance and fast-paced growth. Asia is the newest market, thanks to deals in China and the Philippines. Lenders and investors like the prospects for this re-energized company, now the third largest chain in Spain.
Coastal Hotel Group In January, Seattle-based Altamont Properties acquired 90% of the 25-unit, Chicago-based Coastal Hotel Group. Coastal is now poised to become a consolidator among North American boutique hotel operators through a combination of management company mergers, as well as property and management contract acquisitions. Altamont co-founder Russell Urban says the group will focus on a boutique, non-branded strategy with a goal of reaching between 50-200 units in high barrier to entry markets. Expansion funding exceeds US$250 million.
At press time, Coastal was bidding to acquire five Inns of California and Marshall House, which Coastal already manages. It is bidding on The Wales, Franklin and Roger Williams in Manhattan, and is negotiating to own, manage or partner on resorts in New Hampshire, the Caribbean, Mexico and Hawaii. Urban adds Coastal is also in discussions on strategic relationships with several boutique companies to expand its management platform.
Grupo Empresarial Angeles Mexico City-based Grupo Empresarial Angeles (GEA) entered the hotel market full force with its purchase of Camino Real Hotels, then a 13-property chain of 4- and 5-star hotels in Mexico and Texas, in June 2000 for US$255 million. The Mexican-owned company already had extensive holdings in Mexico, including eight hospitals, a furniture chain, 56 outlet Coffee Stations, and through association with Group Aeroporauario of the Pacific, owns and operates 12 airports.
By January 2000, Camino Real and Hilton Hotels Corp., Beverly Hills, agreed to affiliate the now 14 Camino Real establishments with the Hilton family of brands, making th Camino Real properties members of what will be the largest collection of 4- and 5-star hotels in Mexico and the second largest major chain presence in Mexico overall. GEA has had a taste of success in the hotel business, and doesn't rule out additional brands.
Macdonald Hotels Scottish Macdonald bought the 50% of Barratt International Resorts that it did not own already and also announced the purchase of the 47-hotel Heritage chain from Compass in May for £240 million (US$342 million), a deal that would triple Macdonald's size. The company is said to have beaten out Hand Picked Hotels, a private company controlled by Guy Hands of the investment bank Nomura.
Macdonald held 10-year management contracts on Hands' Hand Picked properties before the Heritage sale, but those contracts now have been terminated. And Hand Picked Chairman Ramon Pajares resigned from Hand Picked and his non-executive director post at Macdonald. With the loss of the Hand Picked alliance and foot-and-mouth disease threatening Macdonald's rural sites, will 2001 see a break in Macdonald's stride, or will it steam on strongly, as its Bank of Scotland-backed Heritage purchase would suggest?
Millennium & Copthorne Hotels Plc For Millennium & Copthorne (M&C), 2000 was the year the deals didn't happen. Rumors M&C will sell Copthorne branded hotels remain unsubstantiated, although the sale could help M&C's investment outlook. Operating profits in the UK have moved only from £50.1 million (US$71.2 million) in 1997 to £56.5 million (US$80.2 million) in 2000, even after strong RevPAR growth in 1998 and 2000 and a 101% increase to £690.9 million (US$998.3 million) in group turnover in 2000.
The United States generates 40% of M&C's operating profits, so a softening economy could bode ill for the company. But the slimming and rebranding of the U.S. Regal Hotels portfolio (12 hotels to be sold for US$85 million and 12 renamed Millennium), and increased attention to Asian acquisitions, particularly in Bangkok and Tokyo, could save the day. Asia has treated M&C well; the company saw a 20% improvement in business in Singapore last year.
Orbis Hotels Evry, France-based Accor purchased a 20% stake in Warsaw-based Orbis SA, part of a deal that provided for the application of the Ibis, Mercure, Novotel, Sofitel, ETAP Hotel and Formule 1 brands by Accor Polska to 29 Orbis hotels. Orbis, founded in 1920 and state-owned from 1947 until 1991, when stock was made available on the Warsaw Stock Exchange, operates 56 hotels in 29 cities in Poland, including one 5-star, seven 4-star and 48 3-star properties. Orbis also plans expansions into the Czech Republic.
While growth is imminent, and both Orbis and Accor stand to gain, in post-Communist Eastern Europe's emerging economies, minority shareholder rights are slim versions of what they would be in more develop markets. Orbis, which placed its book value at about US$243 million in January 2001, could be worth far more-up to 50%- with goodwill tax considerations that grant the difference between the value of assets and higher prices paid.
The Taj Group of Hotels Indian Hotel Co. Ltd (IHCL), the parent of the Taj Group, has made no secret of its global expansion plans, fiercely bidding for New York's Carlyle Hotel in December 2000, a deal IHCL eventually lost to Los Angeles-based Maritz, Wolff & Co. The move may have surprised those who perceived IHCL's late-90s sale of the New York Lexington Hotel as a shying away from markets distant from the sub-continent.
Not so, say R. K. Krishna Kumar, managing director IHCL. The company seeks high-profile, quality hotels, including smaller boutique hotels, in major source markets outside of India, Kumar says. To this end, he anticipates the creation of a "Taj USA" holding company, in which strategic investors could have a stake. Meanwhile, Taj continues to grow across India and the Middle East.
TUI Beteiligungsgesellschaft mbH Sebastian Escarrer, vice president, Sol Meliá, commented that hotel chain alliances with major tourism groups quickly are becoming inevitable. The Hannover, Germany-based TUI Group shows why, having built formidable occupancy rates surpassing 88% in hotels that function strictly as leisure destinations. TUI capitalizes on its access to the prolific German travel market, and it also feeds the more than 200 hotels under its umbrella-branded by such diverse entities as Riu, Grecotel, Grupotel, Iberotel, Swiss Inn, ROBINSON, Dorhotel, and Nordotel-clients from tour operators based throughout western Europe.
In 2000, TUI formed a partnership with Anfi del Mar, founded by Norwegian Bjorn Lyng in 1986. Anfi del Mar possesses a 1,874-bed vacation ownership complex (with a five-star hotel under construction at the site) on Grand Canary Island, and provides TUI with an opportunity to develop its timeshare market, integral to the company's expansion strategy.
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