Just a few years ago, only France had a well-developed; economy and super economy chain hotel supply. But the model’s success has led to its emulation in the United Kingdom and Germany and other territories are opening up in Southern and Central Europe. This hotel segment has undergone a veritable internal revolution to take advantage of the technology and democratization of design and offer a new look that is more entertaining and fashionable. The creation of new brands is being met by a renewal of the oldest concepts.
The economy hotel segment is holding course in these difficult times. Unlike the United States where the segment is greatly affected by the crisis, the 0* to 2* category is showing resistance on this side of the Atlantic. While the upscale is faltering and the midscale is showing the first signs of weakness, the economy hotel segment maintains its growth rate. Of course, traditional clientele on the segment are not spared by the crisis. The significant drop in occupancy betrays a sense of caution on the behalf of many of the natural markets, starting with sales-people or construction workers. But the properties still have a growth margin for rates to compensate for this drop because the hotel product has evolved a great deal.Looking East, Poland offers the best perspectives. As it undergoes economic development, this country reveals two key ingredients: vast territory and a growing domestic market. Accor, thanks to its participation in Orbis, already has a large inventory there that continues to grow. “Eastern Europe is magical. In some cities, ORs are close to 75-80% with average daily rates that are as high as they are in France,” rejoices the development manager. But with much lower operating costs... Louvre Hotels and its partner Warimpex have planned to jointly invest between 300 million and 500 million euros over seven years in order to develop more than 80 hotels in the region (Poland, Czech Republic, Hungary and Slovakia). Six properties will be inaugurated in Poland in 2010. Three other vast and populated countries remain to be conquered: Turkey, the Ukraine and Russia. Development is just taking its first steps there. Economy hotels have a fine future ahead.For a few years now the segment has shown its capacity to resist. Demand has absorbed intense development almost unfailingly. This offers proof if ever there was that hotels offering a good value have been adopted by a large number of clientele. The “economy product” concept has evolved in the minds of consumers. “Smart shoppers” opt for Leader Price for everyday products, but buy their shoes at Weston and wear Prada. This same phenomenon appears in the hotel industry where the client’s choice is arbitrated by the immediate need: a 1* for a short stop en route to a vacation destination; a 2* to avoid putting a strain on the company budget or for a fun short stay and a 4* for a weekend getaway with that someone special or for a strategic meeting. “Before, some clientele would say to themselves: ‘economy hotels are .ne, but not for me’. But the new 1* is a product that suits all SPCs,” insists Georges Sampeur, chair-man of the board at B&B Hotels.The cause of this change in thinking is thanks to hoteliers efforts to keep pace with this metamorphosis that has also affected food, dress and air travel. A new generation of super-economy products is on the rise. With a contemporary design, it brings the additional spirit required for winning new clientele. All Seasons with its credo of emotion and warmth, Campanile with its innovative design by Patrick Jouin and restaurant conceived by Pierre Gagnaire, or even Premier Inn in the United Kingdom, Motel One in Germany, Sidorme or Hotelandgo in Spain: these dynamic brands are blowing a breath of fresh air over Europe.Meanwhile, new actors are on the rise: chic emanations of Japanese-style “capsule hotels” such as Yotel, Nitenite and Qbic or properties that are somewhere between hotels and youth hostels such as Easy Hotels following in the wake of Generators in London and Germany. “We should add 15 new hotels in 2009 in addition to the 10 that are already open. Since our launch in 2005, we have been in line with our forecasts,” explains Calum Russell, Easy Hotels’ sales manager. In the meantime the offensive of Hilton group’s Hampton Inn has proved its will to traverse the Atlantic by opening three hotels in the United Kingdom offering a concept that was specially modified for international development.During this phase of product centered consideration, B&B Hotels was the first to move in 2006.. Its "Econochic” concept proved that with more “valorizing” signs, as Georges Sampeur explains, it was possible to accomplish miracles without renovating the brand’s basic elements in order to minimize the price per night. With renovation costs at 7,500 euros per room and a global envelope of 54 million euros, the group, taken over by Eurazeo in 2005, undertook the difficult challenge of making its entire supply evolve rapidly, which challenge was increased by the acquisition of 60 Villages Hôtels at the beginning of 2007. Today, the group has already completed half of the total renovation of its supply.With this superior 1* product, B&B positioned itself in France as the leader of the neo super-economy range. The average daily rate practiced in the network is 42 euros. “Our rate of return is 7%, which is a fairly good return on investment in these times!” smiles Georges Sampeur. “It is a textbook case,” according to Yannick Auré, founder of Cerise Hotels after launching Mister Bed en 1992: “an example to follow”. And many have followed it. Renovations are going along well in most networks. Since last year, Formule 1’s supply is being modernized and taking the name hotelF1. Signage is well-rooted in the low-cost universe, and warmer, less masculine colors are finding their way in. Thanks to an industrialized “plug & play” assembly process, the entire supply should be renovated by 2010 at an average rate of one property per ten weeks, without closing.The French group refreshed its entry-level product, but the brand is no longer its spearhead on the 0-1*. “We decided to stop development 10 years ago. We are wondering about the future of a showerless product. Particularly since Etap’s profitability is better. The difference in average daily rate is very significant (+30%) with respect to the minimal difference in development cost (+15%),” explains Christian Karaoglanian, the general manager of hotel development. This brand is thus receiving all the attention. At the end of March, Etap Hotel will offer a new room in Toulouse Blagnac. The concept follows two axes: clever design, away from the classic design codes of 1* products, and a resolutely eco-friendly approach.The number-two economy hotel player in Europe, Louvre Hotels doesn’t just stand there in light of the activism of the leader. After a latent period related to the takeover of the Groupe du Louvre by Starwood Capital and the necessary reorganization that ensued, the number-two French player renewed development two years ago by adding 25 hotels in 2008 and 35 new openings are planned for 2009. “The crisis does not get in our way. We have a high capacity for financing development. And this is the best moment to do works,” remarks Pierre-Frédéric Roulot, president of Louvre Hotels. With 10 hotels already renovated, the new Campanile concept is being unfurled at the rate of 5 hotels per month before increasing that rate to ten a month.Back under construction after a first overhaul in 2004, renovations of the inventory at Première Classe will soon be launched. “We will capitalize on what was done in 2004 by modernizing the initial concept. The first pilot hotel opens in Villepinte and, depending on the return on investment, we will launch the full process in the second part of the year,” explains the group’s president. The last building site that Louvre Hotels has been working on is Kyriad 2010. “We are starting a year early,” observes Pierre-Frédéric Roulot. Five architectural concepts are proposed to franchisees to rein-force the brand’s superior 2* positioning in addition to elements they share with upscale properties such as a free bottle of water, coffee, tea and infusions in the room a bathrobe for members of the heLHo loyalty program!France’s position at the cutting edge of this movement is hardly surprising. “French savoir-faire is well known,” recognizes Yannick Auré. Ibis, launched in 1974, Campanile (1976) and Formule 1 (1985) were all driving forces that developed into vocations. In the wake of Accor and the Société du Louvre, many brands launched themselves into the ad-venture at the beginning of the 90s. These groups were originally regional and began to develop their supply through “capillarity” in neighboring regions, but their capacity for expansion is beginning to decrease today. The supply in France is closing in around five major operators: Accor, Louvre Hotels, B&B, Choice Hotels with its brand Comfort and Dynamique Hotels, which made a rapid entry on the market in 2007 through a sweep of acquisitions. Its owner, CBRE Investors, consecrated 280 million euros with its takeover of the company RMH and the brand Balladins, with around thirty and a hundred franchisees respectively, and other small groups including Bonsaï Soghest.Despite the maturity of the French market, development opportunities have always been real. Major cities, starting with Paris, are highly coveted. After “missing the boat Accor hopped on in the 90s on Paris’s outskirts,” according to Georges Sampeur, B&B invested the North and East of the capital with 200-room high capacity properties. Pierre-Frédéric Roulot is also watching as “all the new neighborhoods rise out of the ground, the new high-speed train stations, shopping centers” which act like as many growth levers for the supply. But hotel groups are logically looking at independent properties to fill out their offers. While on the 01*, the penetration rate of corporate chains is higher than 60%, it is only 25% in the 2*. Integrating these hoteliers into Accor’s distribution system is the primary motivation of the group with its launch of All Seasons.After nearly 18 months of existence, Ibis’s non-standardized pendant is now on track. “We started with a quality, basic network by converting some of our hotels into subsidiaries. And, rapidly, franchisees joined us. We have twenty or so projects in our portfolio,” speci.es Christian Karaoglanian. This development compensates for Ibis’s shrinking growth margin due to its inventory of over 375 hotels, even if the brand adds ten or so franchisees each year. “We are looking at projects for subsidiaries in Paris and large cities in the provinces, particularly at the center of neighborhoods undergoing renovation,” remarks the Accor’s development director.While economy hotels tend to be domestic, leading brands quickly felt limited and reached out of their original markets. Having opened its 800th hotel in Shanghai at the end of 2008, Ibis has long demonstrated its capacity to travel beyond its homeland. Except for the United States, which is the hunting ground of American groups, its offer has been developed on all the continents. Other examples of this internationalization: Premier Inn has gone to the Middle East with a desire to win “a dominant position,” according to Steve Conway, its marketing director… After nearby countries, Campanile will cross the Mediterranean to establish itself in Morocco (see The thousand and one projects of economy brands p.108). “For others, China, India and the Gulf are the emerging countries. For us, it is still Europe,” refocuses Georges Sampeur. Closer to home, Europe has plenty of opportunities. Germany, Spain, Poland, Italy: these lands are propitious to the construction of larges networks for 0-2* chain hotels.The only country that comes close to France in terms of maturity, the British market is in ebullition – or overheating? Premier Inn, a subsidiary of Whitbread and incontestable leader on the market, plans to reach the benchmark of 55,000 rooms in the 4 years to come versus 44,000 today. “There will be mostly new constructions,” explains Steve Conway although he does not exclude a few acquisitions. The reason for this undiminished potential for development: surplus demand. “Midweek occupancy is higher than 90%. There is little latitude for increasing our revenue without upsetting our proposition for a good quality/price value at our existing properties.”Will the net decrease in OR for the Budget category slow this frenetic rhythm? To be seen Regardless, Travelodge, Premier Inn’s primary competitor, keeps pace with its rival. By investing a billion euros to take over the brand at Permira, Dubai Investment Capital swiped 290 properties out from under the nose of Whitbread, Accor and Starwood Capital. This equally dynamic brand, recently took two original approaches toward the development of its supply: a partnership with Aldi and Lidl for mixed-use supermarket-hotel structures and the construction of an 8-floor modular hotel entirely assembled in China and shipped by boat. In this way Travelodge hopes to reduce its costs by 10% and accelerate its construction rate by 25%.These two brands are taking the lion’s share and the entry barrier is very high in the United Kingdom. Express by Holiday Inn and, to a lesser extent, Comfort Inn have succeeded in creating a little place for themselves under Britain’s (rare) sun. Competition from the other side of the channel is getting organized. While the British offer limited service, the French are playing on their national heritage: cuisine. Louvre Hotels, which has just introduced its new Campanile concept in Northampton, Swindon and Bradford plans to grow a supply limited to 17 properties. “We are bringing a French touch with buffets designed by Pierre Gagnaire. We are short on hotels for reaching a critical size, but we are working on that,” underlines the president of Louvre Hotels. Accor has a consequential Ibis network in the provinces and in London alike. In parallel, Accor counts on ten or so openings a year for Etap Hotel. “There is a market for a modern Budget brand alongside the traditional B&Bs,” observes Christian Karaoglanian.SigniFIcantly less closed,Germany is receiving a great deal of attention. Louvre Hotels, which is not yet positioned on this market, is carefully studying opportunities. And these are many on a market that is equivalent to France’s. Motel One, a national player, has just passed the benchmark of 20 hotels with two openings in the center of Nuremberg and Munich. With a brand new product, Motel One hopes to become the prophet in its native country, which is under-equipped in terms of economy hotels. Germany’s potential is arousing the ambitions of all the leading European chains. Pressure on average daily rates is becoming less important at a time when the 3* and 4* categories are settling in. “It has often been said that it is difficult to achieve exceptional results in Germany, but I have observed that our hotels there are producing the same ratios as in France,” remarks Georges Sampeur. Sixty B&B are planned in Germany with 20 openings this year, half of which come from the agreement with Tank und Rast. The operator of highway gas stations chose the French group to the manage its hotel supply and invested 50 million euros in the renovation and expansion of thirty or so properties.Thanks to a franchise deal with Foremost Hospitality, Holiday Inn Express should strengthen its presence in major German cities and .ll out its current network of 15 hotels. Accor also counts on the franchise to grow a strong economy supply that has 80 Ibis and 70 Etap. “There is potential for 150 Ibis, but this must be done through franchising,” explains Christian Karaoglanian. Another priority: impose the All Seasons brand and seduce independent hoteliers because in times of crisis it is more difficult to concretize new projects.Another - probable – gold mine for the 0-2*: Spain. “Spanish groups concentrate on 4*. We began with Ibis and Etap ten years ago. Since there was no competition, these hotels are veritable cash machines with high ADR and OR,” admits Accor’s development manager. With this asset, Accor has ambitious projects for the Iberian peninsula. The British love this country and that is very clear. Express by Holiday Inn entered into a partnership with Zinnia Hotels in 2008 to build 20 new hotels in addition to the existing twenty. The first fruit of this agreement will rise out of the ground in Bilbao at the end of the year. Stronger yet, Travelodge announced its desire to invest a billion euros in the construction of a 100-property network by 2020 that would mostly center on large cities. Could the real estate cri-sis bring this development plan to a halt? It is more than probable. “It is necessary to be vigilant regarding the economic situation, but Spain is full of hotels to be taken over,” adds Pierre-Frédéric Roulot. In search of any development opportunity, B&B Hotels has just entered into a cross-marketing partnership with one of the few Spanish players: Sidorme (see Zoom p. 110). More if affinity? “We are getting to know one another,” ex-plains the president of B&B. But the list of buyers for this chain that will go one the market is undoubtedly very long...Alone among the major European countries, Italy is a “terra quasi incognita” –almost unknown territory– when it comes to economy hotels with exception to a few Ibis and Campanile hotels and twenty or so Express by Holiday Inns. The transplanted economy chains appear to have difficulty taking root. “Italy is a paradox. The performance of our Ibis hotels is below the European average,” remarks Christian Karaoglanian. But such obstacles do not discourage ambitions. B&B has 4 projects in the works in Milan and Turin. “We are targeting large cities in order to establish the brand. We are using preconceived notions about this country as our starting block. There is no reason why this product cannot work in a country where 0-2* hotel chains are rare, and highpriced independent hotels with inconsistent quality are widespread.”Looking East, Poland offers the best perspectives. As it undergoes economic development, this country reveals two key ingredients: vast territory and a growing domestic market. Accor, thanks to its participation in Orbis, already has a large inventory there that continues to grow. “Eastern Europe is magical. In some cities, ORs are close to 75-80% with average daily rates that are as high as they are in France,” rejoices the development manager. But with much lower operating costs... Louvre Hotels and its partner Warimpex have planned to jointly invest between 300 million and 500 million euros over seven years in order to develop more than 80 hotels in the region (Poland, Czech Republic, Hungary and Slovakia). Six properties will be inaugurated in Poland in 2010. Three other vast and populated countries remain to be conquered: Turkey, the Ukraine and Russia. Development is just taking its first steps there. Economy hotels have a fine future ahead.
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