#HOF23 - "We must never give up the fight for quality and for investment"

10 min reading time

Published on 04/07/23 - Updated on 04/07/23

Fabrice Collet B&B Hotels

Fabrice Collet, President & CEO of B&B HOTELS, talks about the challenges facing the sector and his ambitions for his company. Read below what he had to say at the Hospitality Operator Forum 2023.

We're living through a pretty wonderful period in reality. Let's remember that in 2019, as we closed the year, we all told ourselves that it was a benchmark year for the industry. We thought that we wouldn’t see many years like that one, with RevPAR and activity so high. We weren't wrong because what followed wasn't ideal. We then went through Covid and today we have RevPAR that is extraordinary, it’s beyond even 2019 levels. I think that the industry as a whole will agree with this observation, but of course I'm talking mainly about my parish, i.e. budget hotels.

We see customers travelling with great enthusiasm. We are also seeing that we have been able to pass on fairly substantial price increases to our customers. It is true though that this doesn't quite offset the rise in costs. Nonetheless, when you look at margins in euros, they are rising, driven by these price increases. Personally, I didn't believe it was possible. I didn't imagine for a moment that we were going to increase prices by 10, 15, 20% and that customers would follow. They're going along even though they have problems with their purchasing power and we're in a rather strange economic climate. They are also following us because they love to travel, they love our profession and, after a period during which they were told to stay at home, they want to travel, they want to get together, to meet each other. They are giving a new meaning to our profession, which is absolutely marvellous. We deserve it because we went through some rather difficult times, when all we could do really was survive.

What are the challenges of tomorrow? How can we succeed in creating value in the hotel industry? How will we succeed in making further progress? What are the pitfalls to avoid?

At B&B HOTELS, we have been interested in the United States for several years now. Our shareholders are American: Goldman Sachs. They have been encouraging us to take an interest in this market for some time. We enter it knowing full well that this is the country that invented the hotel industry, invented the budget hotel, and invented the chain hotel.

Motel products were the stuff of dreams 30 years ago. They were modern, efficient, nice with the car in front of the hotel, the clean room, the big bed, the television. Just fantastic. Today, that's no longer the case. American budget hotels are advertised at $99 a night, but they're rented by the week for that price, in reality. They’re rented to guests who have just lost their homes and for whom it's the last stopover before the trailer park.

When visiting many establishments, I saw hotels in a state of advanced decrepitude, and I was very surprised. I was also surprised by the preponderance of key money in contract negotiations. Generally speaking, what has no price has no value. These practices show that these brands no longer keep their promises to customers, who avoid staying in these establishments when they can afford to. Nor do these brands have any value for their franchisees.

We carried out an in-house study which showed that a hotelier who puts a brand like Marriott on their shopfront in the United States will keep it for an average of 40 to 50 years, which is admirable. On the other hand, when it comes to budget and economy properties, this level of loyalty is far less prevalent. This observation led us to take the decision to try to open hotels in the United States. I don't want to hide the reality. We've been targeting the Brazilian market for 10 years. Today, we have 6 hotels and for the first time in this 10-year period, we're not losing money. We plan to have 2,000 hotels in three years' time.

This observation should lead us to question the reasons why the American budget hotel industry, which used to be of the highest quality and a dream for everyone, has become something that no longer appeals to many people. We believe that the main cause of this is a financial incident that took place in the early ‘90s. Marriott, which owned its hotels at the time, encountered financial problems linked to its growth. They were unable to finance their hotel portfolio. As a result, they set up a company called Host Marriott. Today, Host is the world's largest landlord.

This operation was launched at the initiative of financiers with a vision of stock market value. They worked out that 1 + 1 = 3. An integrated hotel operator is worth 10 times the EBITDA, but when you separate the two, an asset-light operator is worth 15 times the EBITA. The rents generated by the property company add value to reach 20 times its EBITDA.

This approach has a number of consequences. The first is that it misaligns the brand owner, who dreams of a strong, attractive, high-quality brand, with the operator. They have two questions to ask themselves:

  • Do I want to run my hotel with an asset-based approach? In other words, it's an asset that I want to add value to, in which I want to invest, and whose quality is important to me

  • Do I want to analyse it as a financial object?

The good news is that, evidently, in top-end hotels, people tend to choose to invest in assets. When you look at what Bill Gates is doing with Four Seasons or what the Sultan of Brunei is doing with his assets, they have a very patrimonial approach. This is also true of European franchisees, who are generally family groups. They invest in their assets, they think about the next generation, they make great efforts, and the quality is there.

We must never give up the fight for quality and for investment, especially in the budget hotel sector.

About 10 years ago at B&B HOTELS, I was just discovering this profession and I sometimes asked myself a question, “After a certain stage in the life cycle of a budget hotel, should it change its destination?” In 2016, we took an informed gamble and put money into these hotels. We went to our shareholders and gave them a budget of €100 million for the French network. Once the investments were made, we realised that there was an absolutely considerable return on investment. When you invest intelligently in renovating a budget hotel, by investing in things that are visible and that customers like, you get a return on investment of around 15 to 20%, which is spectacular. As we carried on with this approach, we realised that we could also take over existing hotels and convert them to our concept.

What's more, we're seeing a major shift in the customer mix, including in our sector. Today, people tend to shop at Shein and Chanel. The same trend can be seen in the hotel industry. One day they'll want to go to a fantastic hotel with a memorable lifestyle experience, and the next day they'll want to spend a simple, effective night somewhere and play the price game. These are very polarised behaviours, where one time you're looking for a memorable experience and a marvellous view, and the next time you're looking for efficiency, simplicity, and value. The in-between space is a tricky one.

When there is a quality budget hotel sector, the midscale issue becomes bigger.

My view is that tomorrow's winners in the hotel industry will be those who manage to bring together the brand and the assets under a single banner, so as to align the management of all of these elements without any disruptive forces.

As far as I'm concerned, in the budget hotel sector, the two brands that I find most remarkable for the way in which they bring consistent quality to their products are Motel One in Germany and Premier Inn in the UK. Both work like this, they have integrated their system and it works very well. All the more so in the case of Premier Inn, which is a listed company that financial analysts take a lot of notice of. They have not forgotten that integration is the key to quality control and that quality is the key to customer satisfaction. Customer satisfaction is the key to success in our industry. It is highly likely that tomorrow there will again be a regrouping of assets and brands.

The good news is that with rising interest rates, the equation is changing. This situation should allow property values to readjust, and this period will be a historic window.

How can we ensure that this industry doesn't die? We have two fatal problems in this business, the first one being the shortage of labour. Behind this shortage is the idea that work isn't necessarily that great, leisure is much better. Yet, it turns out that hotels need staff. Therefore, how can we solve this problem? I think there are two paths to take:

  • How can you avoid unnecessarily using staff when you don't need them? Automatic check-in is better than procedural check-in. This allows us to have people at the hotel entrance to welcome guests, ask them if they had a good trip, recommend a restaurant, suggest some attractions or city tours. We're also looking at cleaning using robots. Vacuum cleaners that clean the lower part of the room while the cleaning staff deal with the higher parts. This means less backache, less workload, and, therefore, a little less staff. These are jobs that we have difficulty in staffing.

  • There's also the question of social mobility and training, which has already been raised today. We're in the process of launching a CFA [apprentice training body], and we're making great progress on the subject. Our aim is to staff it with as much positive discrimination as possible. All we ask is that they be willing to take the right path and we're be willing to help them. We have so many great stories at B&B HOTELS of people who, because of their birth, were not predestined, statistically speaking, to have great careers and who today are independent hotel owners and role models for their communities.

There's still a lot of communication work to be done regarding our absolutely fantastic professions, which offer opportunities for upward social mobility and career evolution.

  • The second deadly evil to which we are subjected is the idea that travel is bad. It's an idea that's spreading more and more. My dream is that there should be environmental labels for travel, just as there are for household appliances. That would encourage all hoteliers to fight to get a good rating. We would also realise that France is a dream destination, with an energy mix that, from a carbon point of view, is absolutely exceptional.

    We have a transport network that is absolutely remarkable, look at our highly developed rail network. We're way ahead on building insulation. We are not perfect. However, if we compare, we realise that France is probably one of the most environmentally friendly destinations, if not the most, for travelling. We must all work to promote this, as it sets us apart from other destinations.



Hotel Group

  • B&B HOTELS France
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