Interview with Marcus Bernhardt, Chief Executive Officer at Deutsche Hospitality. A discussion with Vanguélis Panayotis, CEO MKG Consulting.
Can you tell us a bit about your feeling of joining Deutsche Hospitality at this specific time with new challenges from the pandemic?
Marcus Bernhardt: It is a very good point. When I started on November 1st, my second day was already the close down of the hotel industry in Germany.
Everyone was telling me "What kind of moment have you arrived in the company!".
As I like challenges, I thought "OK, fair enough, let's take the challenge and go for it".
Of course, it has been a very tough year for all of our companies and all the industries, but joining and being the leader of such a company where you have investors on the other side who invested a lot of money just a few months before. Then the pandemic gives you a lot of pressure. But on the other hand, it is a challenge which has a lot of upsides and opportunities for of us.
What are the new brands since Jaz in the City? Each group went through some reorganizations in the past few months. What happened on your side?
Marcus Bernhardt: I think the biggest change which we did is to make sure that our company, a very traditional company celebrating last year its 90th anniversary, one of the oldest hotel companies in the world, be reorganized and reshaped to be ready for its growth.
We have started, and are very involved, in changing the commercial reorganization. We changed our brands reorganization from a horizontal organization to a vertical organization.
We put different brands, not one by one like many other companies do, but we have it for segments. This is also to make sure that we use the economy of scale of the different segments in a much more professional way. And that is certainly the ultimate goal: for any future acquisitions that we will do, it will be much easier for us to implement those acquisitions into different segments where those companies will have their brands.
You just mentioned the recent acquisition by Huazhu, one of the world's top ten hotel groups. What are your ambitions in terms of development?
Marcus Bernhardt: Our road map is to grow the European size of the company to become one of the top three hotel groups in Europe and our owning company wants to achieve the same on a worldwide basis.
Today, the company has a market capitalization of 20 billion US dollars on the U.S. stock exchange market and has grown over one year its portfolio and its profitability by 76%. So it’s huge what these guys are doing over there. They are market leaders in the economy and mid-scale brands. They do not have experience in upscale brands and luxury, that was one of the reasons why Huazhu bought Steigenberger, because that is what they want to develop. The development of our brands in China has already started fantastically, we already have 8 Steingenberger hotels that have been signed, we have the first Icon hotel last week that has been signed and we have Intercity that has started.
Remember that last year, during the Covid-19 period, Huazhu opened 425 hotels in China in one year. The plan for this year is to add more than 900 hotels.
It is incredible how they grow in the economy and mid-scale. So, what we are doing here in terms of our strategic development is that Deutsche Hospitality is responsible for the development in Europe, Middle East, Africa and India, and Asia Pacific and the rest of the world is part of the development of Huazhu.
What will be the strategy between franchise, management or maybe full integration? What is the key for you for different brands and sectors?
Marcus Bernhardt: Companies like us and large international groups will increasingly move away from lease contracts, because even if you are a US based company or listed on the Stock market, leases are very negative for your NPL and financial reports, as they show negative assets on your balance sheet.
Our focus will be on management and franchise, so we grow the franchise organization internally, we have also developed new ways of models to attract partners in our management agreement. This will be most of our future development, management and franchise if by any chance we get a fantastic hotel in Paris, in London where you need to have lease contracts. But it will not the priority of the lease as it has been 15 years ago when everybody was signing lease contracts.
What is the new agreement after this crisis between owners and operators (like franchisees) and you as a brand? Is there new deal coming for the future?
Marcus Bernhardt: We are working on new deals in a way that, on one hand, owners always need some guarantees to insure to the bank how the financing can be done. We need to find some kind of hybrid model where you have some guarantees but not based on the winner is always the owner. It should be a win-win situation for the operator and the owner, because the pandemic situation has shown that losers were operators, because if you have a lease, you have to fulfill your lease contract, you have to pay the leases even if the hotels are closed, and in many cases the owners were not open to discussing either reductions or waivers of leases. This will change. On the other hand, and this is why we believe in our model with our partner in China: every partner who is going to sign up a deal with any hotel organization will see “What is the benefit for me in terms of topline?”, "How do I get the best business out of it?"
Today, the best business will be the one with the best IT organization, the best digital platform. So, imagine the cost you have on both sides, the owner will be happy because he doesn't have to pay the high distribution cost and for us it will also be beneficial because we will have more and more hotels joining our organization.
There will be a complete rethinking of the modeling. Today we can see in the pandemic, that there won't be so many green fields development of new hotel coming up because the investments are a bit slow, you will have a lot of takeovers.
Today, there are so many hotels, and even more in the coming weeks and months, that have had financial difficulties and that give us the opportunity to develop and grow together with these partners.
There is one topic that is very important to our final customer and that is sustainability. We all know that the pandemic has put many factors on hold, but Deutsche Hospitality strongly believes in this philosophy and DNA. Can you tell us a little more about it?
Marcus Bernhardt: We will open first free emission hotels in a few weeks in Frankfurt.
We completed the first step of how we offer F&B products in a completely different way. For example, 30% of all products we will offer will be vegetarian, we will have a clear list of fish, of those we will no longer offer due to sustainability.
Our internal global purchasing system is in the process of being set up as completely sustainable. There are many other programs in sustainability, but we will have a dedicated corporate social responsibility manager in our organization, a dedicated team that reports directly to me as CEO, we are looking at this and taking it very seriously.
That's why we think it's our duty as a company, as a European company, as a company with a long tradition, to make sure that sustainability stands in top of our priority list.