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Interview with Jean-Gabriel Pérès, president and CEO of Mövenpick Hotels & Resorts: "Mövenpick looks East"

7 min reading time

Published on 11/01/06 - Updated on 17/03/22

The “little” Swiss chain can rely on assets that are related to the quality of its image and the efficiency of its management as well as to the presence of powerful shareholders. Steadily, it pursues development that will position it beyond the symbolic threshold of 90 to 100 hotels in 2010 and lead it to new territories in Africa, India and Eastern countries.

HTR Magazine: you have always explained that you wanted to maintain a policy of controlled development, while maintaining ambitious goals, isn’t that contradictory? _ Jean-Gabriel Pérès:

Controlled means that we have set a framework that we stick to: progress higher in range through our new openings, never permit negative results and be very attentive to the nature of contracts, preferring management contracts or variable leases. We no longer want to sign for fixed leases. But respecting this framework hasn’t prevented us from being very active since we signed for 13 new hotels and hotel residences in 2005, adding 4,420 rooms and apartments to our current 12,600 rooms. This means 35% growth, which is the strongest in our history, while maintaining double-digit growth in our gross operating profits this year once again.HTR: How do you view the increased involvement of financial investors in this trade based on service and tradition? _ J-G.P.: These investors have the merit of raising ideas and questioning operators, and a trade overall, that undoubtedly lacked aggressiveness in managing their real estate. It is always good when something new happens that forces reflection. Mövenpick never escaped this discipline since the two shareholders, majority and minority, are financiers to begin with. The rest is a matter of alchemy and symbiosis between the hotel managers and investors. There is a risk of conflict with certain funds that have short-term valorisation strategies, because the rhythms of hotel operations are not as quick as they might hope. The temptation for short-term capital gains can get in the way of decisions for renovations or investments. It is important that everything be clear from the start and that the business plan be accepted and shared conjointly.HTR: Does the threshold of 100 properties in 2010 correspond to a symbolic step? _ J-G.P.: It is symbolic for our development teams and for the personnel, but beyond it, it corresponds to a double reality. Such a goal allows us to remain a human-sized company with powerful mobilisation for each of the projects, which are thus not lost among an enormous hotel supply. We also need to go beyond the limit after which leverage effects and synergies become exponential in terms of profitability. For us, this limit lies beyond 70-80 properties.HTR: In Europe, do you always prefer a strategy of mininetworks for each country rather than “symbolic” openings in each of the capitals? _ J-G.P.: We are still using this strategy. From a strong core supply we expand to 4 to 6 major cities in the country. We did this in the Middle East where we have a very strong position. We act through capillary action nationally or regionally to take advantage of the synergy of a network in terms of its commercial and managerial capacities, be they purchasing or human resources. Thus our implantation in Istanbul will be followed by a presence in Izmir and Antalya; our opening in Amsterdam will complete our presence at The Hague and S’Hertogenbosh. I know it will be more difficult in Italy considering the nature of that market, but we are tackling it as well.HTR: What is the status of your projects in Eastern Europe? _ J-G.P.: Mövenpick is highly appreciated in Eastern Europe and we will take advantage of this to intensify our prospecting in Moscow, Saint Petersburg and the ex-Soviet provinces. 2006 opens fine perspectives while we remain cautious in order to negotiate with good investment partners. We will only go into these countries with management contracts. When it is necessary to invest, we are lucky to be able to be backed by Kingdom Hotel Investments (KHI) or large funds that are familiar with the way we operate and can count on a good return on their investment.HTR: You will open your 17th hotel in Germany in 2008 in a market that is known for being difficult. Do you still see growth potential there? _ J-G.P.: For fifteen years or so, average RevPARs have not evolved much in Germany, remaining around 45 to 50 euros. The result is a distortion between investors’ expectations and the cash-flows that can generate operations. When we will have opened Hamburg, Stuttgart and Dusseldorf, we will have run the gambit in Germany. Moreover, we do not want to put in danger by an oversupply the contribution that is still positive for the group’s results. Only an excellent opportunity in Munich could make us change our minds about stopping while we’re ahead.HTR: Does your shareholder KHI, incite you to concentrate your development in the Middle East? Does this partner impose demands? _ J-G.P.: KHI’s presence in our capital is in no way lived as a constraint because it maintains its role as a minority shareholder that expects a high return on investment. I think it is fairly satisfied in this regard. In addition, we work on investment projects in a cooperative effort without excessive pressure. Of the 13 hotels signed this year, KHI is involved in two. We benefit from its strategy in the long term and its very good knowledge of certain markets. It thus has an interest in a stronger presence in Africa that we are interested in pursuing.HTR: Do you have the feeling that you must work to achieve a balance with other hotel groups such as Fairmont in which KHI also has shares? _ J-G.P.: Our targets are not the same because our hotel products have different vocations. We have a very strong European connotation whereas Fairmont is viewed as a North American management company with a preference for the conference and seminar market. It has its own investment capacity that we do not have, while we remains strictly an hotel operator. These are two different strategies that create no competition and KHI knows very well which partner correspond best to which project when it is implicated in its financing.HTR: Is your development in Africa opportunistic in character? _ J-G.P.: Not at all. In Africa we take the same global approach as for the other regions or continents by deploying a business and leisure supply. Africa offers real potential, particularly in its Southern regions. For example, in Dar es Salam we manage a business hotel that we would like to complement with two or three lodges in tourist areas of Tanzania. I also hope to have hotels in Cape Town and in Durban with lodges in the South African game reserves. Our goal is for 10 to 15 additional hotels on this continent where we are already established in Tunisia and Morocco.HTR: you seem to be ignoring the Far East for the time being, is this voluntary? _ J-G.P.: We have major projects for India that will take shape in the form of the first two signed hotels in 2006. Indians have a true empathy for Switzerland, where they often go to spend their vacations. It is a continent with a enormous future and we plan to capitalise on these good relations. Our financial partners are confident enough in our performances to follow us when considering this continent where we hope to reach 7 or 8 hotels rapidly. Looking at the Far East also means looking at Asia, which is an obvious step for us in the more long-range future. Entry onto this market, which I know well personally since I spent eleven years there, could happen with the take over of a small existing network in order to quickly attain the necessary synergy.HTR: Mövenpick has never been very active in the race for external growth, although you have nearly no debt. Why such caution? _ J-G.P.: I believe above all that we are better off because we elected to forego certain operations. We looked at two dossiers: Principal Hotels in Great Britain and Swissotel, whose real estate aspects were leading towards valorisations that were disproportionate with the profitability that we could expect. We have no obligation towards rapid growth since it has not been yet demonstrated that chains with 300 to 400 hotels are necessarily more profitable than an 80- to 100-hotel network. This does not mean that we are neglecting all the opportunities. Were a reasonable acquisition to present itself, without requiring borrowing money, we can count on our current shareholders to provide the necessary means. But only provided that there are real perspectives for profitability.HTR: How do you view the increased involvement of financial investors in this trade based on service and tradition? _ J-G.P.: These investors have the merit of raising ideas and questioning operators, and a trade overall, that undoubtedly lacked aggressiveness in managing their real estate. It is always good when something new happens that forces reflection. Mövenpick never escaped this discipline since the two shareholders, majority and minority, are financiers to begin with. The rest is a matter of alchemy and symbiosis between the hotel managers and investors. There is a risk of conflict with certain funds that have short-term valorisation strategies, because the rhythms of hotel operations are not as quick as they might hope. The temptation for short-term capital gains can get in the way of decisions for renovations or investments. It is important that everything be clear from the start and that the business plan be accepted and shared conjointly.

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