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"Out of every crisis there comes something good, there will be opportunities"

Interview between Loïc Giroud, CEO SOGEPAR, Marc Plisson, CEO Akéna Hotels and Vanguélis Panayotis, CEO MKG Consulting. A serious and deep crisis but also an opportunity to reinvent oneself and come out stronger.

Original video interview in French

Loïc Giroud, as Managing Director of SOGEPAR, can you tell us how the somewhat tricky landing of the last few weeks went?

It happened both very quickly, a few days ago I was preparing the directors for a potential closure, and on the Tuesday following the decision to confine I decided to close everything and by Wednesday evening, 24 hours after everything was closed.

It is often said that a hotel is not meant to be closed, so we are not used to this kind of situation

Our hotels are of course open 365 days a year, 24 hours a day,  since some of them have been open for almost 50 years, or at least 40 years. It is true that this is quite unheard of.

Marc Plisson: How did it go on your side?

For us it went more or less the same way. There was a consultation between the different chain managers, for example with Karim Soleilhavoup from Logis. We knew from Friday that something was going to happen and we warned our hoteliers of a possible closure. We tried to identify those that could work, especially those who wanted to help the medical staff. Little by little over the course of the week, we closed down part of the network. To date we are operating at 40%.

For SOGEPAR ?

100% of the hotels are closed. A few properties have medical staff but the hotels are closed for sale.

Concerning State aid, we have closed all the administrative part related to short-time working, there is no subject on that. Concerning the state-guaranteed loan and the BPI (Banque Publique d'Investissement Editor's Note) loan, we have seen a difference between political discourse and practice. I have launched a business plan crash test, and I have been told that I will have what I need, period, even if I have to go for a second round by the end of the year.

For Akéna the administrative side?

Short-time working was set up fairly quickly since we got the pre-authorization numbers relatively quickly. On the loan guaranteed by the state we got it almost immediately. I join Loïc we made a first round. To be completely transparent we filled out the file which was accepted on Tuesday and Friday we had the money on the accounts, so it went pretty well for us. We're quite happy with the government's action.

There will inevitably be debates on the sanitary aspects, but in any case on the economic management part do you consider that the emergency measures at first were effective and quick?

Marc Plisson: I think it was indeed taken relatively quickly. We do indeed have the cash flow to hold on, even if it also depends on the hotel chains' models. The problem, as we saw last night in particular, is that we don't have a restart date today. Drawing on the funds and as Loïc said, taking loans is all very well, but we will have to pay back. In order to be able to repay, we will have to put an action plan in place and make a new business plan. Today the problem we have is that all our past business plans are mostly lost and we are not yet really able to define future business plans. [...] Now the second thing, as for any business leader, is to find out what perspectives we have and how to fit into these perspectives.

We heard during the speech of the President of the Republic that all sectors were going to start up again but that ours would be the last one. Loïc, do you think that so far, the measures put in place have cushioned the shock?

Yes completely, I think we can say that we all agree on that. The government did not anticipate things well for x number of reasons but once things were launched, they were extremely reactive and extremely vigorous I think. They made the decisions that needed to be made in 24 hours. They were just essential so as not to sink the entire economic sector.

Without perspectives on when and how to end the containment, making reservations is complicated. One of the things that can sometimes worry is that our sector has investment cycles. At Akéna, there are hotels that are about to open, which are in a ramp-up phase, as is the case with SOGEPAR. There are investment cycles, you probably have investment plans that were planned. How can we spread the debt between the immediate cash flow needs and tomorrow be able to achieve this investment cycle which is necessary for our sector?

Loïc Giroud: We have two hotels that were due to open in September and July. Already it has been postponed a little because the construction sites are at a standstill. We will open the hotels. But if the market is still at -70% or -90% we will wait a little until the conditions are better to open these hotels. On the other hand, we had renovation projects and these are frozen for the moment until we have better visibility. Probably in 2021 2022. In the meantime, we are not going to engage in operations with major financing with a question mark over our ability to repay.

For Akéna, it was an investment with partners

Yes, we're having a big break because of the situation. We have three hotels under construction today. These three hotels are going to be built with some delays in the works. We are going to postpone relatively quickly and we have asked when it is possible to resume construction quickly. The renovation periods also depend on the franchisees, so there will be a delay. For us as a franchisor, the whole period of customer search is now completely at a standstill. We had projects that were in the process of being signed or that were pre-signed and not started. These projects are automatically postponed in time.

This crisis is quite unprecedented and particular. We were at a time when hotels needed a network, brands, distribution and it's perhaps a little more delicate when we're in a complicated situation. Perhaps you will have some good surprises when the recovery comes.

All our customers who already had PILs, which were already signed, we guaranteed them all our services, i.e. we are accompanying them as of course all our franchisees either legally or socially during this crisis. We have informed them we have also made our law firms available and the whole thing has been taken care of by the chain so that they can have a maximum of information. We have put all our prospects in this circle to show them precisely what support we can provide. In our prospecting we often talk about human support. It was also an opportunity to show that during this crisis, the franchise played its role of support and to try to see the process through to the end. We may have some good surprises, but it is true that today, in all areas, we will have to reassure people in order to start off on the right foot.

Loïc at SOGEPAR you have several brands, how was the assistance and support of the networks?

We will soon be working with Best Western and Accor for Novotel. I don't practice them with an ongoing operation. Otherwise we are with Louvre Hotels. We have found  a very responsive and very supportive, and very collaborativean operator. They have worked a lot with AIFE (Franchisee association for Louvre Hotel Group Editor's note) so we are rather satisfied with the way things are going.

This crisis will have allowed everyone to get closer together. However, at the moment in the sector there is dissatisfaction with the reaction of the OTAS. Have you, for your part, seen situations that are not fair to the sector?

Marc Plisson: We've had feedback from franchisees who felt that there were some borderline methods. I think this has been regulated. Everybody was caught off guard and today we don't have this type of feedback any more. I think it's generally regular and that solutions have been found on the OTA side. In particular thanks to the ordinance on cancellations.

Loïc Giroud: We haven't had any particular subject. There have been a few snags but there is no particular tension on this subject.

How much loss of turnover do you anticipate?

Loïc Giroud: That's minus 45% over the twelve months. It's something unimaginable and unthinkable. No company is structured to withstand such a sharp drop in turnover. We inevitably have fixed costs that fall whatever happens. Hotels open or closed, not to mention loan write-offs. Every month costs us a lot of money and we're going to record a heavy loss in 2020.

Will state aid help to limit these losses?

For me, these loans are not aid but a cash-flow support.  For the moment there is no aid at all (the government has meanwhile announced the abandonment of 750 million euros in charges for the sector Editor's note) We have launched an internal operation that I have called zero turnover and zero charges. We really looked everywhere to suspend contracts, to negotiate things. [...} The big news is the announcement yesterday by Emmanuel Macron who talked about cancellation of charges for the impacted sectors such as tourism, so I hope they think well of us [...].

Marc Plisson: We are in the same figures overall for the year. We have made good growth that was expected with the work that was done several years ago. That work is now completely lost. So we are going to restart on a turnover that will be constant. As we have constructions in progress, we are starting on a turnover that is relatively staggered compared to last year, but we are abandoning all growth.

This calls investments into question and we are facing the same problem: 0 cash flow, 0 expenses. So we are taking over the contracts, we are renegotiating. On the other hand, I absolutely want to pay all my suppliers, while they have the same problems as we do. This is also the advantage that we have had with the cash flow plan that has been put in place by our bank. It allows us to have that flexibility. We pay our suppliers and we'll see. That first support is good for us and good for our suppliers. [...] We have minus 45% of projected sales for the year.

Overall, there are two issues: firstly, when will we return to pre-crisis levels of activity that were fairly high? Second, when will we return to activity levels that are considered to be the waterline of activity? When do you see this return to a level of activity that at least allows us to be on stable or even slightly profitable operations?

Loïc Giroud: I've done a modeling, this balance corresponds to a 10% drop in turnover below which we are negative cash. So it is certain that if next year we are still at -15%, not only will we be negative cash, but we won't be able to repay the cash reinforcements of BPI and our banks.
For the financial year 2021, I am starting with a scenario of -15% compared to 2019, structurally below the waterline.  In 2022 I think we will still not be on 2019 levels. I don't know if we will be in 2023, but what is certain is that companies and households will come out of this period completely washed out. With staggering drops in turnover. It is certain that some people will not start spending as before as early as September. Everyone is on the economic track, as Marc was saying earlier. Anything that is not essential in terms of spending or anything that can be postponed will be.

Marc Plisson: For our portfolio, office hotels between two and three stars,I think we will resume activity, not normal, in September. We are going to find new clients, we are going to be able to adapt, but I think that in 2021 we will have between -10 and -15% of turnover. With a return to normal overall more or less in 2022. However, once again today, the problem is that I am unable to measure the real impact of the crisis on all our customers.

Economic players tell us that at some point spending will be stopped at the corporate level. The advantage that we have is that we have 75% of our client panels that are made up of sales people and managers.  This customer base will come back at some point, but in terms of price, we will have to make efforts. Another advantage is that foreign customers represent about 5% of our turnover. We are going to work on our very strong national clientele. In order to have the best price ratio during the week and the weekend. I dare to hope for a flattening of the market from 2022 onwards.

Discussions are speeding up on what a recovery plan for the sector should be - we are trying to provide maximum analysis and visibility - one of the major issues will be that once jobs have been safeguarded, the offer, i.e. the hotels, must be open and in a position to be exploited. We can imagine a slightly gradual recovery so that this shock of demand and supply will be joint tomorrow.

Is it possible to open with 30%-40% occupancy?

We still have to refine the models to determine the break-even points, but what is certain is that we are not going to restart everything at the same time. We have hotels which are not combos but which are twins that are nearby. We'll see if it works. But we need to have this hypothesis of what level of OR we should open now, I think we'll have to open one of them as well. At some point the teams won't be able to make it. If we want to get the economy going again, we have to play the game. I know we're going to reopen before we hit this stalemate.

Marc Plisson: We will reopen as soon as it is technically possible. We re-launched four years ago, we have a lot of owner-operators and managers who are either owner-operators or managers who live in the hotels once they are through their hotels. We have very few groups that have 3, 4 hotels. Many are already in their establishments. I think that indeed at a time when we are going to have to accompany the economy as well, that is to say that we are not going to remain closed. I think that the French will still want to go on holiday in July and August despite what we hear. We must also be there to accompany them to welcome them, so I think that this is also part of the economic fabric. There are hotels that will lose money but it will be a strategy to be done. We will accompany these openings and yes I think we will be open relatively quickly. For the teams as well because there is a social link at work. I think that if we also want to accompany them, they have to go back to their workplace so that they can also regain their confidence and consume again. At some point, the machine will have to start up again and that is also part of the social support link.

By doing a bit of foresight quickly together we imagine that companies as far as business travellers are concerned, which represents almost 70% of the turnover of the hotel industry. These people are essentially domestic customers, the second part of the volume is our direct European neighbours, and then we are going to move upmarket in large metropolises where we are going to have international long-haul tourism, which is not a priority and will not take over first. Won't these companies have to make trade-offs regarding travel costs and develop exchanges via digital tools? There is no absolute truth we learn as we go along.

Loïc Giroud: This pandemic is moving a lot of lines, accelerating mutations, especially digital ones. I think we are all experimenting and I think that we are far from measuring all the impacts that this two-month period will have when France is living in seclusion. There will be impacts at the digital level, there will be impacts at the restaurant level. We are not going to reopen, obviously, as it has closed in terms of hygiene.  In terms of health and safety, the hotel industry met certain safety criteria and also certain sustainable development criteria. Now there is the health aspect, which will be predominant. But I think it is much too early to imagine all the impacts. It is difficult to say whether there will be less travel in the business world. We may have counter-effects, in particular we are also talking about reindustrialising France and relocating certain production facilities. This would obviously be very good for the business of our hotels, which are very business-oriented in the face of industrialisation.

Marc Plisson: I think that we have a first stopping point, we are in complete agreement on this, but what will it change? We know very well that there is often a gap between theory and practice, and we can see it very clearly at the moment between the management of hospitality at the beginning of the crisis and the one we are currently experiencing. I think that indeed there will be a completely different mode of consumption. Companies will also rationalize travel, and I think we will see very clearly from September the major trends that will begin to take shape. From that point on, we will adapt to them. We have to be able to adapt to these initial prospects. We probably don't have them today, so we're going to focus on different things. The funny thing is that on March 23rd we launched "Akéna s'engage" at the Franchise Exhibition. I have been at the head of the company for four years and we only buy French when possible and with local SMEs. We are launching the first 100% ecological models which was due to open in November. We have launched hygiene tests four times a year in all the hotels that allowed us access and we have a solidarity programme that we were also launching.

We were on the right track. There's also the whole digitalization of the computer system that we're going to have to manage and rethink. I think we're also going to have to rethink all the human links we're going to have to rethink, both with our teams and with our hoteliers, and the way we see our business as well. This will happen in a second phase, but from September for our clients we will look at exactly what will happen for the projections that we will be able to give ourselves for the end of the year, which will also give us the projections for 2021.

How is your morale as an entrepreneur?

Loïc Giroud: Excellent, I sleep well. We feel that the government is with us, we are all in the same boat, it's a crisis of a very deep and lasting seriousness. These are times that allow us to stick together, to develop solidarity between colleagues, between franchisees and franchisors, and I think there are some good things that will come out of it. It is also a crisis which will allow us to see opportunities for development. I have regular exchanges with hotel investment funds which are already thinking of raising funds to do new things. We are touching the bottom of the pool, but we are all already thinking about what to do next. I have a conference call with all of our managers once a week. Last Wednesday I started talking to them about it, saying that there is going to be a recovery and we are working on it. There's going to be opportunities for sure.

We told ourselves that our sector was a very resilient sector and we're doing an important stress test with this crisis

Marc Plisson: I agree with Loïc, I'm rather confident about the future overall. Also because we have a relatively healthy structure, so we don't have any major problems. It also allows us to take a break. We are taking advantage of this crisis to also assert our communication, which means that we are starting to communicate a little differently and we are trying to be a little out of step with the big chains. This is something I wanted to do a few months ago. We also support all our franchisees much better than we can. We accompany our employees as well.

Out of every crisis something good comes out there will be opportunities . We will come out of it strengthened with new ideas for new horizons. We are going to take things as they are today and prepare ourselves for the future, of course. We don't yet know when how or where. We are preparing several plans, then we will see which one is being implemented and the plan may change at the last moment also because there may be another piece of information that came up at the last minute. Today I am rather confident and the goal is I think that all business leaders, if we are there, is that we also know how to take this part of the risk and a crisis is part of the risk that we must be able to manage both in terms of stress and in terms of prospects.

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