As global chains figure out synergies from their M&As, smaller groups are making hay.
Banyan Tree Lang Co
On the question of who wins in the continuing trend of hotel industry consolidation, one group that appears to be thriving are smaller hotel companies, at least in Asia where the hotel market remains buoyant and the majority of hotels is unbranded.
During a session on mega hotel mergers presented by Baker & McKenzie at Hotel Investment Conference Asia-Pacific (HICAP) in October last year, 60 per cent of the audience polled believed fewer global hotel chains won’t be financially better for owners and operators. In another instant poll there, 73.6 per cent believed smaller players would benefit from mega mergers.
These players include small and medium-sized hotel management companies; hotel groups that focus on a real niche such as boutique or luxury, which can’t easily be copied; and owner representation firms that have the best accounting experts to decipher the various fees chains are charging them and take chains to task if these fees don’t commensurate with the returns.
For these companies, the field is wide open as owners ponder if they would be better off with huge chains where benefits of consolidation have yet to be proven or flow through, or with smaller groups which may not have the scale but are more likely to be able to give more focus to their hotels and stay truer to the brand DNA.
Marriott International’s regional vice president of hotel development Asia-Pacific, James Doolan, who’s on the Baker & McKenzie panel, agreed that “inevitably there would be people who just don’t like it, (being) part of a conglomerate that’s much bigger than it was before”.
“For the smaller groups, that’s the opportunity – ‘attacking’ or identifying the smaller, under-performing assets that feel a bit left out in this new world. There are opportunities for them to pick some of these up. I think there will be a little bit of that at the end of this (merger),” he said.
Bangkok-based Minor Hotels, which owns, operates and invests in 155 hotels currently – small in relation to Marriott international’s 5,700 properties, Hilton International’s 4,700 or AccorHotels’ 3,942 (as of June 30, 2016) – has already benefited from industry consolidation on at least one score. Speaking at a HICAP panel session, CEO Dillip Rajakarier said: “Actually we are happy… some of the best people are joining us from Starwood and Marriott.”
Rajakarier also said it had been difficult for Asian owners, particularly the less experienced ones, to decide what to do in the changing market. He said: “Sophisticated owners will manage their business well, but those owners who are not used to having hotel assets will have problems: who are they going to speak to, who is going to manage their asset, who is going to be their competitive set?
Swiss Belhotel is a perfect example of how smaller groups are positioning themselves ever more confidently in an environment of confusion and uncertainty that M&As bring about.
At HICAP, the Hong Kong-based company announced that it intends to pick up more management contracts, bringing its portfolio to over 200 hotels and 40,000 rooms by 2020, from 135 hotels now, as it “continues to provide a strong and attractive alternative to the big brand players such as Accor, Marriott and InterContinental Hotel Group”, said a spokesperson.
Chairman and president Gavin Faull, who founded the independent hotel management group in 2000, told TTG Asia: “The more M&As there are, the better the business will be for us, because there are fewer people for developers to talk to (as a result of the consolidation).
“Many owners feel they are being dictated to… On top of it, we live in a world of big generational change… you have to be a lot more flexible and chain control is not flexible.
“We are flexible. We talk to owners and staff, so it’s personalised management. I was in Kuala Lumpur yesterday and the guy could not believe I was president of the company!”
All of Swiss Belhotel’s 135 hotels are management contracts, 80 of which are in operation, the rest in pipeline. Faull counts timing and earning the trust of owners as among the key pillars of his success. Swiss Bellhotel, for instance, has been in Indonesia since it was a sleeping giant, with a strong, silent partner, Ciputra, he said.
While the big chains dangle the benefits of having millions of loyal customers, Gaull said loyalty programmes are not the key anymore as people stay in different hotels for different reasons. “People now holiday once a month. There is a cultural and generational change.
“And I might have lost out initially to the big chains on distribution, but with the Internet today, the world is open. Technology is a lot cheaper now,” he said.
His worry is keeping the company personalised as it expands. “We can get to 250 or 300 hotels but I feel it is dangerous. I don’t want us to be a global machine. Right now I’m there, and I’ve a real passion for the job. At 140 hotels, it is already getting harder – the physical commuting especially; emailing only kills communications. The hotel industry does not have much of a relationship with its clients anymore, yet that’s what the clients need.”
So for smaller groups, the outlook looks rosy – until the behemoth hotel chains are able to show owners how their M&As have not only made them stronger but bring greater benefits to owners as well.
This article was first published in TTG Asia February 2017 issue. To read more, please view our digital edition or click here to subscribe.
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