India is the new battleground for the world’s largest hotel brands as they scout for growth outside the saturated Western markets. Europe’s largest hotelier Accor Hotels, which has invested $250 million (Rs 1,125 crore) in India already, is also on an expansion spree. After a first few failed partnerships in the 1990s, the company’s partnership with InterGlobe (for Ibis) and third party management contracts (for Novotel and Mercure) have been fairly successful, claim sector experts. Riding on a strong domestic demand, the brand is now eyeing the luxury segment. It will launch luxury brand Sofitel (Mumbai) and upscale brand Pullman (Gurgaon) sometime this year. The company also sees opportunity in the budget segment and will bring its Formule 1 brand to India this year. In conversation with Preeti Khicha, Accor Hotels Chairman and CEO Denis Hennequin outlines the group’s ambitious plans for the Indian market.
When you look over the past two years with the global economic crisis and the impact it has had on hospitality, where do you see the industry headed? What is the situation in emerging markets like India?
2009 was a difficult year for the industry, but in Asia Pacific we performed better than in other parts of the world. However, in 2010 there was a strong and rapid rebound; it was a strong year for us all over the world, except Southern Europe. India, of course, is a market with great potential for the future, so at the end of 2012, we will have 30 hotels. We want to grow the market in all the segments, with all the brands that we have. We plan to have 90 hotels by the end of 2015. In Europe, it is about consolidation, but in terms of growth and pipeline it is definitely outside — 43 per cent of our pipeline for new hotels is in Asia Pacific (India, China, Indonesia and Australia) and 32 per cent is in Europe.
You operate with about 10 brands across the world, and plan to introduce most of them in India soon. Do you think you are spreading yourself too thin too soon?
We never have too many brands in a country if they are not profitable, not differentiated enough and do not have the ability to scale. We have been going through a review of all the brands in our portfolio. The first impressions of the review show that we need all the brands that we have. However, we definitely have to strengthen some of our brands and get more scale for others.
You just spoke of differentiation. Tell us how do you differentiate each of the brands in your portfolio?
Novotel is a mid-scale contemporary brand in terms of design; so there is less local touch and flavour. Mid-scale brand Mercure, however, is more ‘localisable’. In the economy segment, we have Formule 1 and Ibis. Ibis is a full service hotel with a restaurant whereas Formule 1 (known as Etap in France) is the little sister of Ibis but with limited service offerings. Sofitel is a luxury hotel which combines French elegance and sophistication with local culture. Pullman, on the other hand, is an upscale hotel designed for business travellers.
So you have a portfolio ranging from economy to luxury. What will be your focus area in India going forward?
Unlike China, in India there is room in all the segments and we will open hotels across segments. However, the focus will be on Ibis — it’s like the ‘Big Mac’ of Accor. It is a product that has a broad appeal to a wide range of people. It is a concept that is flexible and affordable, where you can have 100 or 400 rooms depending on the location.
When it comes to hotels, what aspect of branding is most important?
Word of mouth and satisfaction of our customers is where it starts. However, in order to have brand awareness you need scale. For the luxury brands, and mid-scale ones like Novotel, we have international appeal, and we hope the journey will be easier. For economy brands everything boils down to scale. Hence, over the next three years, more than 50 per cent of our upcoming pipeline will be in the economy segment and another 40 per cent will be into mid-scale and upscale.
The internet is playing a large role in terms of reservation and brand awareness; however, in India the level of net penetration is low. One of the ways to create large-scale awareness is to have an endorsement of all the brands by Accor. So if you go to any of our hotels today, we have a plaque on the wall which says Ibis but also Accor. The other way to do it is to have a loyalty programme. We have the A-club card which is a loyalty card that works across all the brands and you can earn and burn points in any of our brands. This is something that we are looking at more closely.
You mentioned earlier that in China, the opportunity is different compared to India. Can you elaborate?
The culture of hospitality in China is very different from India. If you go to the economy segment hotels in China there is very little service and comfort. Prices overall are much lower and can be as low as $25 (Rs 1,250) for a room per night. So it gives us a different challenge where we have to decide how low we should price our offerings to be competitive while also building a quality hotel. We have 104 hotels in China but on a different model — predominantly focused on the economy and luxury segments. In the mid-scale segment things are much more complicated since prices are low.
In the hospitality business local relevance within the global framework is important when operating across markets. How has Accor applied this theory to its brands?
In Ibis hotels across the world we do not always have a restaurant offering, but in India this is required. Also, in Ibis hotels we do not typically offer room service but in India that was a concern. Now we do room service only for dinner. Food and beverage is important in Indian hotels because of the restaurant culture and also because of the labour cost. In downtown Paris, you don’t need to have a restaurant because you walk out and there are so many restaurants already. In India, you feel like staying in the hotel because it is the environment that seems to be the best. Here, the amount of public space in hotels is also important. Unlike Europe and North America, hotels in India are gathering places. Again, our Formule 1 brand typically has very limited service. It serves only breakfast, there is no reception and you have to check in yourself. However, in India where you have a higher level of service culture, we will have to adapt.
You have many other brands like M Gallery and Lenôtre. Any plans to bring these to India?
Our core brands (Formule 1, Ibis, Novotel, Sofitel and Pullman) will be represented in India by the end of the year. M Gallery is a label for unique hotels and all over the world we only have 80 hotels — usually an owner has a unique property and style and wants to join a large and global network. This is not the driver of our growth. We also have the Grand Mercure extended stay apartments in Bangalore which is very successful; but for now it is not a priority to grow this business unless the right opportunity presents itself. We also have the Lenôtre concept in France, but this is a partnership with a Parisian brand. It is not a hotel brand but a catering and pastry shop. However, having a pastry production outside of Europe is complex and we have no intention of expanding it.
Talking about international expansion and the feasibility of it, how do you decide which brands to bring to India? This is a complex business, you have admitted…
We decide by first the competitive landscape, then the pilot and based on the learnings of the pilot we decide to scale it up. We also need to have the right partners for development and that’s why we decided to partner with Indian companies like InterGlobe. The hotels that we will first open we will own so that we can develop a set of local competencies. We have a few expats who bring in the knowhow but they are a minority.
So what have been the key learnings from the Indian market?
Patience, in terms of execution and development. In India, you need a lot of approvals, and that take time. The construction industry is not that well developed unlike other parts of the world, which is a definite challenge.
It is often said that in the hotel business three things matter the most: Location, location and location. For Pullman and Sofitel, which are luxury brands, what sort of location would you consider ideal?
Initially, we anticipate that both Sofitel and Pullman will appear in business locations, but once the brands are somewhat established, we will consider leisure locations.
The Formule 1 hotel is slated to open in Pune and Noida (near Delhi) this year. Will you look at shopping malls as possible locations? That’s a big thing globally…
We have 10 sites confirmed for Formule1 hotels in India, seven of which have commenced construction. As the network evolves and further develops it is possible that the brand will appear in malls as well as in more traditional locations such as business parks, near public facilities and in urban locations.
Attracting and retaining talent is a big challenge before the hospitality industry today. How do you propose to manage that?
It is a huge challenge, but we do have a definite advantage there. Being the biggest hotel operator in the world — whether it is through management contract, company owned hotels or through lease — helps. Most of the other hotel chains are based on the franchisee model and so the talent is actually working for the franchisee rather than the brand in question. If you look at career opportunities with us, we give employees the chance to move from one brand to another. We also invest in training through our programme called Academy. In 2012, we propose to develop an Accor Academy in India. Right now, we have one for the Asia Pacific region.
In a recent statement you had said that you want to move from leased to franchised hotels. In India, what will be your business model in the future?
We want to be asset light. In mature markets like Europe, once you have established your entire portfolio of brands, growing into secondary cities is difficult by yourself as you have support costs. One of the ways to penetrate the market is through franchisees. In India, franchising is not part of our current strategy.
How much importance do you give to the MICE (meetings, incentives, conventions and events) segment? What percentage of your revenue comes from this segment?
It really depends on the brand and the location. In Hyderabad, where our hotel is attached to a convention centre, 30 per cent of the business comes from MICE segment — which is quite high. In Ibis Mumbai it is not significant. For us, the focus will be the business traveller.
A slightly personal question now. You moved to Accor Hotels after two decades with fast food giant McDonald’s. How have the learnings from your earlier stint helped you manage your current assignment?
McDonald’s has a lot of local adaptation, but at the same time the brand is perceived as consistent. That is the learning I want to bring to Accor. We also need to have scale and visibility and McDonald’s was very good at that. The third piece is the expertise to manage a network of franchisees. Even though all parts of the world will not have the same number of franchisees, in mature markets there will be a huge number of franchisees to deal with. A mix of these three competencies is what I bring to the table.
