Accor Leans Into Premium Hotel Brands, Franchising, and China

Travel

Since Sébastian Bazin became its CEO in 2013, Accor has had a series of transformations and done a lot of acquisitions, such as Mövenpick, Fairmont, and Mantra, and joint ventures, such as Ennismore.

But Accor detailed last July something of a five-year-plan, with detailed commitments on performance benchmarks it intends to meet. That was a declaration that the group essentially has what it needs. Aside from the occasional opportunistic acquisition, it seems mostly set on growing with what it has.

So when top Accor executives were visiting New York City in late February, I went to interview them about their game plan. I spoke with Jean-Jacques Morin, Group Deputy CEO and CEO of the premium, midscale and economy division, and with Martine Gerow, who joined Accor in July 2023 as group chief finance officer.

Some key points:

  • Accor execs said their work on its premium brands has paid off.
  • The group expects a shift toward owners signing more franchise contracts rather than management ones.
  • The group said it believes it’s worthwhile to trade some short-term profitability in return for faster growth of its network in China by pursuing hotel development through local partners, rather than directly.
  • Accor has committed to expanding worker training.
Jean-Jacques Morin, Group Deputy CEO, and Martine Gerow, Group CFO, during a roadshow in New York City on February 26, 2024. Source: Skift.

On improving its premium hotels

Accor’s premium, midscale, and economy brands have been in many markets for up to 50 years, the executives said.

“In places like Australia, Indonesia, Singapore, and Thailand, we have strongholds because PM&E [premium, midscale, and economy] is a density model,” Morin said. “Having a concentration of hotels is cost-effective for operations and helps increase guest loyalty. We’ve been using those places to leap to go deeper in markets like Japan, where we’re the second-largest network — and we built that up relatively quickly.”

Accor’s economy brands like Ibis have performed strongly in hotel development and guest demand in those countries and in other key markets, such as in Western Europe. Yet for its premium brands, Accor hasn’t been getting its fair share of hotel development contracts in many of those countries, analysts say.

On streamlining standards to boost compliance

In response, the hotel group has been fine-tuning its premium brands. The goal has been to enable better owner compliance with brand standards and to better match standards to guest needs for a particular brand has helped, executives said.

“We’ve tripled the level of signings in 2023 for premium brands,” Morin said. “We recently said that the whole PM&E category is seeing signings up 40% over 2019 levels, and a large part of that is we finally captured our fair share in premium.”

On simplifying brand standards

Every so-called “hard” hotel brand comes with a proverbial binder of rules that an owner must follow. The paint on the wall needs to be a particular shade. The ratio of staff to guests should be a certain number. And so forth.

Accor used to have some of the most detailed rules for its premium, midscale, and economy brands. But that has recently changed.

“Brand power is your best defense,” Morin said. “Brand recognition is an accelerator of growth.”

Accor wanted to ensure that all hotels displaying a brand name are meeting standards and that owners are providing consistent service. So it simplified the rules to prioritize.

“We’ve significantly reduced brand standards by about 70% because we want owners to focus on fewer things but the most important things, such as sheets and bedding.

“You’ll see more on brands like Ibis, Novotel, and Pullman this year.

On the management versus franchise models

Hotel owners can work with hotel groups in two ways: under a management or franchise contract. Management fees tend to flow to a hotel group’s bottom line, generally speaking, so the balance between management and franchise contracts is closely watched.

“In Accor’s PM&E, my hunch is you will see the franchise share of the mix grow by probably 5 points over the next five years,” Morin said. “Today it’s a little bit less than 50% of the PM&E hotels, and out of total fee revenue, it’s closer to 30%.”

What’s the difference between the models? Broadly speaking, the owner does much of the work under the franchise model and pays a royalty plus some fees. Under the management model, the hotel group is fairly hands-on, such as being responsible for hiring and training staff and purchasing equipment. Owners pay a so-called base fee, typically a percentage of revenue plus some fees. Franchise contracts also tend to be shorter.

In the U.S., much of the hotel sector is franchised. In Asia, probably 80% is managed. Europe and Australia tilt toward managed.

“Franchise in the end is a good thing as long as you can adapt your cost base,” Morin said. “It lets you develop faster.”

“On our luxury brands, we’re probably much more protective of management contracts than our U.S. peers because we really want to ensure that we protect the brand equity,” he said. “In our lifestyle business, everything [at Accor’s Ennismore joint venture] is a management contract.”

On expansion in China

China may become the world’s largest tourism market by 2030 or so, and Western hotel groups have been racing to open properties there. IHG says it has the largest footprint there and that it has built it by directly opening properties. Accor has taken a different route of working through third-party local partners.

Accor’s partnership with H World Group, for instance, has yielded roughly 500 hotels and a pipeline of more than 120 hotels. Its deal with Sunmei is on track to open more than 400 Mövenpick by Accor properties across China.

“If you go in without a partner, you do get more fees flowing to the bottom line, but you also may get less volume and more problems,” Morin said. “On luxury properties we work directly with an owner, on our other types of properties we do both, work directly and through partners, but most of our flow is coming through the partnership, which helps especially with local distribution.”

“We want to get people who travel from China to the rest of the world knowing and liking our brand name,” Morin said.

Years ago, Accor bought shares in a Chinese hotel developer — then called Huazhu but now called H Group — that it later sold.

“We made roughly a one billion profit on that,” Morin noted.

On lifting workers

Accor execs said one of their motivations for working hard for the hotel group was its ability to help workers learn new skills in a sector that can pay well and broaden their horizons.

Morin cited a deal signed last month in Saudi Arabia. The “Tamayyaz by Accor” program offers a six-month paid apprenticeship for 256 fresh graduates from hospitality schools. The program will give locals new to the sector a path to a career with hands-on experience at hotels. Accor aims to hire about 3,000 Saudis, most without prior hospitality experience, by 2030.

What do you think? Tell me. I’m at [email protected] and on LinkedIn.

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