Accor has been growing at a fast clip since former Colony Capital executive Sébastien Bazin took over as CEO in August 2013. First, the French hotel operator, which has more than 3,600 properties across 14 brands, announced a new three-year strategy and reinvention of its business model. The project involved splitting the company into two divisions, effectively separating its operating and franchising business from ownership and investment. One year later, in October 2014, the company launched a five-year digital transformation plan built around the migration to mobile devices, a more personalized service, and a seamless customer journey. Then, in December, Accor formed a strategic alliance with Huazhu Hotels Group to accelerate expansion of its economy and midscale brands in China. Bazin sat down with Lodging at the Americas Lodging Investment Summit to talk about Accor’s strong performance in 2014 and the thought process behind the company’s new initiatives.
What contributed to Accor’s success in 2014 and how will you build on this in 2015? 2014 was the first year of implementation on Accor’s three-year transformation plan, which was announced in November 2013. The numbers being achieved both in revenues and EBITDA are better than I expected. The main reason is that we gave the internal organization a lot of clarity on separating the two businesses between HotelService, which is the operator and franchisor, and the HotelInvest division, which is the hotel investor, developer, and asset allocator. Ever since splitting the company, everyone’s jobs have been much easier. And, because we’ve been doing surprisingly well on adaptability for the last 12 months, I can also enter new fields, such as accelerating the digital transformation of Accor, looking at the food and beverage division of Accor, and shifting the managerial culture of the company.
What led Accor to form an alliance with Huazhu? During my 17 years at Colony Capital, I was going to China probably three or four times a year. So I took notice of the emergence of four Chinese local operators that did not exist 10 years ago. Those four operators occupy the top four positions today; it had been in the hands of InterContinental and Accor for the previous 10 years. It was inevitable that you had to ally yourself with one of those operators locally if you wanted to continue expanding. So we selected Huazhu because of the entrepreneurial spirit of the founder [Ji Qi] and the concerning shareholders. Ji Qi has a 70-year franchise on the Ibis, Novotel, and Mercure brands, which are economy midscale, and he has a commitment to open 400 of them in the next five years, which is six times the pace per year of what we’ve done on our own. We will expand faster through their local expertise and local network, but we will remain totally independent and have management capacity for our upscale and luxury brands. On top of it, we contributed to our existing assets on Novotel, Ibis, and Mercure against shares in Huazhu by becoming a 10 percent shareholder, and I became a board member.
What are the benefits of forming a master franchise agreement like this? Today there are 140 million Chinese traveling abroad, and 90 percent of those 140 million stay in Asia Pacific—only 10 percent go elsewhere. Accor is a leader in Asia Pacific in terms of network, in Thailand, Cambodia, Vietnam, Indonesia, Australia, all over. I believe that number is going to double in the next five years to 250 million. I want those 250 million to have experienced my brand locally in mainland China. That way I have the greatest chance of having those guys staying in a Novotel, Ibis, and Mercure network when they travel abroad because they have been experiencing it locally.
What’s your overall growth strategy? We’re opening one hotel every two days, and 80 percent of those openings are in emerging markets. Only 20 percent is in Europe and North America. Fifty percent of the openings are in the Ibis branded, economy segment. On top of continued expansion in the countries in which we are leaders, we have major commitments to Africa and India, in which we already are present and leaders, but I want a greater emphasis on those two continents.
How many properties are in the pipeline? We have more than 150,000 rooms committed, which is more than 700 hotels to open in the next three-plus years. That’s about 30 percent of the existing network to be open—it’s big. Seventy-five percent of the network is hotel operated by Accor; it’s only 25 percent franchised. But that’s going to change because 90 percent of our new openings are asset light. The size of the network is so big today, that we have a lot of appetite from other investors, so the franchise side is going to get bigger.
Can you tell me more about Accor’s new digital strategy? After a very severe diagnostic, we decided to allocate 225 million euros over a three-year program additive to what’s being spent already on digital marketing and others. We have eight different programs benefiting owners, customers, or employees, so we’re talking to three populations. Accor needs to be a participant in the value chain proposition of the travel and leisure industry, where today we are only recipients of the guest. I want to be also a service provider, an aggregator, and a product innovator in the value chain. As opposed to a spectator, we want to become an actor.
Will this approach have an affect on the operations side? Not really. What is critical is the distribution system. You need technology and flexibility within the system, so the good news is we spent a lot of money on the existing systems of Accor. We have 300 million visits on the web per year—it’s enormous. We do two reservations every second. The system works, and it’s been growing fast.
What else are you looking forward to in 2015? So far, it’s really to continue restructuring the asset portfolio and a big emphasis on food and beverage. Accor is a big operator in food and beverage, and I think we can do so much better. Also the management culture, which is how do you train, attract, identify, and give power to the millennial generations? Sixty-five percent of Accor employees are under 35 years old. Those people are of a different sophistication, better aggregators, and more agile with information, so they have something to be provided to the most senior generations of Accor in power today. I need to make sure those people talk to each other, respect each other, and are more collectively intelligent. It’s not easy, but it’s going to be done. It’s a big revolution in terms of mindset, autonomy, and responsibility.
