Brand on the run

Earlier this month, UK property company Marylebone Warwick Balfour (MWB) finally completed the purchase of the Malmaison hotel group and brand from US giant Wyndham International.

As the £76m deal was rubber-stamped, the small hotel company that has for so long been synonymous with one man - Scottish hotel entrepreneur Ken McCulloch - began its second spell as part of a wider corporate group.

Fans of the design-led, French-style Malmaison group will no doubt watch closely to determine the impact of this latest development of the brand. Yet if anything should reassure sceptics it is that MWB has been planning and pursuing this deal for almost two years and has taken steps to bring in a partner with a long-established reputation in the hotel business.

The deal, secured on 6 November, was in two parts. MWB acquired five hotels for £65m. At the same time, a newly-formed company owned equally by MWB and a wholly-owned subsidiary of the Scandinavian Airlines System (SAS) bought the worldwide rights to the Malmaison brand for £11m cash.

As a result, MWB owns the five existing Malmaison hotels: in Glasgow and Edinburgh, opened in 1994, and three more in Leeds, Manchester and Newcastle, providing a total of about 460 rooms. As part of the package, MWB has agreed terms with SAS to operate and manage the entire Malmaison chain under a 20-year operating and management agreement.

The partnership between MWB and SAS is the result of MWB co-founder and hotels director Joe Shashou's two-year pursuit of Malmaison.

First acquisition

Shashou first signalled MWB's interest in boutique four-star hotels in 1998, when he oversaw the acquisition of a former hospital in Charterhouse Square, London. At the time the company said it was buying the property as the first of what it hoped would become a four-star boutique hotel group. However, Shashou's enthusiasm for the project led to his being roundly ticked off by his chief executive for saying that the company would spend £80m building up a townhouse hotel chain.

Two years later, the company has spent just that securing the group which it had identified then as the best operator in the desirable four-star market. An attempt at a joint venture with Malmaison came to nothing, as did MWB's attempt to back a management buyout. In the end it was a straightforward sale that secured the Malmaison name and assets from Wyndham International - although there was still competition from the management buyout team, led by former president of Malmaison Roy Tutty, backed by Bridgepoint Capital, and Spanish hotel group Sol Meli .

MWB and SAS now plan almost to double the number of rooms in the chain to 800, as new hotels in Birmingham and London are opened, together with substantial extensions to the existing Manchester and Edinburgh hotels. The Birmingham Malmaison - in the city centre's Mailbox development - will provide 184 rooms when it opens in autumn 2001. The original Charterhouse Square property, which has planning consent for a 76-bedroom hotel, will be the capital's first Malmaison.

Karl Foerster, an SAS executive, is the man who will direct this expansion in the UK and in continental Europe. As president and chief operating officer of Malmaison, he will lead the London and Glasgow-based senior management team.

"It's a very challenging task," he says, "but the team have taken this change very well and are embracing the opportunity to take Malmaison to the continent."

As an SAS regional director for Germany, Foerster will also keep a close eye on sites for new continental hotels and is in advanced discussions on sites in Brussels and Berlin.

Growth in Europe

SAS's own track record of growth shows that it is well placed to pull off the development of the group. It has grown from 27 hotels in 1992 to 130 spread across Europe. Its familiarity with the European market means it has already looked at many sites for its own hotels, which now may prove more appropriate for Malmaison.

There is, says Foerster, no danger that SAS will stray too far from the Malmaison blueprint that exists. "We won't take hotels of more than 200 rooms. Our niche is 80 to 200," he says. However, the pledge not to allow Malmaison be overtaken by corporate principles does not mean that the product will stand still. In Birmingham construction starts in January on the group's first new-build - rather than conversion - hotel. Opening in February 2002, it has given the group the opportunity to try out new design ideas.

"Between 60% and 70% of the ideas will be familiar, but the rest will be new - of course it will be harmonised," says Foerster.

Equally SAS will not shift the successful Malmaison pricing policy. With 82% average occupancy across the group, the rooms are "priced to sell not priced to discount". Average room rates have grown from £68 to over £77 in the past four years and are forecast to rise to more than £80 in the current year.

However, purchasing synergies will be considerable, enabling the group to make the most of information technology to manage reservations and systems. Equally, Foerster envisages exchanges of staff between the two groups - allowing continental staff to work in the UK and vice versa.

As far as sales and marketing is concerned, however, low key will be the solution. "You won't see the SAS name in Malmaison," he pledges. "We don't want to be competing with them and we don't need to be too obvious."

Competition from other boutique operators is expected to be tough. In Scotland alone, the home of Malmaison, there are several projects in the offing which will give the group cause for thought. Ken McCulloch - Malmaison's founder - wants to return to Glasgow with a design-led hotel, while Jonathan Wix, restaurateur and owner of Leeds's very successful 42 the Calls, is opening a boutique hotel in the Scotsman newspaper's landmark building in Edinburgh. With the former post office building on Glasgow's George Street also earmarked for a designer hotel and Robin Hutson's Hotel du Vin opening in Birmingham, competition for the niche non-corporate market is getting tougher.

For the first time ever the group could be facing serious competition in these locations and it must not be seen to become too impersonal or part of a corporate machine. "We've been very pleased to be the market leader in Edinburgh and Glasgow," says Foerster, "but we have to be ready for competition."

Meanwhile, Foerster is confident that he can roll out the brand to other major UK cities and across continental Europe, without sacrificing the qualities that first attracted MWB's interest. Talk of 15 Malmaisons by 2002 is realistic, he says. Looking further afield he is more circumspect in his predictions, but as many as 50 hotels by 2010 can not be ruled out.

Next week: Malmaison founder Ken McCulloch's new venture