European manoeuvres

29 June 2000
European manoeuvres

Expanding across the Channel or even further afield has until now been left to the big boys of the hotel world. But medium-sized hotel chains in the UK may have to follow suit if property prices at home continue to spiral upwards. The quest for sites has been made even worse as home-grown players find themselves pitched against foreign companies for key hotel locations.

Spanish group Sol Meli has bought its first property in the UK, London's White House, but it is unlikely to be the last. It was also in the final tussle with Hilton for the Caledonian in Edinburgh, and has plans to expand its boutique properties internationally as well as its Meli brand.

French group Accor is adding to its UK properties after years of trying, and is putting more Ibises and Novotels on the British map. It will open its first Mercure in the UK this month, close to London's new Tate gallery.

But if UK companies can't win the home game, then they should play away, says agent Christie & Co's director of hotels, Simon Hughes, who believes that British chains are missing out on opportunities across the Channel. "What we are seeing is a lack of supply of one-off quality assets [in the UK]," he says. "To get the growth that these companies need, they are going to have to include expansion further afield."

Companies such as Jarvis, De Vere and Regal have historically operated only within the UK, but Hughes predicts that the hotel industry will see more international expansion from these medium-sized players.

A major advantage is that property prices in many Continental cities are currently lower than in the UK, particularly given the present strength of sterling, which gives British companies a chance to get better value for money on a hotel purchase.

Jeremy Hill, international director at Christie & Co, says that, based on recent figures, hotel properties in three-star markets would sell at an average of £25,000 per room in Frankfurt against £50,000 in London, and Paris would fall between the two. "You do get more for your money," he claims.

Kash Chandarana, group financial officer at RF Hotels, says that the pound does go further in the rest of Europe because of the strong exchange rate, and that has helped produce the right deal. The shorter leases in other European countries have also been helpful. "In Belgium, Germany or Italy," he says, "you can get 25-year leases, whereas in the UK they would be for 75 years."

De Vere is one of those medium-sized UK players which could be tempted abroad. It has dabbled with European links in the past by having a short-lived marketing alliance with Germany's Dorint Hotels. However, sources say that De Vere has been considering a deal to move into Europe once more, possibly creating new-build hotels.

Bill Gosling, director of sales and marketing, will not be drawn. He says that De Vere is concentrating on expansion in the UK. "We are currently a UK business focused on the UK," he says. "There are difficulties, we believe, in expanding into Europe, as a business model that works here does not necessarily work there."

If Continental Europe is a daunting prospect, then a move into Ireland is often seen as an easier first step when going outside Britain. Gosling acknowledges that UK hotel groups have been happy to look at Ireland, while they might never look at France or Germany. "Because of the language," he says, "because it was underdeveloped, it is seen as reasonably easy to move into."

The similarity of the employment laws is another plus factor. The proof of these points is seen with brands such as Posthouse and Stakis, before its purchase by Hilton, which were essentially UK companies without pan-European aspirations but which had stretched their wings a little with moves into Ireland.

One handicap for medium-sized players bidding for sites abroad, according to Forte's chief executive, Antoine Cau, is that they lack international brand recognition and so have a lesser chance of winning the deal. "Large companies have much more muscle to operate with than small companies," he says. "You represent more reliability."

Forte sees itself as an international operator with its Le Méridien brand, and, possibly at a later date, with Heritage. It has evolved a two-pronged development process, split between purchases and management contracts. For example, as part of its plans to grow its portfolio in the USA in the key cities, Forte is making purchases where needed to give itself long-term commitment to the site.

Cau recently told a briefing at investment bank Warburg Dillon Read: "Security of tenure is paramount. You can't spend your time and resources establishing your presence only to find you are being held to ransom by a fickle landlord."

Although a willingness to work with the owner and be flexible could win extra points, Cau claims that Le Méridien is winning management contracts in Europe away from major US players because of its acceptance of cultural differences. "There is a lot of hostility [to some US groups]," he claims. "You have to be very, very flexible and you are constantly adjusting to the owner's needs."

Cau suggests that one reason why more midmarket hotel companies have not been eager to look at properties on the Continent is related to their customers. In four- or five-star properties the customers tend to be international travellers, he says, who would travel to other international cities. "When you go to two- or three-star," he says, "it is much more of a domestic product."

Instant volume

National companies looking to become international operations must also decide whether to go about it by moving slowly in ones and twos, or whether they need to make an initial acquisition or partnership to give them instant volume. After its initial purchase of the 52 Le Méridien properties from Air France, Forte has proceeded with its expansion plan on a cherry-picking basis. Others, such as Four Seasons, have also chosen that model, growing slowly and selectively in new locations such as Lisbon and Berlin.

With the competition for sites and properties, Cau suggests that buying the right place at the right time is a waiting game. "You don't want to get into a terrible spiral and pay too much," he says. For instance, several companies keen to get into Dublin, such as Accor, are currently holding off as they see property prices there as too high.

But before taking the plunge, beware - UK groups moving into another country could find the difference in employment law an unexpected complication. "In France, for instance, there is a 35-hour week," says Choice Hotels' chief operating officer, Peter Cashman.

However, Jonathan Wix, director of the Scotsman Hotel Group, scoffs at the idea that moving into other countries is a huge obstacle for mainly national companies. He has made no secret of his plans to move into European cities. "Just get yourself a good lawyer," he advises.

On the other hand, Wix doesn't think European development is for every hotel group. "There is a tremendous future in the UK," he says. "I don't think there is any reason why everybody should just pile in to Europe. You have to feel you have a particular product that has a market, and there is an opening for you. For us, it will be important to be pan-European in the future, and we are looking at a number of cities."

Not everyone will feel the same.

The Caterer Breakfast Briefing Email

Start the working day with The Caterer’s free breakfast briefing email

Sign Up and manage your preferences below

Check mark icon
Thank you

You have successfully signed up for the Caterer Breakfast Briefing Email and will hear from us soon!

Jacobs Media is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

The highest official awards for UK businesses since being established by royal warrant in 1965. Read more.

close

Ad Blocker detected

We have noticed you are using an adblocker and – although we support freedom of choice – we would like to ask you to enable ads on our site. They are an important revenue source which supports free access of our website's content, especially during the COVID-19 crisis.

trade tracker pixel tracking