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Small dreams of an Easy life

18 August 2005

"It's a most awkward place to do a press conference," admits an exuberant and lightly sweating Stelios Haji-Ioannou, chairman of EasyGroup, as he climbs the stairs of his first EasyHotel for the umpteenth time. An international pack of journalists and photographers pursue him for the next snatched quote or picture, and try their best to squeeze into one of the minuscule bedrooms.

With floor spaces of just 6ft by 9ft, this proves exhausting, not to say uncomfortable, so in the absence of a bar, restaurant, or lobby, Stelios decides the only place to do the press conference is on the stairs of the London hotel. But, as the first nonplussed guests weighed down with backpacks get blocked in the entrance, it's a recipe for a comic and chaotic scene.

Not that there's anything particularly funny about Stelios's latest venture, unless tiny orange bedrooms give you the giggles. He bought the former Kensington B&B for 2m, spent nearly 700,000 converting it, and fully expects his investment to generate multiple franchising revenue streams. As you'd expect from the king of no-frills, he's not keen on spending any more of his own money.

"As with all hotel chains, the path to expansion is franchising and not trying to do it ourselves," he explains. "The best in the business, such as Inter-Continental and Hilton, are selling off ownership. The concept here is not property ownership. It's branding, sales, internet distribution and yield management."

First franchisee Stelios already has his first franchisee, a local entrepreneur called Philipp Fink, who has signed up to open an EasyHotel in Basel, Switzerland, next month, and he says several more negotiations are under way.

So what's the proposition for the potential franchisee? Let's say you already own a guesthouse or B&B in need of refurbishment. Your first cost will be an upfront negotiable franchise fee to EasyHotel. Then comes the cost of converting your property to the EasyHotel standard.

In London, a 20-bedroom B&B became a 34-room EasyHotel at a cost of 680,000, or 20,000 per room. You may be thinking: why did it cost so much to change one small room into an even smaller one? "I was asking myself that question," Stelios laughs. "What happens is that you gut the building and start again, with new plumbing, electrics, air-conditioning and sound-proofing."

Of course, building costs will vary from city to city and country to country. Stelios is a firm believer in allowing franchisees with local knowledge to handle the building and planning process themselves. But when it comes to the actual en suite rooms, you will be using an EasyHotel-nominated supplier: a Finnish company that manufactures cabins for cruise ships.

After your EasyHotel opens, you'll pay a regular "royalty" to cover the branding, technology and reservations systems. Stelios would not be drawn on what exact percentage of revenue this is. "It's a matter of negotiation," he says. "It's similar to what someone like Holiday Inn would charge you." Stelios reckons that franchisees will recoup their refurbishment costs from profits within two years.

No windows But will customers happily spend from 20 to 45 to sleep in a tiny, windowless orange space with no phone, no rubbish bin, no shampoo and nowhere to store your things?

"The biggest risk I'm taking is having no windows," admits Stelios, who spent a night at the hotel before it opened. "I know some people will find it claustrophobic but, personally, it doesn't bother me because the air-conditioning is good. I don't like light when I sleep."

The hotel was fully booked on its first night at least, and Stelios expects it to achieve 90% occupancy and no less than a 35 average room rate for the first year. It is currently taking bookings until the end of November. "I wanted to see how demand goes before I release the peak season over Christmas," Stelios says. "January will again be a different story."

An initial batch of rooms for 10 all went too quickly, so the price was raised to 20-45. Meanwhile, the risk that the hotel could become a hot spot for brief amorous liaisons is lessened by the fact that it accepts only advance internet bookings. Long-term residence is also discouraged. The maximum length of stay is 10 consecutive nights. EasyHotel is aimed at short-stay budget tourists or business people who only need somewhere to sleep. Checkout is at 10am.

Right locations Julian Kemp, a managing consultant at PKF, believes EasyHotel is an attractive franchising proposition - but only in the right major city-centre locations and if the conversion costs are kept under control. He adds: "In provincial cities it'll be difficult, because ancillary 24-hour services aren't there. It might work on motorways - something the French do very well with their Etap and Formule 1 chains."

Kemp sees EasyHotel's market largely confined to travellers and believes the corporate market requires the additional services, such as internet access, that budget chains like Express by Holiday Inn and Travel Inn provide.

Even Stelios doesn't see EasyHotels becoming a dominant presence in the hotel industry. However, he says: "There is always room for different classes of hotels and different price points. But I think we're filling a very nice gap between the unbranded B&B, which is unpredictable because you don't know what you're getting, and the cheapest of the branded chains, which sell at about twice what we're asking."

Stelios and hospitality

Stelios Haji-Ioannou, the son of a Greek shipping tycoon, enrolled in the London School of Economics at the age of 17. By the time he was 28, he had launched EasyJet with the benefits of £5m of his father's money and Europe's newly liberalised aviation market.

Since EasyJet's launch in 1995, Stelios has continued to create new business ventures, 15 at the last count, ranging from watches and credit cards to male grooming products. Like EasyHotel, two more fall into the hospitality sector.

EasyPizza has not progressed beyond a pilot in Milton Keynes since last year, having failed to catch the imagination of franchisees.

The picture is brighter for EasyCruise. Stelios invested £15m in an 86-cabin cruise ship which started sailing around the Mediterranean from St Tropez to Portfolio this summer. EasyCruise has succeeded in attracting a younger crowd to cruising, with an average passenger age of 33.

Passengers can board and diembark where and when they choose (with a minimum of two nights on board) and the ship stays in port every night, so passengers can enjoy riviera nightlife.

The ship will move to the Caribbean for winter and is taking bookings from November.

EasyHotel - at a glance

  • EasyGroup bought a 20-bedroom B&B in Kensington, London, for £2m in March 2004.
  • The property was converted to a 34-room EasyHotel at a total cost of £680,000, or £20,0000 per room, and opened on 1 August 2005.
  • The cost per night is from £20 to £45. Only internet bookings are accepted.
  • Rooms range from small (80sq ft) to very small (70sq ft) and tiny (60sq ft). Only two have windows.
  • Only one member of four full-time staff is on duty at any one time.
  • To watach TV, guests buy a disposable remote control for £5 extra, usable for 24 hours.
  • A housekeeping visit to change bed linen and towels costs £10 extra.
  • All rooms have a shower, toilet, washbasin and soap, but no phone, shampoo, litter bin or storage.
  • Guest receive a sheet of paper with fire regulations and an emergency telephone number.
  • The hotel aims to achieve 90% occupancy and an average room rate of at least £35 in its first year.

Interested in the EasyHotel franchise? Go to http://mis.easygroup.co.uk/easyhotel/franchise.

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