Accor’s new CEO redefines approach to growth

Hôtel Carlton Lyon

The entrance of the Hôtel Carlton Lyon, France, part of the MGallery Collection. MGallery hotels are known for their boutique, upscale qualities.

The entrance of the Hôtel Carlton Lyon, France, part of the MGallery Collection. MGallery hotels are known for their boutique, upscale qualities.

 

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National Report – Sébastien Bazin is a Frenchman through and through. A graduate of Paris-Sorbonne University, he also once served as a firefighter in Paris. Now, as CEO of France’s Accor, a position he took over in August, he is looking to put out a different kind of fire. 

Accor is making some big changes in its present strategy—and Bazin is leading the charge. Going forward, Accor will be split into two distinct businesses: one focusing on operating the group’s 14 global hotel brands; the other focusing on hotel ownership and investment.

Prior to Bazin—who previously was Europe head of private-equity group Colony Capital, one of Accor’s biggest shareholders—Accor’s CEO Denis Hennequin embraced an asset-light approach, a strategy that many other hotel operators subscribe to, which puts a focus on developing management contracts and selling off owned real estate.

For Accor going forward, this will not be the approach, totally. Which makes sense: Bazin made a career staked on buying and selling real estate.

The Sofitel Paris Arc de Triomphe is part of Accor’s Sofitel Luxury Hotels.

The Sofitel Paris Arc de Triomphe is part of Accor’s Sofitel Luxury Hotels. 

 

Bazin said under the former system, the group didn’t create enough value. “Sorry to disappoint you, that’s behind us. If we had sold our assets, this would have hampered our growth,” Bazin told analysts in November. “Success is our only option. This is a transformative development that cannot be done in six months. I am impatient but I have to control my own impatience.”

The strategy is not a total surprise; mainly since the announcement comes as the hotel industry eases into a period of better operating fundamentals marked by a spike in demand, rates and occupancy—and property values. 

“When operating fundamentals are improving—as they are now—owning hotels will boost a company’s profits; in a downturn, the opposite is true,” said Sean Hennessey, CEO of New York-based Lodging Advisors. “During the recent global financial crisis, asset-light was the motto of most hoteliers. But now hotel companies are amenable to owning assets, especially where it will help facilitate corporate growth strategies.”

The Novotel Warszawa Centrum has a favorable spot in the heart of the Poland’s capital city.

The Novotel Warszawa Centrum has a favorable spot in the heart of the Poland’s capital city.

 

Part of the disconnect is this: owning assets is completely separate from running them—and shareholders can get confused over what the core business is. “Despite the appealing financial benefits of hotel ownership, many analysts consider it a materially different business than hotel operations,” Hennessey added. “It appears that Accor is attuned to this sentiment; it will own assets, but structure its company in a way that will optimize focus on the distinct tasks of ownership and management.”

Here are the two Accor poles moving forward. HotelInvest—focusing on ownership and investment—will reportedly stop selling hotels the group owns, unless they are underperforming. The other pole—HotelServices—will operate the group’s 3,600 hotels under a fee-based system. Bazin said there were no plans to dispose of any of the group’s existing hotel brands.

Bazin did not provide any specific targets under his plan, but said those set under a three-year revamp initiated a year ago by Hennequin were no longer valid. “We are banking on returns well above the previous plan,” he said.

The Novotel Monte Carlo has 218 rooms and is close to the Place du Casino and the Grimaldi Forum.

The Novotel Monte Carlo has 218 rooms and is close to the Place du Casino and the Grimaldi Forum.

 

The peculiarity of Bazin’s plan is that it appears to fly directly in the face of what Accor’s board (which he was on) wanted and why it let previous CEO Hennequin go last April: he did not unload the company’s real estate holdings in order to focus on hotel management.

In fact, Bazin’s announcement was met with an icy response by investors, as the hotel company’s stock price dipped subsequently. (It’s held steadily since at around 32 euros.)

Analysts were also skeptical. Societe Generale analyst Sabrina Blanc said investors “may be disappointed because they expected a new cost-cutting plan and an acceleration of the group’s transformation.”

The ibis Orly Aéroport has 300 rooms and is near Paris.

The ibis Orly Aéroport has 300 rooms and is near Paris.

 

Bazin confirmed Accor’s target to achieve an operating profit of between 510 million euros and 530 million euros in 2013, compared with 526 million euros last year. 

Bazin’s revamp also involves the creation of a new executive committee of 10 members, including five regional heads of operations.

Accor has hotels in 92 countries, with brands including Sofitel, Pullman, Novotel, Mercure and Formule 1.

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