In March 2007, the French Government’s announcement of an agreement to construct a Louvre museum in Abu Dhabi was met with widespread consternation. Thousands of France’s leading academics signed a petition in direct opposition to the deal and its $1.3 billion value only served to sharpen criticism, with art historian Didier Rykner accusing the museum of being akin to “a corporation with a clearly defined strategy: profit maximisation”.
Roll the clock back a further two years and another cash-rich foreign player had arrived in Paris with its eyes set firmly on obtaining the iconic brand name. Profit maximisation and international expansion were certainly at the forefront of everyone’s mind that time as well, but the 2005 acquisition of Louvre Hôtels by US private equity firm Starwood Capital Group (SCG) failed to stir up much nationalistic fervour among the masses.
Things remained quiet for a while, but, following SCG’s acquisition of the Golden Tulip Hospitality Group in 2009, April of last year saw the creation of the Louvre Hotels Group. Suddenly the industry was talking about the world’s eighth-largest hotel chain – it is second only to Accor in Europe – and a commitment to growth beyond France’s borders that was already posting impressive figures.
In 2011, the group opened 62 properties, 34 of which were outside its home market, a 55% increase on the previous year. Plans for 2012 are even more dramatic: 52 hotels outside France and 76 in total.
“We’ve certainly witnessed an increase in workload,” chuckles chief development officer Matthieu Evrard with admirable understatement. “The rebranding was really about transforming perceptions of the group from being European-rooted into something a lot more international. The idea of being a ‘group’ is hugely important; we’re now a major player and people need to see that.”
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By GlobalDataGrowth strategy
Evrard has witnessed this transformation firsthand. He joined the company in 2007 and, as international development director, played a key role in the acquisition and integration of Golden Tulip two years later. The Dutch brand has driven international expansion thus far – all 34 international properties opened in 2011 carry its crest – but, unlike many of its competitors, the group continues to see France and other established European markets as significant engines for growth.
“It’s a two-pronged approach,” Evrard explains. “In Europe we are looking at conversion properties in the mid-range segment and budget hotels in markets that are under supplied. That’s not just in Eastern Europe, but also places like Germany, where we are committed toward expanding Première Classe.”
That commitment incorporates plans for 35 hotels in major German cities over the next four to five years. Evrard acknowledges that France is already well supplied in the budget sector, but sees plenty of opportunity in other areas.
“There is very little scope for increasing supply in terms of existing stock,” he begins, “but we are witnessing a growing number of non-branded hotels looking to secure their revenues and top lines. It is particularly important we cement and expand our footprint in Europe in order to progress our international ambitions. The strength of our brands, and their track record in the market, makes us a likely partner.”
Joint enterprise
Partnership is a subject Evrard returns to with particular zeal when we come to discuss the second prong of this development approach: fast-growing economies. The scale of ambition is impressive and encompasses everywhere from Latin America to North Africa and the Indian subcontinent.
While all six brands under the Louvre Hotels Group are being managed and developed centrally, the importance of having local partners in order to drive immediate growth is fully recognised. In South America, an exclusive relationship with Brazil Hospitality Group has seen Louvre move from sixth to third in the country’s hotel rankings in just three years. Earlier this year, a subsidiary of Poland’s largest financial institution, PKO Bank Polski, signed a strategic franchise partnership for the initial development of seven hotels. In February, the group opened its first Russian property and has three more under construction, all of which will be run by IFK Hotel Management.
“We are always looking at having a single partner for a single brand in a single territory and partnership can take a variety of forms,” the chief development officer explains. “In some cases we are looking at investment partnerships, at other times it can be master franchises or operating joint ventures. We have also entered into cross distribution partnerships.”
A prime example of the latter approach is a co-branding deal struck with China’s Jinjiang Inn that came into force in March of this year. A total of 15 Campanile properties across five French cities and the same number of Jinjiang Inn hotels in China now display both trade names at their entrances and are geared towards tapping into their partner’s guest demographic through reservation options on their respective websites and cultural tweaks to service. A decision on whether or not to extend the initiative will be taken in the next six months.
Asian expansion
While China remains prominent in the group’s thoughts, India is the Asian market upon which Evrard is particularly focused. The group launched nine of its ten current Indian properties in 2011 alone and has set itself the target of opening around a dozen new hotels annually over the next five years.
“China and India offer a similar level of potential,” says Evrard, “but the way in which decisions are made is quite different. In China, nothing moves until the top guy announces his judgment and then thousands of people are propelled in that direction. A number of international players have already entered that market, opening hundreds of budget hotels a year, and we have arrived pretty late to the party.
“In India there are a lot more people involved, everyone debates. That can be frustrating, things sometimes take longer to get done, but scope for expansion is huge – it will surpass China in terms of GDP growth over the next few years – and our competitors are yet to fully dominate.”
Initially, the group is pushing ahead with establishing Golden Tulip in the country’s main business hubs. As in all international territories the commitment is to develop one brand at a time, but Evrard sees plenty of room for branching out over the longer term.
“We are targeting both foreign and Indian travellers,” he explains. “There are five domestic low-cost airlines opening new routes every month, domestic tourism is growing in double digits. Once we have reached a critical mass with Golden Tulip, the budget brands, specifically Campanile, will not be too far behind.”
Development momentum
Driving this expansion across all geographies is a mixture of management contracts and franchise agreements, although one might expect the mix to tilt slightly more towards the former as Louvre Hotels Group increases its presence in emerging markets.
“It’s been pretty even up until now,” says Evrard. “But owners in these new geographies are more likely to be looking for full-service solutions because the requisite skill sets simply don’t exist in their territory and while franchise deals will continue in our established markets, you may see them becoming outnumbered. I expect the longer-term mix to be somewhere around 60:40.”
The longer-term is an interesting subject for a company so fixed on immediate, large-scale growth. With the workload at Evrard’s Paris HQ having already doubled, one is forced to wonder whether such expansion is sustainable.
“The mindset here is that of a start-up,” he believes. “We’re dynamic, employ a very quick decision process and demonstrate great flexibility on deals. We like partnerships and don’t mind sharing operations, profit or risk so long as it delivers development momentum – the focus is on getting things done. Not all our competitors can make that claim and we have a long way to go in terms of increasing room count before incorporating those hard, inflexible processes that allow little room for innovation.”
Clearly, what was once the most French of operators has developed serious international chops and is already well on its way to becoming a major global player. Such wholesale transformation may fail to stir the same levels of emotion, but the Louvre Hotels Group has certainly joined its cultural namesake as a French brand capable of making its countrymen proud.
