A structure of collaboration between Banyan Tree Holdings and AccorHotels is being formed following their deal, signed in December, to “co-develop” Banyan Tree brands – Banyan Tree, Angsana, Cassia and Dhawa – in new locations around the world.
If successful, the model may be a way for mid-sized hotel groups to remain independent amid the global hotel consolidation, expand globally without seeing their margins eroded by the high overhead costs that expansion necessitates, and focus on brand differentiation rather than on the operational concerns which are common to all hotels everywhere.
Accor is investing an initial €16 million (US$17 million) for a 5% stake in Banyan Tree with an option to purchase an additional 5% share.
Under the alliance, Accor will manage the daily operations of the co-developed Banyan Tree hotels sourced by Accor while Banyan Tree will manage all brand-related issues. Banyan Tree will ensure the hotels comply with the brand assurance protocols – from the conceptualization of the hotel and working with consultants on interior design and restaurant concepts, to ensuring that operating practices are in line with standards, said Banyan Tree Executive Chairman Ho Kwon Ping in an interview on how the deal works.
Accor will decide on the choice of GM in consultation with Banyan Tree. GMs in this alliance will report to Accor operationally but to Banyan Tree on matters pertaining to brand standards.
When asked how he would ensure a GM who isn’t reporting to him ‘live and breathe’ the brand, Ho said: “All senior executives will have to go through Banyan Tree training programs, all the GMs will attend our annual GM conference and be treated as ‘one of ours,’ so they have the same outlook, orientation and brand values. We have to make more regular visits than a franchise to audit the hotel and ensure it fits a close level of brand compliance.”
The co-developed hotels will operate in parallel with Banyan Tree’s current 45-plus existing and 25 new hotels under development, and Banyan Tree will continue to pursue new, solely-managed hotels. To the customer, however, a co-developed and solely Banyan Tree managed hotel will be indistinguishable.
Ho said this is a real effort on the part of Banyan Tree and Accor to forge transformative alliances in the wake of global hotel consolidation.
With their M&As, the big companies are likely to collapse some of the brands that overlap and integrate their back office operations to gain economies of scale, Ho figured. They will shift to be more of a brand management company than the traditional hotel company, in the same way that the global FMCG (fast moving consumer goods) companies are all about brand management.
A global hotel group in city “A” might have a single entity doing housekeeping, laundry and security for all its numerous hotels under numerous brands (Marriott has 30), while GMs become brand managers, essentially focused on making their brands more differentiated unlike before, when they were in charge of their everything – their own housekeeping, F&B, laundry, security, personnel, etc.
“With consolidation having largely occurred, how then do global players acquire differentiated brands like Banyan Tree? They can’t simply buy over family owned companies as most of us aren’t ready to sell, or are happily chugging along with 50, 60 hotels over time,” Ho continued. “Therefore strategic alliances with small companies like ours is another trend, and it could become a transformational change in the relationship between the mega-players and the smaller players.”
“On our side, recognizing that the industry is moving more toward brand management, we do not need the old model where each hotel manages 100% of its operations,” ho added. “The move toward outsourcing these operations – even F&B – has already been underway in many high-cost locations. Our model of co-development is taking this one step further, for one partner to focus on operations and the other to focus on brand experience and development. We will manage the brand standards, product and service innovations, which comprises the brand experience. In media lexicon, we will be the content provider.
“There will be cost synergies. On our own, we would never be able to be cost-effective if we go to say, Nigeria. Even opening a hotel in Mexico took a lot of work for us. But if Accor has 20 to 30 (or more) hotels in Nigeria, even if it is of different brands, they can really do the active management on a daily basis because they have the whole infrastructure to support those hotels in Nigeria,” Ho said.
Aside from infrastructure and distribution, Ho pointed out that Banyan Tree is also better off tying up with a global company because it has more clout in talking to owners about maintaining brand standards or worse, to owners who don’t pay.
“The problem with brand standards and compliance is not going to be with Accor – they are a totally professional company, there is no motivation on the part of an Accor entity or a GM in Nigeria operating a Banyan Tree to say, ‘I’m not going to do this or that.’ Actually the problem all along has been with the owners. Often, you have an owner who does not want to spend on the capex they need to and if the brand starts going down, the only remedy is to remove the brand. So, having Accor deal with owners is probably more effective than us dealing with them.”
When asked if Accor would first be pushing its brands to owners, Ho said, “Accor has 250 business development people around the world. When they meet owners, they look at what the owner wants and recognize what brand is ideal for that vision – they are not obliged to put our brands first. But we do occupy a space in their brand architecture which can be attractive to owners in various circumstances, such as luxury resorts.”
As for development targets, Ho said he has none, except that growth will be a lot faster than in the past. “If brand management is our future, this arrangement would allow me to focus on sharpening, innovating and differentiating the brand experience,” he said. “After all, the only reason Accor wants to tie up with us is not because of our size but because our brand and the experience is distinctive.”
Ho said these alliances (the other is the recently announced JV with China Vanke Co.) combine the platforms and infrastructure to roll out brands, initiate new brands and focus on what it has historically been best at, which is brand management, retaining the independence of a relatively small company compared with the giants, and yet be able to work with giants.
With Vanke, which is a strong mixed-use developer in China’s secondary cities, Ho sees the opportunity to manage the developer’s serviced apartments and business hotels in secondary cities under the Cassia and Dhawa brands. Another opportunity is in conceptualizing/managing projects that cater to active agers, a growing segment in China.
“Vanke has hundreds of condo projects. But with changing demographics in China, there is a need for projects that can cater for active agers,” said Ho, adding that this might be an entirely new brand. “These are not nursing homes, but condo units that are separately designed to fit this clientele, which have activities and services that cater for them such as a wellness retreat with some TCM (Traditional Chinese Medicine) aspects or a gym that’s more suited to older people.”
Will Ho seal more alliances? “Never say never but with these two major deals, one in China, the other in the rest of the world, we’ll be preoccupied for quite a while,” he said. “We’re happy that in the space of two months, we have two deals that cover the world, which to us will transform Banyan Tree in the future.”