Scoring Another Win Reviewed by Momizat on . Vimal Singh, MD-South Asia, Louvre Hotels Group, believes that the secret to a successful M&A lies in understanding the organisational culture of the two co Vimal Singh, MD-South Asia, Louvre Hotels Group, believes that the secret to a successful M&A lies in understanding the organisational culture of the two co Rating: 0
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Scoring Another Win

Vimal Singh, MD-South Asia, Louvre Hotels Group, believes that the secret to a successful M&A lies in understanding the organisational culture of the two companies and communicating it to the combined workforce regularly

By Vinita Bhatia

2017 began with one of the biggest news in the Indian hospitality industry; that the $1.6 billion Louvre Hotels Group – the second largest hotel group in Europe – had picked a majority stake in Sarovar Hotels & Resorts. Interestingly, Louvre itself was acquired by Shanghai-based Jin Jiang International Holdings in 2015.
Now, not many know that Louvre had a small presence in India because of its joint venture with Golden Tulip Hotels, which has around 27 properties in the country. The addition of Sarovar Hotels & Resorts in its kitty will help Louvre make great inroads into the Indian market.
But will this change of management have any bearing on the way the brand operates at ground level? We ask this and other pertinent questions to Vimal Singh MD-South Asia of Louvre Hotels Group during a free-wheeling chat.

Jin Jiang acquired Louvre, Louvre had a JV with Golden Tulip, Louvre acquired Sarovar – how have all these changes at the corporate level reflected at the operational level?
I don’t think these changes that happen at the board level have much impact at ground level. In fact, there is some improvement at that level because they get better backend support being a part of a bigger platform. With these mergers and acquisitions (M&A), we have a huge network of loyal customers built into our system who can be channelled into our individual hotels, while others hotel chains are grappling with higher cost of customer acquisition. So, it is not actually disruption at the ground level, but an improvement for hotel owners. Today, it doesn’t make any difference to hotel owners whether they deal with Louvre Hotels, Sarovar or Golden Tulip, because their agreement remains the same. However, they get a bigger pipeline of customers to target, so their hotel’s numbers will improve. Having gone through these changes over the past decade, we have learnt significantly from them. In 2009, Louvre acquired Golden Tulip and in 2015 Louvre was acquired, but the management remained unchanged. This continuity of management in Paris, and later in India ensured that the business was unaffected; in fact, it flourished.

Since you have a stronger pipeline, how are you consolidating operations?
We have a stronger pipeline to deliver the listed hotels and a better backend system that we can rely on. As a company we are willing to put capital into improving these systems further to improve the delivery mechanism. For an owner, the only thing that matters is more people in his hotel as it means better bottom line. So, this is a positive move from a consumer or an owner’s point of view.

More than 30% of India’s hotel business is unorganised. Do you see an increasing consolidation taking place through M&As by international companies?
If we look at a global, not just an Indian perspective, the growth in our industry has happened through acquisitions and consolidations. A medium player will become a larger one by acquiring another. So whether it is AccorHotels or Marriott, they grew through different acquisitions at different times. The same thing will happen in India, though maybe not on the scale one sees globally, because we don’t have that the kind or number of hotel rooms for them to acquire. I believe these global players are waiting for the scale to build in India, when there are a couple of hotel chains with around 200 properties each.
Doing an acquisition of a chain with a handful of hotels is difficult and time consuming. You might see some small deals happening. But a brand with four or five hotels cannot be considered a chain. Even we will not look at it as a deal unless they have at least 20 to 25 hotels.

But currently we don’t have any such hotel chains.
Exactly. Except a couple, like The Lemon Tree Hotel Company, there are hardly any players. The bigger ones like the ITC Hotels or Taj Hotels Palaces Resorts Safaris are unwilling to be acquired yet. Then there are the independent owners, who own a hotel in Kanpur or a property in Baroda. One can provide them a franchise or marketing programme giving them another channel to work with, like OYO Rooms has done.
Does that mean there is no opportunity for players like you?
There might be some opportunity for companies like us to tap into the unorganised segment. However, some of these smaller hotels cannot be converted to our standards, some might not come into our brand for cost reasons while for some the cost-to-conversion would be too high. But there might be a way to include them into our global distribution systems, without losing their independent identity, though I don’t think we would go in as a brand. It will be difficult for us to start converting the unorganised sector in our country as it comprises smaller hotels with 20 to 40 rooms, and making those numbers work is very difficult for us.
So, these will continued to be owned by individual owners. Maybe we can provide them with bandwidth for marketing, which could be the opportunity.

You mean the way the room aggregators have done it?

Yes, they have basically tapped into the unorganised sector, which was completely ignored. Brands like ours are ultimately uninterested in taking over a 20-room property, as the cost of acquisition and management is high.

But do you think these hotel or room aggregators are making headway in terms of business profitability?
We come from the old school where you learn to walk before you could run. These aggregators went from birth to running without going through entire learning curve. Business maturity comes in this curve. You cannot take a child and put him in college tomorrow; you have to let them go through school and make mistakes while learning the basics of education.
The same logic applies to these hotel and room aggregators; of the many out there, only a couple might remain because they can come up with the resources to manage the business. We toyed with the room aggregator idea looking at the large unorganised sector and how we can create a business model around it. But right now, we are more keen on finishing the Sarovar acquisition process and figuring our backend synergies with Sarovar in the region.

In M&As, some overlapping properties or brands are often whittled away to avoid confusion in the customer’s mind and because they might cannibalise each other. Can we expect this with your company too?
Maybe in small cases you might see that. But besides brands, consumers also look at price points, qualitative service, location, etc, while deciding their stay. Let’s take the case of a Grand Hyatt or a Hyatt Place near a city airport. The customer might make his choice based on the price points of the two properties. So the company will actually start building more properties to acquire the customer without cannibalising on business.
It is a proven fact, that one good hotel will develop other hotels around it. India is a growing country and the maturity will soon come in the market where brands can co-exist and generate business for each other.
Most international hotel chains have robust loyalty program, which generates good business for them. Does Louvre have one?
We have a global loyalty program through the Jin Jiang Group that has close to 100 million members. We are now looking at sharing it across our wider customer base. Currently, its distribution is more in the Asia Pacific areas of China, Korea and Vietnam. We are starting to acquire customers in India by signing them into our loyalty program.
Right now, we have close to 10 hotels and we have some hotels in the pipeline under the Golden Tulip brand. We have close to 2000 hotel rooms in India and we will probably add another 910 more.

What are the various sub-categories under Golden Tulip and Louvre brands?

We have primarily three branches in Golden Tulip –Royal Tulip, which is our luxury brand. Golden Tulip which is at four star and Tulip Inn, which is a three-star product. In Louvre Hotels there are Campanile, which is a three-star brand, Kyriad and then there is Première Classe, which is a budget brand. Kyriad is like heavy in F&B operations.
We are looking at bringing Campanile and Première Classe to India. We may introduce two hotels in Campanile just now and have been waiting for the right opportunity to build scale in that brand. After all, it is difficult to position one brand somewhere with just one hotel. As you rightly said, how does one support it and get the customer to the hotel. It is better to have seven or eight hotels under the brand instead.

What is unique about Campanile?

While Golden Tulip properties are conversion brands, Campanile is especially built according to brand design specifications. Everything about it is designed specifically from ground-up.

So it’s a proper greenfield project?

Mostly. It could also be a partially built brownfield asset. However, with Campanile it is difficult to find hotels where owners could have already done some work and are then willing to alter it. So we give them Golden Tulip instead. But, we’ve had some opportunities with Campanile where owners are willing to look at it in from the inception and figure out the interiors.

Aren’t greenfield projects tougher to acquire than brownfield ones?
If I was talking about acquisitions from an investment point of view, brownfield is easier and less risky as compared to greenfield. But brownfield assets sometimes may not be available, so you have to buy the property and go through the development cycle to built it. That makes greenfield better from an acquisition point of view.
In most of our deals for existing hotels where somebody has built 50% to 80% of it, we don’t take that risk as a franchise or management company; the risk is with the owner or developer. They buy the land, get the approvals, deal with all the issues, develop it, etc.

What is the target audience for this brand?
We are looking at a mid-market to economy. When one says economy, guests think it will be a INR 1500 guest house. I want to tell them that for a little higher price, they’ll get a good experience; it will feel like a three-star hotel, but actually it’s a two-star product.
The room sizes might be smaller but the public areas will be great. That is because we want guests to spend more time there than in their rooms. This is something that appeals to millennials and young travellers anyway. They are the target customers for Campanile.

You have just defined a guest who would visit a CitizenM hotel, for instance, which emphasises on design and also uses space smartly and to its advantage.
Yes, CitizenM has carved a niche for itself by creating a stylised product where guests have to serve themselves literally. They have vibrant public spaces and community halls.

But some reputed brands in India did try the self-serving modus operandi a while ago and it did not work out.
That is because till a few years ago, the Indian client was very different and they were used to being served by someone traditionally and being spoiled for chances. It will take them time to adapt to change where they sit for meals at a community table with strangers, or at a buffet they pick up their tray and go to the cashier to pay their bill. From the owner’s perspective, this is profitable and younger travellers are willing to adopt to this lifestyle easily.

And Campanile will appeal to these travellers?
Well, the Campanile is a full-service hotel that will have some of these elements. It will have stylised rooms, good quality F&B, fun public areas, but no meeting rooms, banquet halls, pools or spas. Instead, it will have a exercise studio and gym with a nice little bar.

A lot of hotel chains are trying to take on OTAs. What is your take about this?

I think OTAs are here to stay. So whether we like it or not, we have to learn to work with them. They are our marketing partners, so we need to learn to work with them. Given that they offer a huge customer base, I’m not going to ignore it. And it is not possible today, given the information access available to customers.
Why do you think is Airbnb so successful? It is convenient and easy to access and viable. As a business we have to learn to evolve with this changing business dynamics that the younger generation is accepting.
Also, one reason OTAs have performed well is because their distribution is better, whereas we are still struggling with legacy systems dated to 60 years.
While Brand A will only give you options in its portfolio, MakeMyTrip will give you every choice, be it the guest house, homestay, hostel or hotel. A customer might go to Brand A’s site to book a hotel, but they will first go to a OTA’s site for cross comparison.

But hotels are unhappy with OTAs because the latter charge them almost 20% to 25% commission. How can the two forge a successful, symbiotic relationship?
Well, granted that the commission is high, but the cost of customer acquisition is high too. If 10% to 15% of additional business is coming from OTAs, then paying 20% to 25% commission is acceptable, because you would not have gotten that business anyway!
So when we do our P&L statement that commission is already netted out – it is another cost like we pay to travel agents. As a hotel owner, if someone came to me and said I will give you 200 room nights every month in my hotel, I will buy him a cup of coffee and then negotiate the rate. OTAs do the same thing. They want to get the best deal for themselves, and they don’t care if you are making INR 200 or INR 1000 or INR 10,000 – they want to make that 20% or 25%. So we have to just accept this status quo and work with them.

But do you think hoteliers are willing to accept this?
They have to understand it ultimately. Also, hoteliers have to realise that they are the ones who hold and drive the rates, not the OTAs. Most are unwilling to raise rates as they are afraid they may lose some occupancy, so they hold the rate. I believe we should open the door to OTAs, accept them, work with them on rates, terms and business strategies for mutual benefit. They will also learn from us that this relation is two-way highway rather than a one-way street. And we can learn from them too, because they have great marketing ideas. So I look at them as a channel than a competitor, because their delivery mechanism is better than mine.

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