Chapter VI From a hotel owner/operator culture to a service provider culture Accor Hospitality: The New Business Model The Right Approach The Right Brands The Right Network The Right Operating Performance The Right Asset Management Policy The Right Service Provider Culture 1 Eight Centers of Expertise to Deliver the Best Value-Added Services to Hotel Owners Gilles Pélisson Director & CEO 8 Centers of Expertise to Deliver the Best Value-Added Services Boost Revenues Optimize Costs Portals & Brand Websites Portals & Brand Websites Efficient Support Services Human Resources & Training Human Resources & Training Management & Finance Management & Finance Technological support Technological support Expansion Expansion Purchasing Purchasing Marketing & Sales Marketing & Sales Construction & maintenance Construction & maintenance 3 Boost Revenues Better visibility and easier booking via accorhotels.com or Better visibility and easier booking via accorhotels.com or brand sites to serve 90 million visitors of Accor websites brand sites to serve 90 million visitors of Accor websites every year every year Portals & Brand Websites Portals & Brand Websites Property management systems Property management systems - Global booking and distribution systems for easier access - Global booking and distribution systems for easier access to information and customers to information and customers - Technological support Technological support Optimization of revenue management, loyalty programs, Optimization of revenue management, loyalty programs, sponsorship agreements & partnerships sponsorship agreements & partnerships - Brands promotion locally and around the world - Brands promotion locally and around the world - Distribution policy - Distribution policy - Marketing & Sales Marketing & Sales - - 4 Optimize Costs Management & Finance Management & Finance - Management of operations - Management of operations - Asset management policy - Asset management policy - Purchasing Purchasing - - - - - 200 buyers & 2,800 approved suppliers 200 buyers & 2,800 approved suppliers worldwide worldwide Purchasing procedures & highPurchasing procedures & highperformance tools to optimize food, performance tools to optimize food, equipment and service costs equipment and service costs Global sourcing Global sourcing 5 Efficient Support Services Local management, Respect for diversity, Local management, Respect for diversity, Recognition Recognition Training (14 Academies) Training (14 Academies) Job mobility Job mobility Human Resources & Training Human Resources & Training Market trends analysis Market trends analysis - Acquisitions/disposals to ensure Accor’s - Acquisitions/disposals to ensure Accor’s development with the support of local partners development with the support of local partners - Expansion Expansion - Capacity to manage several hundred projects a Capacity to manage several hundred projects a year for construction, renovation and year for construction, renovation and maintenance while monitoring environmental maintenance while monitoring environmental impact impact Construction & maintenance Construction & maintenance 6 An organization adapted to a new service provider culture Julien Mulliez Managing Director All Seasons France The first Accor brand, designed for franchisees … from the start ! The 2* Hotel Market in France More than 10,000 are 2* hotels 20,000 hotels in France ¾ of 2* hotels are independently run 9 Integrated 2* Chains VS 2* Independents INTEGRATED CHAINS Expanding network Shrinking numbers + 0.5% more hotels in 2006 2.2% fewer hotels in 2006 Higher performance Lower performance 2* chains are doing well = RevPAR rose by 3.6% in 2006 Integrated chains have higher occupancy rates than independent hotels = 10 to 15% more Room rates are also higher = 20 to 22% on average INDEPENDENTS 10 A Market to Capture … 2* Independents (over 40 rooms) 2* Affiliated members (over 40 rooms) 841 hotels 231 hotels More than 1,000 hotels To boost and professionalize the economy market To meet real customer demand 46% of customers prefer non-standardized (up 4 points on 2001) 11 All Seasons… For Hotel-Owners : Potential Franchisees • A new non-standardized economy brand, supported by Accor… • Additional revenue through an efficient distribution system • A brand to beat competition • An expanding international network • A brand image • Established franchisor expertise • … for an affordable cost, with a low launch investment cost, as part of a fast growing network… • … while keeping their independence. A win-win partnership 12 A Win-Win Partnership: ENTRY FEE Entry package Premium expertise All Seasons Development Team Technical inspection by outside experts to advise on adapting safety standards Expertise Operations Team, Innovation & Design, and F&B expert per room EntryCost fees Cost per room First 10 hotels Free 11 to 50th hotel €750 51 to 101th hotel €950 Beyond €1,100 Marketing & Distribution Access to the distribution networks through TARS Marketing and support for hotel openings IT Solutions Supply of 2 PC Light connected to Accortel Implementation of TARS Online A la carte solution for PMS Training Hotel manager orientation program Regional training for the entire team TARS training at the hotel Simulation for a 65-room hotel First 10 hotels Free 11 to 50th hotel €49k 51 to 101th hotel €62k Beyond €72k 13 A Win-Win Partnership: ANNUAL FEES = Around 6.5% Annual fees total revenue Access to essential franchise components Brand and concept upgrades, access to expertise, promotion, marketing, distribution network Network size Specific Accor services IT solutions, procurement platforms, recruitment support, Accor Academy training courses, quality training & control Additional services Free access to legal expertise intranet Free use of the Accor intranet environment Free access to the e-procurement website + Contribution calculated according to the business brought in by Accor networks Franchise fees Mkt fees Additional fees Bed & Breakfast revenue Bed & Breakfast revenue Other revenue < 51 hotels 3% < 101 hotels 3.5% Beyond 4% + 1% 1% 1% + 1% 1% 1% Res’ & Rev’ Contribution 5% of revenue brought in by ACCOR 14 Developing the French Network Year Major Focus 2007 Accor franchisees • To be fair with existing partners (and allow them to grow their assets in our industry) • To quickly set up a network, with owners that already know Accor’s methods • To facilitate All Seasons’ integration “on the ground” 2008-09-10 Accor franchisees Hotel-owners franchised with the competition Independent hoteliers + Financial partners, Corporate portfolio … 15 An Ambitious 2010 Development Plan 2010 target for France = 120 hotels + 2008 pipeline + Strasbourg Initial results: 9 pioneers will open before the end of 2007 (700 bedrooms) 29 projects already in discussion for 2008 (2,200 bedrooms) 10,000 rooms planned in Europe for 2010 16 With All Seasons, Accor experts focused on becoming a “service provider” to hotel-owners Training at the Accor Academy Web Development networks Procurement Operations (incl. Other Brands) Global Marketing Sales & Distribution Innovation & Design THE ALL SEASONS TEAM AND ... Technical Legal IT Quality HR Franchise experts Finance Tax 17 Now ready for international development Hotel Management Agreements in the Asia Pacific Region David Baffsky COO Accor Asia Pacific 19 Competitive Context of Hotel Management Agreements in Asia Pacific Asia Pacific- World’s fastest growing hotel market with over 1,500 hotels and 366,000 hotel rooms under development* China and India have the highest share of this pipeline with approx 60% and 13% respectively of the rooms under development Robust growth coupled with high levels of liquidity (both for Equity and Debt) across most major markets in the region creating good growth opportunities in hotels development Keen competition from hotel groups both (regional and international) for Hotel Management Agreements (HMA’s) HMA’s are the main platform of growth for most major Hotel Groups and expected to account for the majority of new openings for Accor in the Asia Pacific region between 2007-2010 * Lodging Econometrics report 10 Oct 2007 20 Leading hotel groups in the Asia Pacific Region ASIA Asia Rank 1 2 3 4 5 Operator IHG Starwood Accor Marriott International Shangri-La Rooms 41,935 41,774 34,085 28,667 22,430 Hotels 131 124 138 80 48 AUSTRALIA & NEW ZEALAND Australia & New Zeland Combined Asia Pacific Rank 1 2 3 4 5 Operator Accor Stella Hospitality Group IHG Toga Hospitality Mirvac Hotels & Resorts Rooms 21,266 12,758 9,714 5,096 4,920 Hotels 156 123 41 40 35 COMBINED ASIA PACIFIC Rank 1 2 3 Operator Accor IHG Starwood Rooms 55,351 51,649 45,242 Hotels 294 172 135 Competitor information based on Survey done by Jones Lang Lasalle as at 31 Dec 2006 & publicly available information 21 Total Pipeline - Accor in Asia Pacific (as at 30 Sep 2007) Accor Asia Pacific - Total Pipeline at 30th September 2007 Region Hotels Under Hotels Opened Hotels Negotiation Year to Date Committed Hotels Rooms Hotels Rooms Hotels Rooms North Asia 15 4,324 63 15,183 62 15,826 South Asia 0 0 21 4,333 27 4,335 South East Asia 7 1,017 37 8,109 43 9,089 Total Asia 22 5,341 121 27,625 132 29,250 Australia, New Zealand & South Pacific 17 1,767 19 2,097 18 1,928 Total 39 7,108 140 29,722 150 31,178 22 Pipeline for Hotel Management Agreements - Accor in Asia Pacific (as at 30 Sep 2007) Accor Asia Pacific - Management and Franchise Pipeline at 30th September 2007 Region Hotels Hotels Opened Hotels Under Committed Year to Date Negotiation Hotels Rooms Hotels Rooms Hotels Rooms North Asia 12 3,706 22 6,381 29 8,959 South Asia 0 0 20 4,173 21 3,835 South East Asia 7 1,017 37 8,109 43 9,089 Total Asia 19 4,723 79 18,663 93 21,883 Australia, New Zealand & South Pacific 17 1,767 19 2,097 18 1,928 Total 36 6,490 98 20,760 111 23,811 Includes minority investments in select projects 23 Typical Fees charged under a Hotel Management Agreement Type of Charge Services Provided Typical Charge Type of Charge Services Provided Typical Charge Base Management Fee Incentive Management Fee -Branding -Participation in global loyalty progremmes -Managemt of all Hotel operations -Asset mangement including all repairs and maintenance -Finance and Administrative functions -Human Resources Management 2.0-2.5% of Gross Revenue 7-10% of Gross Operating Profit Reservations Fee Technical Services Fee -Global reservation services through call centres, websites and Airline distributions systems (GDS) -Design Development -Architectural planning -Interior design support -Product development -Quality control 12% of First room night charge + GDS fee of US$4.50 where applicable US$150,000-250,000 per hotel 24 Central Sales and Marketing Contribution -Sales representation by Accor corporate sales offices -Representation in trade shows -Participations in regional brand marketing campaigns 1% of Gross Revenue Simulation of Fees received under a Management Agreement Brand Country No of rooms Occupany % Average Room Rate Gross Revenue (including F&B) Gross Operating Profit (GOP) Gross Operating Profit (GOP) % Scenario 1 Novotel India 250 75% $ Scenario 2 Sofitel China 300 75% 165 $ 192 14 679 844 22 110 577 7 046 325 8 844 231 48% 40% Accor Income Base Fee (2% of Gross Rev) Incentive Fee (8% of GOP) Total Management Fee Total Fee as % of Gross Rev 293 597 563 706 857 303 6% 442 212 707 538 1 149 750 5% S&M Contribution Reservation Fee* Total Other Income 146 798 217 526 364 324 221 106 264 063 485 169 1 221 627 1 634 919 250 000 300 000 Total Annual Income Technical Fee** Notes: All nos in USD *assumes 20% contribution of total room nights by Accor Central Reservations **one off payment typically for new build hotels 25 Key Financial Statistics for the Management Business in Asia ACCOR ASIA excluded Owned Hotels 2002 A Nb of Managed Hotels Nb of rooms available Managed Hotels Turnover 2005 A 79 18,206 98 22,652 2007 A+F 134 33,522 2010 F 230 60,424 388 874 000 544 186 200 981 495 811 2 372 858 579 Total Fees Income 18 257 000 29 241 506 52 373 520 114 499 773 Total HQ Expenses -11 936 992 -17 269 241 -27 250 291 -52 192 092 Net Income Net Income as % of Fee Income 6 320 008 35% 26 11 972 265 41% 25 123 229 48% 62 307 681 54% Key points of differentiation for Accor in a competitive landscape A decentralised and multi branded approach to management of the business. Focused on ground representation both in Operations, Distribution and Development in all key countries - Asia Pacific HQ- Singapore - Major offices- Shanghai, New Delhi, Bangkok, Jakarta & Sydney - Regional offices- Beijing, Ho Chi Minh, Seoul, Tokyo, Auckland A focus on building teams with local staff as much as possible to enable long term and stable relationships with local partners, governments and communities Strong focus on performance and alignment of interest between Owner and Operator through creative compensation structures for Operator based on performance of the asset 27 Key points of differentiation for Accor in a competitive landscape (contd.) Simple and Transparent Fee structures - no hidden costs (key issue for Hotel Owners) An extensive portfolio of brands from Budget to Luxury hotels. A ‘one stop shop’ for Hotel Owners. Also provides the ability to create substantial relationships with key partners across several types of assets and across different countries Human Resources - ability to place pool of skilled management professionals (both local and expatriates) in each hotel. The right Hotel General Manager is fundamental to the success of a hotel 28 Key points of differentiation for Accor in a competitive landscape (contd.) Skilled development Hotel Development Team of 30 professionals spread across the Asia Pacific region well versed in negotiating and structuring of HMA’s (Development representation in Shanghai, Beijing, New Delhi, Mumbai, Bangkok, Tokyo, Seoul, Ho Chi Minh, Singapore & Sydney) Extensive Technical Services team in major to provide on ground support to the development team working with Hotel Owner to design and develop hotels Accor’s extensive experience in hotel development both in Europe and Asia is a key point of difference securing HMA’s (ability to relate and appreciate and resolve issues faced by Owners/Developers in projects) Staff Training - key issue in a highly competitive environment to create a point of difference in the product. Development of Academie Accor in China, India, Thailand and Australia 29 Motel 6 / Studio 6 Franchising Olivier Poirot President and CEO of Accor North America and CEO of Motel 6 and Studio 6 30 Limited Service Brands in the US OR % 68 ● 66 64 915 H 43 46 49 335 H 62 259 ● 52 60 58 56 ● 55 327 H 58 61 50 ● 67 70 73 ● ● 54 52 64 ● 1900 H ● 599 H 1701 H 392 H 48 816 H ● 46 369 H 44 31 ADR $ Royalty Fees and Marketing Fees Structure 9,0% Marketing Fee 8,0% 3,0% 7,0% 3,0% 3,5% 3,8% 4,0% 3,5% 6,0% 5,0% 4,0% 3,0% 4,5% 4,0% 2,0% 5,5% 5,0% 5,0% 4,5% 1,0% Tr *Information from Brand’s 2007 UFOC 32 Da ys In n r8 pe Su av e lo dg ns l In ote i cr M Ec on o Lo Mo dg te es l6 e 0,0% Royalty Fee Franchise Revenue Growth 2006 2010 # Properties 210 468 Revenue from franchised hotels (in $m) 154 373 Franchise Fees (in $m) 11.6 28.0 Royalties 7.0 18 Marketing 4.6 10 2.9 9 Of which PBT (in $m) 33 Target 2010: Franchise Expansion: 414 Motel 6 & 54 Studio 6 Motel 6 = 56/ # of rooms = 4,201 Canada Studio 6 = 9/ # of Rooms = 819 Motel 6 = 52/ # of rooms = 3,770 Motel 6 = 35/ # of Rooms = 2800 Studio 6 = 11/ #of Rooms = 1,000 Motel 6 = 35/ # of rooms = 2,704 Studio 6 = 3/ # of Rooms = 273 WA ND MT M N OR ID MI WY PA NE NV IA IN WV VA CO KS NJ OH IL CA NH MA RI CT NY WI SD UT ME VT KY KY MO DE MD NC TN OK AZ SC AR NM MS AL Motel 6 = 34/ # of rooms = 2,628 GA Studio 6 = 5/ #of Rooms = 455 LA Motel 6 = 50/ # of rooms = 3,689 TX Studio 6 = 8/ # of Rooms = 728 FL Motel 6= 75/ # of Rooms = 5,679 Studio 6 = 7/ # of Rooms = 637 Motel 6 = 77/ # of rooms = 5,687 Studio 6 = 11/ # of Rooms = 1,001 34 Keys to Our Success Strong Brand Owner/Operator American AmericanIcon Icon Clear Clearbrand brandstandards standards Size Sizeof ofNetwork Network New NewPrototype Prototype Simple Simpleto toOperate Operate ‘Franchisor of the Year’ 2002 & 2004 Annual AnnualConvention Convention Fair FairFranchising Franchisinginitiatives initiatives Franchisee FranchiseeSurveys Surveys Operational Operational&& Quality QualityAudits Audits 35 Our Franchising Advantage Pinnacle Program Diversity Unique in the industry Academy M6 core courses Unique in the industry Dedicated Developpers 8 Developpers Reaching out Hospitality Publications Trade Shows Internet Advertising Referrals ! 36 Our Brand draws applications 37