In the footsteps of a legend - Accor Asia Pacific's expansion plans in China by Steve Shellum

MANY years ago, Accor co-founder Paul Dubrule travelled the length and breadth of China and saw first hand what, quite frankly, most international hotel companies rarely see.

Shortly after being appointed MD of Accor's Asian operations earlier this year, I also visited our properties in China, but I had the benefit of flying - unlike Dubrule who, all those years ago, encountered the enormous population at ground level.

It made a massive impact on him and he saw the same potential that he had identified when Accor first began business in 1967. The company was responsible for revolutionising the French domestic market, and Dubrule identified the same potential in China.

Robert F. Kennedy said in a speech back in 1966 that, "Like it or not, we live in interesting times." He could have been talking about the travel industry today because the 1960s - despite the Vietnam and Cold wars - were, in comparison, remarkably placid.

Of course, travel wasn't easy in those days - there were no jumbo jets, getting visas to travel anywhere was difficult, and prices were out of the reach of all but a few travellers.

In contrast, travel today has become far more accessible, but with it has come extreme volatility. Our industry has always been cyclical, but in the past decade the cycles have become shorter and sharper.
No longer is there a "crisis of the decade" but, really, a whole series of crises that have economic, political and, more recently, medical origins.

I fear that this ever-increasing uncertainty is set to continue. Just when you think that a destination settles down, something else happens, and travellers from countries such as Japan and America are tending to take far longer to return to traditional patterns and, in some cases, just stop travelling at all.

In Asia, we recognise that there are vast national and regional differences within the continent, but following the SARS crisis, the Bali bombings and, just a few weeks ago, the Manila military crisis, less-experienced travellers put the whole of Asia in the same basket.

It is depressing, but a reality, and I must say that this struck home to me only too vividly when I was appointed MD for Asia Pacific just as Iraq and SARS were breaking.

I inherited some hotels that had been predicting occupancy rates of 80%-plus but, in the end, had to settle for single-digit returns until just recently. We are still a long way from recovering fully and there is always a fear that the fragile situation could be broken at any time.

Despite the interesting times, or perhaps because of them, we have announced our largest ever expansion of hotels in China, as well as the introduction of our economy hotel brands to China and Korea as part of an Asia-wide focus on building hotel networks for domestic and regional markets. This is the first time an international hotel company has targeted the domestic sector with such brands.

I realise that people get tired of all the announcements that talk about 20, 30 or 50 hotels in the pipeline. They generally turn out not to be in the pipeline, but in a pipedream.

I have to say we have been guilty of that as well, so when we announced nine new hotel openings, these are actual hotels that will open by the end of next year. Nine isn't 90, but it is still very significant, and indicative of the value we place on the future of the Chinese hotel sector and market.

We will be launching five Sofitels and two Novotels around the country in the next 16 months, including Sofitels in Hangzhou, Anshan, Shijiazhuang, Chengdu and Shengyan and Novotels in Beijing and Nanjing. Then there is the introduction of our economy brand Ibis in Tianjin and Chengdu.

The latest expansion will increase Accor's network to 31 hotels in China by the end of 2004 under the Sofitel, Novotel, Zenith, Century and Ibis brands. The new hotels will build on recent high-profile openings including the Sofitel Boao on Hainan Island in April and the Sofitel Jin Jiang Oriental Pudong in Shanghai in late 2002.

Our overall aim is to have a balanced portfolio of hotels ranging from first-class to economy and, while our expansion in China has taken some time, I am pleased that it is now based on very firm foundations.
We have learned from our past experiences, and that is why we are broadening our hotel base in Asia with the launch of the Ibis and Formule 1 brands. The dangers of relying almost solely on a network of 5-star hotels and a largely international clientele were brought home only too clearly by Iraq and SARS.
But such a policy also ignores the most obvious change to travel and tourism in recent years - and that's the increasing significance of domestic markets.

That's why he is personally backing the development of our Ibis economy brand in China. The first Ibis will be located in Tianjin, followed by Chengdu in Q3 2004, with a third that will be finalised in the next few months.

In Seoul, we will open the first Ibis in South Korea in October and I don't think you can get a better location in the heart of the city. Normally, new hotels - let alone new brands - take a considerable time to establish themselves in the marketplace, but out experience with Ibis is that it makes an impact very quickly and, once sampled, tends to win extraordinary levels of repeat and referred business.

This first wave of Ibis hotels are all prime properties, and we believe they will provide the template for a rapid expansion of the brand in Asia.
Ibis was first launched in France in 1974 after Accor's founders had already revolutionised the business market with the introduction of the business-class Novotel brand. With Ibis, they identified a large gap in the market that they knew they could fill.

The only hotels in France at the economy level had poor facilities, were small, unbranded and totally inconsistent. So, to be successful, they knew they had to offer a high-quality, standardised product that could also be delivered at a rate 30% below the competition.

Well, clearly their formula worked because today there are more than 600 Ibis hotels worldwide and it is now set to have a similar impact on the economy-hotel sector in Asia.

As with the introduction of Ibis in France, its competition in Asia is similarly mixed and inconsistent. There are no internationally branded 3-star brands operating in the market and, while there are some good individual domestic 3-star hotels, these cannot command the branding, the network support, the internet and reservations distribution systems and the expertise.

That's why I am so confident about the future of the sector. As I mentioned before, the launch of our economy brands recognises the changes in the travel market in Asia.

The rapidly growing number of travellers in China and Korea aren't suddenly going to start staying in 5-star hotels, just as they won't start flying first class. In fact, there is a good parallel in the growth of one-class, no-frills airlines in Asia and the emergence of the economy-hotel sector.

This has certainly been the case in Asia. The arrival of Air Asia in Malaysia and the increased competition is bringing airline prices down and creating a whole new market of regional travellers who, perhaps, would not have travelled if the fares weren't so attractive.

This group is internet-savvy and, if they are travelling to see an event, meet family or friends, have a short-break holiday or building up their own business, then they will be looking for budget, but quality, accommodation.

Even traditional users of upscale hotels are changing their travel patterns. I saw a survey result recently from the US National Business Travel Association which indicated that our out of five corporate-travel managers had increased their use of mid-market hotels at the expense of top-end hotels.

I believe that trend is gathering momentum the world over, and Accor is the best placed hotel group to take advantage of the changing travel patterns.

Ibis doesn't take long to establish itself. In Australia, for instance, it took only five years to become the best performing brand in the country. In July, our 10 hotels in Australia averaged close to 85% occupancy, and even during SARS and Iraq they were averaging in the high 70s.

This highlights another key aspect of the group's decision to introduce Ibis. Our clientele may be loyal to one particular Accor brand but, as their purchasing power increases or if they need a hotel for a different purpose, then there is an Accor brand to move on to and they maintain the benefits of loyalty programmes, booking ease and the Accor umbrella.

The Ibis customers in China and Korea may eventually move on to Novotel or Sofitel. Even more importantly, when they start to travel overseas, they will know the Accor brands and have the confidence to book them.

China is ranked as the second largest outbound market in Asia after Japan, according to recently released statistics. Outbound travel from China is poised to reach 6.32 million during the last six months of 2003, an 18% increase from the same period last year. If that number increases at the same rate over the next decade, you don't have to be Einstein to see the potential.

Thailand, Japan and Korea are the favourite destinations for Chinese travellers in Asia, while Germany, France and the UK were top European long-haul holiday choices. Australia is also growing in popularity.
These countries, not coincidentally, are where Accor is one of the largest hotel operators, so the expansion of our brands into China, Japan, Korea and the rest of Asia will benefit us both domestically and in the rest of the global network.

To further emphasise our domestic focus, we are the first international hotel group in China to launch a Chinese-language booking engine dedicated solely to China's massive domestic travel market. This is complemented by a Chinese-language booking engine on the main accorhotels.com/asia web site, allowing Chinese to book our hotels across Asia in their own language.

You may think this is a bold claim but, if you look at the sites of global hotel groups operating in China, they may have some information on the hotels in Chinese but when it comes to booking the hotels, it is all in English or, perhaps, Japanese.

It is, I believe, a very important move because it shows that we are building infrastructure in China for a very substantial expansion.

So many companies in so many industries have thought they could just enter China and then exploit the vast domestic population without really building their base. That's why so many groups have had to learn from hard experience in China.

Early promise sometimes evaporated because we didn't understand the market or didn't have the right partners, but that has now changed. Our new contracts involve partnerships with a range of very well established public and private enterprises and follows our partnerships in the past few years with Beijing Tourism Group and Jin Jiang International Management Corporation.

Our agreement with Jin Jiang involves not just the management of the Sofitel in Shanghai, but also the establishment of a new sales and distribution network, Accor - Jin Jiang Hotel Distribution, which targets key national and provincial domestic corporate accounts around China.

The JV has seen the set up of sales offices in Shanghai, Beijing and Guangzhou to sell the 53 Accor and Jin Jiang hotels in China.

This reflects our desire for a far more comprehensive understanding of local markets and involvement in all aspects of the travel industry. Accor is involved in a full galaxy of tourism services around the world - travel agencies, restaurants, catering, casinos, convention-centre management and even charter cruises, so the move into other areas of the travel sector in Asia is a natural progression.

While I have only been managing our Asian hotel network for less than half a year, what stands out most is the vibrancy. Look how quickly Asia has picked up after SARS - much quicker than America after Iraq, and that conflict never actually touched America's shores.

But I feel the secret of succeeding in Asia is taking the time to build infrastructure. So many companies are seduced by the vast population sizes, but they are not prepared to invest the time and resources building up their bases. Not surprisingly, therefore, there are usually some nasty and unexpected surprises that tend to destroy the initial optimism.

I feel Accor has done the hard work. I also believe we have the vision to take the business further. We are always innovating, always introducing new products and ideas.
And we have to thank the vision and dedication of Paul Dubrule and his colleagues all those years ago for setting us on the right road to success.

Logos, product and company names mentioned are the property of their respective owners.

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