Conversions have been the key focus for growth in the hotel sector during the pandemic, as development slowed, restricting pipelines. The sector has seen conversions from independent hotels as well as branded sites, with efforts from some operators to be as cost-effective as possible.
The budget sector has seen the biggest drive to conversions, with Choice Hotels International and Wyndham both reporting growth in the area. At Choice, in the year to the end of September last year the company awarded over 230 new domestic franchise agreements, nearly 70% of which were for conversion hotels. In the third quarter it executed over 80 domestic agreements, of which nearly three quarters were for conversions. Historically the group looked to conversions for 25% of its pipeline.
At Wyndham, conversion signings were up 30% domestically and 60% internationally sequentially in the third quarter, with CEO Geoff Ballotti commenting: “It’s going to be a ways away until it’s going to peak or plateau and whether that’s going to happen in the fourth quarter of this year or the first and second quarter is up for anybody’s guess.”
Accor has seen growth in conversions, which now account for 43% of its opening pipeline over the next five years. Camil Yazbeck, SVP, head of development - Europe, Accor, told us: “Going forward, Accor will also be actively reaching out to independent hoteliers around the world where we see the opportunity to develop partnerships that encourage the growth, sustainability and improved operations of both parties.
“As Covid-19 continues to impact markets globally, the global hospitality sector will be affected in 2021 and likely for a few years to come. Amid these conditions, Accor has received strong and growing interest from independent hoteliers and a variety of owners, who want access to Accor’s strong platform at a low investment cost to achieve a better ROI.
“Some examples of recent conversion deals include Mondrian Shoreditch London (rebranded from The Curtain Hotel & Members Club), Berd’s Chisinau MGallery Hotel, 10 Travelodge hotels across the UK to rebrand under ibis Budget (AGO deal) and Carton House, a Fairmont Managed Hotel.”
Looking to the global concentration of conversions, Yazbeck added: “Europe is a particularly strong region for conversion growth. Six of 10 hotels across Europe are unbranded, presenting many great opportunities for Accor as market leader in the region to forge mutually beneficial arrangements with independent hoteliers and third party operators. The key is to ensure these arrangements support the growth, sustainability and improved operations of both parties.
“Pre-Covid-19, Accor was already experiencing growing interest in our portfolio of conversion brands. Covid-19 has definitely accelerated this activity. While the associated economic and business impacts of the pandemic are still being understood, it is likely the hospitality sector will be impacted for several years. Hoteliers are acting quickly to lessen this impact, converting their hotels to these Accor brands with simplicity and cost efficiencies. Accor’s Development and Design & Technical teams are mobilised globally to meet this demand and expertly convert hotels fast.
Yazbeck said that the company was experiencing conversion interest from both already branded and independent hotels; mainly influenced by each market’s landscape.
He said: “Demand from already branded hotels is prominent where the existing brand is smaller and local, therefore not benefitting from the global scale and brand awareness of Accor. However, we are also seeing this with more recognisable brands, for example the rebranding of 10 UK Travelodge properties as ibis Budget brand in early 2021.
“Independent hotels are of course prime for conversion, particularly in Europe where 61% of the market remains unbranded. Countries such as Russia comprise mostly independent hotels and while they may have been hesitant to join a global hospitality group in the past, Covid-19 has highlighted the benefits Accor can bring in providing support and driving revenue.”
Wariness over conversion costs remained an issue for owners. At Magnuson Hotels, CEO Tom Magnuson told us: “We are the only global brand which doesn’t require PIPs, just a minimum review score of 3.2 to 3.5.” He added: “Right now with lockdown, many owners have furloughed staff, don’t have marketing help, and don’t have the time or the capability or the expertise to go out there and rebuild their distribution, to get all the logs on the fire for the big match. We would be the people to choose to help - because hotel owners don’t have to pay us to get the fire started.”
The group waives all conversion fees, including start-up fees and technology outlays.
Magnuson said that the brands had only becoming stronger during the pandemic, commenting: “This is an interesting time to look at independents who are considering whether they want to be branded or with a really strong affiliation platform.”
Looking at the events surrounding the Travelodge estate in the UK over the summer, Magnuson said: “One of the key aspects we look at in the local marketplace is the proper positioning of the hotel.
“UK hotel owners are experienced and they continually renovate. Where we’re very successful is looking at hotels which are incorrectly positioned as economy hotels when they should be midscale hotels. In a stabilised environment the best the hotel can do is a high occupancy, low-rate strategy, which burns out the property and has high labour costs.
“What we generally do is convert branded properties from an upper-economy brand to a midscale product, earning another £15 of average rate.”
The sector has seen the launch of news brands aimed at conversions. At Radisson Hotel Group, the company has launched Radisson Individuals, giving independent hotels and small chains access to the group’s platform.
Federico J. González, CEO, Radisson Hotel Group said: “Joining Radisson Individuals is an ideal first step for individual hotels with strong service scores who wish to remain independent or may be considering transitioning to one of our successful core brands in the future. The new brand is also a strong proposition for local and regional hotel brands seeking to explore additional distribution channels and co-branding options.”
Accor too has been looking to a new brand. Yazbeck said: “Accor is seeing a particularly strong uptick in conversion interest from independent midscale hotels. As midscale is the most crowded of market segments, it is important Accor demonstrates a high degree of flexibility to attract these hoteliers. In response to this demand, we have imminent plans to expand our conversion brand portfolio in the midscale segment and offer an unprecedented level of flexibility to owners. Stay tuned!”
Insight: The flight to brands is something common to a downturn, but many of the operators commented that, in the early stages of the pandemic, that they were not seeing quite the shift that they had expected. Which was a great shame for their pipelines.
As stress has increased, the numbers have started to tick upwards and, as we have seen at Accor and Radisson, it’s been worth getting the brand designers out of bed for.
But a brand is not just a matter of distribution. As Yazbeck said: “It is also worth noting that in 2020 we experienced an uptick in signings where owners changed brand close to construction completion or took on a brand for valuation purposes.” Much as the guest seeks the reassurance of a brand, so too does the lender.