Accor and Banyan Tree Hotel Partnership Could Be a Very Tricky Maneuver

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We are featuring regular reports several times per week from Beijing, Singapore, and Cape Town, and look for us to add other cities soon. Gateway Singapore, for example, signifies that the reporter is writing from that city although her coverage of the business of travel will meander to other locales in the region. Read about the series here, and check out all the stories in the series here.

Does Banyan Tree’s deal with AccorHotels equate to losing your religion, or gaining new followers? Is it a loss of innocence? It depends on whom you ask.

Some see Banyan Tree Holdings’ decision to sell a small stake to AccorHotels as a desperate move by a boutique brand to expand in today’s competitive environment. Others believe the partnership can be transformative if the execution can follow through.

In an interview, Banyan Tree executive chairman Ho Kwon Ping gave us his perspective on the deal [see below].

Whatever the outcome, one thing is certain: Other Asian hotel groups pondering what route to take are watching the deal as they get squeezed by a consolidated industry, online travel agencies, and alternative accommodations.

Unlike the hotel sector in the U.S. or Europe, which have lots of institutional investors, most hotel owners in the region are individuals or family businesses, many passing the baton to the next generation. Banyan Tree is a classic example.

In 23 years, Banyan Tree has built itself up as a niche resort brand with 45 hotels in operation. With another 25 hotels under development, it is not as small as it used to be, or as big as it should be to justify a whole structure that can support global expansion. Last year, it was forced to examine legacy costs, processes and structures, an exercise which saw the most senior people being let go.

Trying to Ease the Squeeze

Its recently announced collaboration with Accor is another step to ease the squeeze.

The deal will enable Banyan Tree to grow a lot faster than before by hinging on Accor’s development and operational infrastructure worldwide, said Banyan Tree executive chairman Ho Kwon Ping.

According to Ho, under the alliance, AccorHotels will manage the daily operations of the co-developed Banyan Tree hotels that it has sourced, 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.

AccorHotels will decide on the choice of general manager in consultation with Banyan Tree. General managers in this alliance will report to Accor operationally, but to Banyan Tree on matters pertaining to brand standards.

“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,” said Ho.

“If brand management is our future, this arrangement would allow me to focus on sharpening, innovating and differentiating the brand experience. After all, the only reason Accor wants to tie up with us is not because of our size but because of our brand and the distinctive experience,” he added.

Banyan Tree will continue to pursue new, solely managed hotels but the idea is, a co-developed and solely Banyan Tree managed hotel will be indistinguishable.

Can this work?

The overall sentiment of several general managers is disbelief. Combine the operational experience of a French global chain with the service culture of an independent Asian group?

Can the partnership manage the property owner, Accor and Banyan Tree and keep all parties happy?

One hotelier said he would not want to be the general manager of a co-developed Banyan Tree.

Others said it can work, but much depends on how the giant looks upon its smaller partner.

Robert Williams, a partner at law firm Withers Worldwide, said, “We know that there is always culture shock and implementation challenge that comes with marrying a smaller business built by a dominant individual entrepreneur with a vastly larger corporate organization. This deal does not involve that level of integration, but the division of responsibilities instinctively looks like it will be tough to manage: Accor on operations, Banyan Tree on brand experience. That will require some careful stewardship.

“But I have no doubt Accor will move quickly and bring new ‘co-developed’ Banyan Tree hotels to market – they are not doing these deals for headlines. Their execution is what is distinguishing them right now.

“Accor is the most dynamic global player at the moment. Its deal activity is that of a fund-of-funds or venture capital player. And I am sure there is more to come from them here.”

Robert Hecker, managing director, Pacific Asia Horwath HTL, said, “The description of the arrangement indicates a much stronger involvement of the brand in the property executions than would normally be associated with a franchise arrangement, particularly the part about GMs [general managers] having two reporting lines, so I have doubts about how sustainable that level of brand involvement can be without difficulties/friction arising. But it’s not beyond the realm of possibility for it to be pulled off if Accor effectively adopts and treats Banyan Tree as one of its own and into its culture, drawing respectfully upon Banyan Tree’s brand guidance.”

Is this a model for other Asian hotel companies to grow? Said Hecker, “I suppose it will depend on the success of this example, but ultimately, if brands are created with a strong enough identity and following, I don’t see why they can’t expand on their own and at their own pace, or partner on a more integrated basis with others to do so.”

Challenges facing smaller brands

The journey is getting tougher though. Just ask Mark Edleson, president, Alila Hotels and Resorts.

“It is increasingly difficult to survive as a relatively small, independent boutique brand creating dreams but short on cashflow in today’s competitive environment,” he said.

“We, at Alila Hotels & Resorts, have experienced similar difficulties with the slow growth that resulted from our focus on small, crafted resorts that provide exceptional experiences to our guests in unique destinations. We required growth in revenues to be able to continually upgrade our people and systems to meet the demands of owners and the market.”

Thus, Alila’s alliance with another small independent group, U.S.-based Commune Hotels & Resorts, although larger than Alila, represented strength in a geographic region it didn’t exist in but had market synergies with. But within two years, Commune felt that, together with Alila, it still lacked the critical scale to survive in today’s environment, hence its merger last year with Destination Hotels, a slightly larger company. The new merged entity, Two Roads Hospitality, has nearly 100 hotels under management in North America and Asia.

“With several brands to work with we expect to be able to grow faster and share best practices and cost efficiencies among our brands. We hope this strategy will allow us to maintain the brand identities and strengths and benefit from scale,” said Edleson.

He added, “It is somewhat a loss of innocence, so to speak, for a leading boutique brand such as Banyan Tree to create an alliance with an industry giant like Accor. I am sure it is the end of a dream for KP [Kwon Ping] but certainly understandable.”

Suphajee Suthumpun, group CEO of Dusit International in Thailand, said “nothing should be ruled out” when asked for her views on the best way forward for Asian hotel groups in a fast-changing industry.

“Dusit Hotels and Resorts is still a relatively small player and we are looking at all alternatives in collaborations/partnerships to ensure that we can sustain and continue to grow in the future.

“Size does matter as it relates to customer loyalty programs. Small- to medium-sized companies will not be able to organically grow their own customer base fast enough to level the playing field. To join an alliance or a company with a much larger customer base is probably the fastest and most efficient way to reach out to much larger customer audience resulting in more direct bookings.

“Many big brands are constantly looking at how they can further leverage their huge customer database, infrastructure [technology and operational structures] and financial capability to deliver a higher return on equity. There are many opportunities and the traditional business model of owning and managing hotels will certainly change in the very near future.”

But another Thai homegrown chain, Minor Hotel Group, believes it can go on its own.

Minor Hotel Group CEO Dillip Rajakarier said, “Our view on this is different as we’ve strong brand presence and equity, also the infrastructure and logistics to support the drive and growth of our business which is under our control and not out sourced to another operator.”