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Is it really possible for hotel companies to retain creativity or innovation the bigger they get?
That’s something the entire hotel industry seems to be asking itself these days, especially in the wake of a number of mergers and acquisitions — one of which was announced just this Monday when Hyatt broke news of its $480 million acquisition of Two Roads Hospitality.
Another deal that closed this week was the one between lifestyle hotel, nightclub, and restaurant company SBE Entertainment Group and French hospitality company AccorHotels on Tuesday. AccorHotels paid $319 million for a 50 percent stake in SBE, and SBE will continue to be run independently by founder and CEO Sam Nazarian. SBE’s brands include SLS, Delano, Mondrian, Umami Burger, Katsuya, and Hyde.
Skift spoke to Nazarian on the day the deal closed, and while he was very optimistic about the future of SBE’s new joint-venture with AccorHotels, he also expressed some concerns about the hospitality industry overall.
Nazarian, who founded SBE in 2002, said he worries that the industry, overall, is at risk of losing creativity and innovation with the increasing consolidation taking place.
“I think it’s very dangerous if we all become Wal-Mart,” he said of the hospitality industry.
“I think we are now, because of all this integration … we’re more focused on brand standards and operating procedures,” Nazarian said. “I call it the robotic nature of hospitality, versus an environment and culture where you’re really enjoying being in the hospitality business. It’s the basic fundamentals of hospitality.”
He lamented the departures and minimized roles of hotel founders such as Andre Balasz of the Standard Hotels, and Jason Pomeranc, who founded Thompson Hotels, and said that one of the reasons why he pursued a joint-venture with Accor, as opposed to an outright acquisition, was because he still wanted to remain involved in the company’s future growth.
And although he is wary of increasing consolidation in the industry, Nazarian said, “consolidation is the natural course of any industry,”adding, “we’re always looking to consolidate the space.”
SBE’s Future with AccorHotels
When it comes to retaining control of SBE and its future, Nazarian said, not surprisingly, the AccorHotels deal is a pivotal win-win for both companies, primarily because it’s a 50/50 split and a deal that came to fruition over a friendly conversation with AccorHotels CEO Sebastien Bazin back in March.
“A sale was never really on the table,” Nazarian said. “And I think Sebastien appreciated that as well, just because we’ve known each other for so long.” Both CEOs have known each other since Bazin’s days working for private investment firm, Colony Capital, which also previously invested in SBE in 2011.
Nazarian said he was particularly intrigued by AccorHotels’ desire to pursue an “augmented hospitality” strategy of investing not only in traditional hotel brands but in complementary hospitality businesses — a good match for a company like his which manages hotels, nightclubs, and restaurants.
When asked if he’s concerned by AccorHotels’ highly acquisitive nature, especially in brands that compete directly with his own — for instance, approximately one month after announcing its investment in SBE, AccorHotels announced it was buying luxury lifestyle chain 21c Museum Hotels — Nazarian said he isn’t at all.
“The opportunities with Accor specifically were that they really wanted to disrupt this category,” he said. “I think the smaller investments they’ve made in more European lifestyle brands that I know very well and very good friends with, like Mama Shelter or 25hours, those are very complementary to what we do.”
Nazarian said that having access to AccorHotels owners, its pipeline, its food and beverage sourcing and expertise, are all tremendous benefits as well. “The value that the Accor platform gives me, and gives us, and gives our properties is just overwhelming,” he said. He mentioned that he’s been approached by existing AccorHotels owners who are looking to open SBE-branded hotels and restaurants.
Likewise, the benefits of this deal will also trickle down to major benefits for SBE’s hotel owners.
“The milestones are the specific costs associated to driving reservations with the procurement that AccorHotels has so well established in the U.S. and in Europe,” Nazarian said. “Buying things cheaper, credit card processing fees, you name it — we’re going to integrate it and bring that value down to our owners.”
Owners who want to own lifestyle hotels shouldn’t have to choose between with working with a traditional, more established hotel brand or company or a smaller independent company; with Accor and SBE, they can have both, he noted.
The success of this deal, Nazarian said, will be best reflected in SBE’s global pipeline of new hotels and growth in new markets.
One major part of the integration of SBE into AccorHotels will deal with loyalty and Nazarian said “The goal for us is to integrate The Code [SBE’s loyalty program] 100 percent.”
The Code has approximately 3 million members in its program, while Le Club AccorHotels has approximately 45 million members.
Nazarian said he wasn’t yet sure if The Code would go away completely after being integrated with Le Club AccorHotels. “We don’t know if it’s going to go away, but we also have a very big following of loyalists,” he said, later adding, “I think that consumers are going to want to stay within the SBE family and have an option to tie into the global network of AccorHotels.”
The Ongoing Pursuit of Scale
In 2016, SBE bought the Morgans Hotel Group portfolio of 13 hotels for $82 million, and since then, he said the brand sand global reach afforded by this purchase have given SBE “an instant global network and scale.”
A reported acquisition of Hakkasan Group from March 2017 fell through, but that doesn’t mean Nazarian and his team won’t pursue more opportunities to grow by acquisition in the future.
And as SBE continues to look for more ways to consolidate, Nazarian said he’s still very focused on organic growth.
“For us, the number one focus has always been building out the pipeline organically,” he said. An innovation lab in Los Angeles, he noted, also helps the company create new restaurant brands.
“But at the end of the day, we need global scale,” he acknowledged. “If you don’t have global scale — and we’ve seen a lot of companies that are predecessors to ours — that once they didn’t get global scale, once they weren’t able to compete with the global brands around the world and show the consistency of the operation of the brand, and at the same time, the relevancy of it, a lot of these brands slowed down.”
Nazarian doesn’t see SBE slowing down anytime soon.
“We have to continue to innovate in the next scale, way up to the luxury sector,” he said. “We have to keep working or collaborating with partners, designers, chefs, operators. Technology is moving very fast — direct booking, the cost of booking, finding the best solutions for revenue management — all of those things are what I’m focused on.”
Nazarian said to expect more hotel, restaurant, and nightlife brands from SBE in the future as well, as well as investments in branded residences and serviced apartments. As the company’s brands grow in number, he also hopes that those brands gain in consumer awareness.
“I don’t know if SBE is going to be household name, but I know that brands like Mondrian, Delano, Umami Burger, and SLS are going to resonate in households that are important to us,” he said. “As we continue to grow, that’s really where our marketing dollars and equity awaits.”
Evolution in Hospitality
Nazarian said he’s paying close attention to how increasingly connected we as a society are becoming, thanks to technology, and its impact on how hospitality is evolving.
“The trend I’m looking at is connectivity because at any day you look at disrupters in any business, in any field we’ve seen for the last decade, whether it be Booking, or Amazon, or Uber, or Airbnb — these are all technology-driven structures,” he said. “And they’re giving people they can have the latest and best information at their fingertips. So how do we, as a company that focuses on exterior things, on access, on content, creativity, art, culinary — how do we work in that world at the same time?”
“To me, that’s really what the evolution is going to be,” he said, and that’s why companies like his and like AccorHotels, with their “augmented platforms” are primed to adapt and able to stay more relevant.
“The information flow of what people like is so fast, and we need to, as people focused on brick-and-mortar and being accountable, and share data with our owners to have the best information at the time when we’re designing and building these hotels, restaurants, nightclubs, and residences,” he said.