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Business News/ Companies / News/  'Need to prioritize, rethink Accor-InterGlobe partnership’

'Need to prioritize, rethink Accor-InterGlobe partnership’

Accor's group chairman and CEO Sébastien Bazin says India has a billion people in tertiary cities now and they don't need expensive hotels there. They need Ibis because it is affordable.

 Sébastien Bazin, Group chairman & CEO, Accor Hotels.Premium
Sébastien Bazin, Group chairman & CEO, Accor Hotels.

Bengaluru: A lack of sufficient time spent together and diverging priorities of partners may have led to the slow pace of development and muted performance of budget hotel brand Ibis, operated by InterGlobe Hotels, in India. 

InterGlobe Hotels, a joint venture between French hospitality major Accor and InterGlobe Enterprises (IGE), was formed in 2004 to establish a network of these hotels across India, Nepal, Sri Lanka, and Bangladesh. The idea was clear: to have a strong budget hotel brand that would ride a huge budget airline (IndiGo) traveller base. 

Both entities Accor Asia Pacific (AAPC) and IGE joined forces, investing 60:40 in real estate and 70:30 in operations. In doing this, Accor became one of the few international hotel companies to invest money into building hotels here. 

But today, while the company has built 21 operational hotels with about 3,800 rooms, it has an uphill task: to analyze why the relationship hasn't yielded as expected. 

Despite the setbacks, Accor's group chairman and CEO Sébastien Bazin told Mint in an interview that the company remains committed to scaling up its partnership in the future and learn from it for other partnerships. Edited Excerpts:

Twenty years in, do you think the partnership between your company and InterGlobe had the desired results?

Accor-InterGlobe is in a very interesting example of a relationship where we had the best partner we can dream of in India. Rahul Bhatia (InterGlobe's founder) has a vision and has created something unbelievably successful. The company is opening new airline hubs in 80 cities in India. He has also had the capital capability to execute this. But together, the both of us did not succeed. I will say it in my own words and I'm not blaming him, he probably blames me. We need to sit down and understand where is it that we've gone wrong. We have probably got to rethink our own partnership because we can do miracles together. 

The question for me is more about committing more time to them and vice versa. I feel we have the right horse but haven't gone as fast as we wanted to. We've done a master franchise in China for Ibis. That company got us from 20 hotels to 450 hotels in five years. If that same thing would be happening in India, I will take the risk with them and become a participant and share the gain and the risk. But that is not going to be a 50-hotel operation. It has to be 500.

Why not?

His priority was to develop IndiGo and that's okay. I was told by a lot of investors in India that hotels here really did not make much money until five years ago. So, in terms of a risk profile, investors were better off investing in other sectors like technology, software, healthcare, etc. So, he was right in having prioritized the airline which is successful now. People now understand that they can make 10-14% return on hotels and all of a sudden, the business model to them is now easier to grasp. So, maybe we probably haven't wasted any time. But now is the time for us to grow.

How will you reimagine a partnership like this or how will you learn from the mistakes of this one?

The biggest mistake we might have made is not spending enough time together. When you are creating an adventure, you need to be with your partner almost every month, because both of you have doubts and fears. We were both busy. It's probably our time now and was not the time 10 years ago and that's fine. Time is not wasted. This business will be scaled up further. India now has a billion people in tertiary cities. For God's sake, we need to investigate tertiary cities because this is exactly the place where they need Ibis because it is affordable. They don't need expensive hotels there. Within 200 tertiary cities in India, the difficulty is that business in each city is controlled by a few families and in each city, these families are not the same. That is cumbersome, even if it is fun to do. To tap into that, we need at least 200 people in our offices.

How is your India business looking like right now?

Today we have 11,000 rooms and 62 hotels, and we're going to add another 5,500 rooms and another 32 hotels. Is that good? Yes. Is that good enough? No. I have no single fear when it comes to India the next five years. We can predict fairly easily the growth of this country. What this country is lacking is hotel infrastructure. You're going to have more and more people going outside of India visiting the world. But there is a difficulty in executing projects and deploying capital here.

Consider the size of south of France. It is 5% of India but we have 2,000 hotels there. So, should I be satisfied with 100 hotels in India? No. We should have 5,000 hotels here. The problem is not demand, or the inability to predict it. The problem is execution and deployment. You have the economy, education, geography and heritage, but why does it take so long to convince an investor or to get an urban planner to make the road infrastructure? A hotel takes four to six years to open which is double the time of what it takes outside. So, I am eager to do better and faster, but I know I need first to understand the complexity of executing business in this country. The minute I understand it, we can grow much faster. But there is still a big learning curve for us and we are humbled with the size of your country. 

To make things even more complex, even within the same country you have different dialects, cultures and religions. Doing business in the south of India is completely different from that in the north. I want to be an actor because I hate being a spectator. To walk the talk, I probably need to commit to come back every quarter to India (to grow the business).

What about tapping into Indians that travel out of India?

India outbound will grow to 50 million people. There is no doubt in my mind that close to 100 million Indians will be leaving the country in the coming years. What I know when Asians leave their country to travel for their first trip, 80% of them stay within the same region. That's good for me because over the last 50 years, we have a leadership in Southeast Asia in locations like Malaysia, Indonesia, Korea, Australia etc. Africa, Middle East and Egypt are also full of our hotels. I am the lucky recipient of the Indian travelling market internationally. But in order for me to do a good job, I need my brands to be visible in India.

A lot of international hotel companies make very bullish claims about the number of hotels they want to have in India, but these pipelines often become just pipedreams. Your comments?

We give these numbers to motivate our people. Do I believe we can make 1,000 hotels here? Yes. Am I going to be wrong by 20 years? Probably. I'm very puzzled (with business in India). I met with the ITC Hotels CEO earlier. That company has 130 hotels here. I asked about the pace of development here and when he (Anil Chadha) gave me the number, I was not satisfied. Here’s an analogy: I go to China every trimester where three major groups have over 20,000 hotels there. Two of the players are government entities, yes, but the government there doesn’t interfere in the development. Is China as complex as India? Yes. China also has a lot of tertiary cities. They deployed money 20 years ahead of when they needed to. But India is 15 years behind China. 

I want people here to think big and not to just having 30 hotels because the demand is 3,000 times greater than that. The last thing you want is for arrogant French people to tell you what you should do in India but I'm just comparing countries and demand and the emerging middle class and I know it will happen, hopefully, sooner rather than later. India will need more hotels.

Is there not a big gap in the businesses of international operators in India and yours in terms of your presence?

Marriott is by far the global leader in hospitality in the world. I respect them in many ways. They have a great business model and have been ahead of the game because of their acquisition of Starwood in 2016 which had a long existence in India. They also have a strong loyalty and distribution system. But are they very much in advance of us? No. We have been too shy until five years ago. Hilton (which has not grown in India) on the other hand, knows which countries to avoid. They want cash-flow predictability and only want to go to places they master well. Complexity for them is the enemy and I understand that.

Unlike others, Accor did not pull out of Russia during the war. What was the reason for that?

The answer is yes. We stayed in Russia for one reason. As bad as it is, we never let our people down. We don't make any money in Russia, but being operational there means that there are salaries for the hotel employees. That event has nothing to do with them. We have switched off our global distribution system so nobody outside can book these hotels because I don't want to spend money to fuel the Russian war. But we’re still open and pay salaries.

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Varuni Khosla
Varuni serves as a Senior Assistant Editor at Mint. Her responsibilities encompass crafting compelling narratives that take a deep dive into hospitality companies, the business of art, luxury brands, the intricacies of the business of sports, advertising and marketing landscapes, gaming insights, tourism and travel industry trends. She also covers alcohol commerce. She is skilled at communication, meticulous research, and insightful analysis keeping contemporary shifts and advancements within the lifestyle and business domains at the heart of her work.
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Published: 07 Apr 2024, 02:57 PM IST
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