On the fast track: Accor Hotels' growth comes on the back of bottom-up push

Fourteen years after it opened its first hotel in the country, Europe’s largest hotel company, Paris-based Accor Group is on track to open its 10,000th room in India in 2020. The group that operates as many as 38 different global brands that include Ibis, Novotel, Sofitel, Fairmont and Raffles has ramped up in India through a combined strategy of “densification” and going “bottom-up” with its brands, top executives say. That means the company has built its footprint here by kicking off entry-level and mid-market brands first that include Novotel and Ibis. 

While other chains have used a similar strategy, Accor ramped up faster than most in recent times and according to one analyst is among the top five chains in the country by volume (the number of rooms on offer). Presently, other big bulge hotel companies in the country include Marriott International (25,000 keys) , IHCL (23,000 keys), the Hyatt Hotel Group (8,000 keys) and the Ramada Hotel Group (11,000 keys).

One former hotelier who declined to be named said “in terms of expansion and growth Accor is amongst the more aggressive players in Asia, given its pace of setting up hotels and signing on operators”.

Lokesh Sabharwal, vice-president, development and special projects, South Asia, Accor says that in a recent shift in strategy it has started to focus on growing its luxury offerings in cities that draw high-spending tourism and large corporate activity. “The company’s Fairmont and Raffles hotels in Udaipur, Mumbai and Jaipur will all be luxury hotels with 600-plus rooms for the Mumbai hotel and reflect the best the group has to offer.” That’s not to say that the company will go slow on the expansion of other brands such as Ibis and Novotel. “Those will be taken up as the market shows the need for them and we find the appropriate partners,” he says.

From a revenue perspective, it makes sense because “the Ibis customer will grow to be a Novotel customer who will hopefully be a Fairmont Raffles Hotel customer”, Sabharwal says.

Specifically, the “densification” approach involves having multiple properties in one city and using the same approach for the top business cities. For example, when the French hospitality company kicked off in India in around 2006 with its first hotel, it chose the Hyderabad Convention Centre to locate Novotel. That was quickly followed by a Novotel near the Hyderabad airport in 2008, and then consequently a Mercure hotel and an Ibis hotel in 2016. In Mumbai, the group opened a Novotel in Juhu Beach in 2009, followed by an Ibis near the airport in 2010, another Ibis in 2012 in Navi Mumbai, and a Sofitel at the Bandra-Kurla Complex the same year. 

The group currently has four more hotels in development that will be ready by 2023 taking its total count to eight for Mumbai. In contrast, the ITC Hotels group has two properties, the Oberoi Group three, IHCL has six and the Marriott International, which started in India in the late 1980s, has 10 hotels post-merger with Starwood, in the city. Down south, Accor has seven hotels in Chennai and five in Bengaluru including a Grand Mercure, a Novotol, and three Ibis hotels. Among other cities, Accor has three hotels in Kolkata and two in Jaipur where three others are under development. 

Spurring the growth is an early joint venture that Accor forged with Interglobe Enterprises, the parent company of aviation carrier Indigo Airlines, in 2008, and has since launched 17 Ibis hotels together.

There’s also a management advantage to running multiple hotels in the same region that's exemplified in south India where an area general manager for Accor oversees five properties there.

Is the cluster approach unusual? Most large groups follow a similar arc but Accor's acquisitions of luxury brands Swissotel, Raffles and Fairmont means those flags are likely to follow next, putting its range and rate of potential growth on the fast track.

Accor has stuck to the fundamentals while expanding — real estate, economic activity, and the top demographic markets that include Mumbai, Delhi NCR, and Bengaluru, Hyderabad, Pune, Kolkata, Chennai, Jaipur, and Goa — but what it has done is pick winning zip codes early on. For example, its Sofitel hotel at the Bandra-Kurla Complex where the only other five star flies an Oberoi Trident flag. 

A recent report by Hotelivate indicates that India’s travel and tourism GDP was at $247 billion in 2018, growing at 6.7 per cent over the previous year, with growth driven by domestic spending which constitutes 87 per cent of the direct travel and tourism GDP — a trend fuelled by improved regional connectivity, rising spending power of the middle-income population, the proliferation of low-cost carriers and the weakening of the Indian rupee that makes domestic holidays more viable than international ones. 

The biggest challenge that Accor will have to contend with in India as it follows its growth trajectory is unlike markets such as Thailand or Vietnam where the contribution from leisure occupancies are big, India is predominantly driven by corporate spending, which stands at 80 per cent of the total.