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Accor reorganization reverses asset strategy
November 27 2013

The Paris-based company will split into two units: one focusing on franchising and management and one to own and invest in hotel assets.

Highlights
  • The company will no longer expand through leases or sell existing hotels.
  • The HotelServices unit will operate approximately 3,600 hotels, including those owned by HotelInvest.
  • The goal is to increase contribution from hotel ownership to 75% of the company’s net operating income. 
 
 
PARIS—In an apparent reversal of its previous asset-light strategy, Accor on Wednesday announced a reorganization plan that splits the company into two business units: one that owns and invests in hotel assets and one that operates and franchises properties.
 
“The group has lost some of its innovation and its ability to adapt to change,” said Sebastien Bazin, chairman and CEO, during a webcast investors’ day presentation. “Our current structure requires separate skills sets to take the right directions, and the financial requirements are different for each.”
 
Since assuming the top job at the company three months ago, Bazin said he’s traveled the globe visiting Accor properties and talking to managers and employees.
 
“There are simply too many chefs in the kitchen at Accor,” he said. “We must restore empowerment to those on the ground and change our culture, our mindset and our organization.”
 
Shares in Accor, which had been steadily increasing throughout 2013 on the Paris Exchange, were down more than 7% after the announcement and were priced at €31.17 ($42.38) as of press time. 
 
After evaluating several alternatives, including the asset-light status quo and a plan for accelerated disposition of assets, the company decided to split into two units that officials said reemphasizes its core competencies: asset management and services to owners.
 
The HotelServices unit will be a pure fee-oriented operator and franchisor. It will operate 3,600 hotels comprising 460,000 rooms globally under 14 brands. The portfolio will consist of 46% of properties in the economy segment, 40% in the midscale segment and 14% in luxury or upscale.
 
A major focus of the group will be on customer relationship management, loyalty and digital marketing.
 
“We’ve seen a profound change in our customer expectations, and it’s a result of the digital revolution in our industry,” Bazin said. “Our customers have become increasingly international and diverse in their expectations, which are constantly changing.”
 
The strategy includes increased emphasis on driving revenue contributions from members of Accor’s loyalty program, as well as developing better partnerships with online travel agencies and other revenue growth partners.
 
HotelInvest will be Accor’s ownership and investment arm and will start with a portfolio of approximately 1,400 hotels, of which nearly 300 are fully owned by Accor. The remainder are leased or partially owned by the company. More than 85% of the hotels are in Europe and more than 95% are in the economy, budget or midscale segments.
 
Company executives said the portfolio will initially account for 50% of the net operating income with a goal to increase the share to more than 75% of NOI.
 
“This strategy is powerful, compelling and obvious,” Bazin said. “We believe Accor has the skills to tease out the value of these assets.”
 
The company said it will no longer expand through lease structures and won’t sell additional hotels, unless they are “structurally underperforming assets.” During the third quarter, Accor added 36 hotels comprising 4,160 rooms, with early 90% of those room additions in the asset-light category. 
 
As the final part of the reorganization, the company will realign based on geographic regions, and Accor’s 18 brands will be clustered in three segments: luxury/upscale, midscale and economy/budget. A new 10-member executive team will manage the company.
 
The executive committee will include leaders of the two business units, five regional executives and several corporate officers.
 
Bazin said the new structure will promote a “cultural change that will enhance Accor’s ability, clarity and accountability.”
 
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