Owners in Eastern Europe lend critical eye to brands
 
Owners in Eastern Europe lend critical eye to brands
10 FEBRUARY 2020 9:38 AM

Eastern Europe is relatively unsaturated by brands, and despite a bigger variety of choices available now more than ever, owners in the region will still bring questions to brand negotiations.

BUDAPEST—As travelers and guests around the world discover more and more of Eastern Europe, the region has opened up to branding, with all the major players opening offices, developing relationships and signing assets, according to sources.

Speaking at HOTCO on a panel titled “Brandscape,” Miguel Martins, director of development for Eastern Europe and Turkey at InterContinental Hotels Group, said in the region he is seeing brands moving in parallel with guest expectations and travel choices.

“One difference now is that brands need to provide something new, something bold, something for lifestyle, something for experiences, the things according to new expectations,” he said.

Another consideration is that a lot of the buildings ripe for hotel development in capital and gateway cities in Eastern Europe are historical ones, many unique and some needing restoration.

“Some buildings are so prescriptive, and no brand fits into them, so it requires work,” Martins said.

Panelists said that despite Eastern Europe being in some manner a new region opening up to international tourism, the ownership base there is certainly not behind the times.

Christian Michel, VP of development for Europe at Wyndham Hotels & Resorts, said the challenges mirror those of other regions both more developed and less so, the keys being the ability to engage with partners and being proactive.

Janusz Mitulski, senior director of international hotel development for Central and Eastern Europe and Ukraine at Marriott International, said hotel owners in the region are industry veterans.

“Owners (here) have so much knowledge and so many distribution schemes to choose from,” Mitulski said.

Mitulski added the region is particularly competitive in the select-service segment, since owners are most comfortable with that product.

“More and more we are dealing with sophisticated, not emotional, owners, but it is less saturated (with brands) than Western Europe, so there is opportunity,” he said. “For us, that will mean signing the Moxy (brand), which did not exist three years ago.”

Marybelle Arnett, VP of development of Central and Eastern Europe at Hilton, said her company’s approach is to offer its wide brand choice to owners.

“DoubleTree is our conversions brand,” she said. “Then there are soft brands, and we are bringing Tapestry (Collection) to Europe this year, and then Hampton (by Hilton) is almost exclusively new-build.”

Michel said all the panelists represent international brands well known to Eastern Europe, but that did not mean it was plain sailing.

“We come in mainly with Ramada, already an international brand, but there always are challenges in new countries. You just share those with partners,” he said.

Driving brands
Frank Reul, VP and head of development for Eastern Europe at Accor, said development and operations in the region are led by owners.

They always do their homework, he said.

Panelists said it did not matter in this region if the international hotel firms are growing by organic, bolt-on acquisitions or launching new brands due to the lack of saturation.

Competition and owner savvy make growth difficult whatever the strategy to achieve it, they added.

“There are different brands for different continents, and different owners with different outlooks,” Mitulski said.

Arnett said guests are “more sophisticated and require different brands for different trips,” adding business travelers are discovering Eastern Europe and then planning leisure trips to take either solo or with their families.

“We’re expanding organically, and we can clearly define what that brand is for and keep it in its swim lanes,” she said. “So if we do create a new brand, then there is no overlap.”

A large array of brands available does, Reul said.

“As a developer, it is a privilege to have so many brands, which bring additional value and come with the same values as those of guests,” Reul said.

He mentioned the Ibis brand and its recent innovation in music and entertainment as one example.

“But in Ukraine we have been successful with (both) Fairmont and Ibis, so it is all about finding the right situation and investor,” he said. “As we have all said, it is still an unbranded market. With local design and technical teams, it can work.”

Martins said IHG mostly promoted new-builds in the region, although a good location could see mixed-use assets being developed.

“Conversions definitely are right for (brands) Voco and (Hotel) Indigo, which want to be in historical buildings,” he said.

Staying true to Eastern Europe is required to have excellent teams on the ground and the innovation to create something new and outstanding, panelists said.

Mitulski said all markets will bring up exceptions, but that is what creates both a lot of hard work and the most satisfying outcomes.

Costs
Arnett sees a huge opportunity in the region’s labor market, as many employees have gained experience in Western hotel markets and now have returned back home.

Wages are cheaper here, but that might not always be the case going forward, panelists said.

That is not the only cost pressure, Martins said.

“Construction costs are going up rapidly, and in Hungary, public fund investment is forcing costs up, too,” Martins said. “Can you match (revenue per available room) development with construction costs, development cost with return on investment?”

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