Sébastien Bazin, Louis Abboud and Jeff Higley at ALIS Accor thinks local to diversify lifestyle's profit baseBy Mary Scoviak | February 10, 2023Share The mission-critical shift from style over substance to optimized activation of interior real estate casts this sector as an M&A magnet for this French hotel giant. The business rationale behind the appeal of small group and independent properties as acquisition or joint venture targets for even the world’s biggest hotel companies took center stage in the Americas Lodging Investment Summit “Meet the Future” conversation featuring Sébastien Bazin, chairman and CEO, Accor, and Louis Abboud, deputy head of Middle East, Africa & Turkey, Ennismore (the hospitality lifestyle company created by Sharan Pasricha in which Accor took a 73% interest in 2021)."Rooms are becoming anecdotal."Sébastien BazinShare this quoteModerated by The BHN Group President Jeff Higley, this exclusive series showcased five thought-leading discussions between an industry CEO and a young visionary (or visionaries) from their company’s team.Bazin got to know Abboud when he selected this up-and-comer as one of the 18 Accor associates under 35 years old who would be “coupled” with a top executive in a shadow executive cabinet. Abboud leveraged that experience into a fast-track rise through Accor’s development team and a 2021 call to join Ennismore.In his current role, which bridges development and operations, Abboud got a granular grounding in Bazin’s new-model lifestyle formula. “Rooms are becoming anecdotal,” said Bazin. “Any hotel being developed in the future should be built for locals, not travelers.” The 16 brands and 120 hotels now in Ennismore’s portfolio show the payoff for that shift in thinking. Currently, 50% of revenue comes from the local community and other sources; less than half comes from travelers. That is a recipe of the future for successful hotels.Sébastien BazinBuilding on his boss’s remarks, Abboud pointed out, “A hotel is no longer just a place to sleep well or eat well. Hotel companies need to manage in a way that maximizes every square inch in that building, whether it is for retail, office or commercial. That’s something lifestyle hotels do extremely well.”Leveraging shifts in demandThis operational/marketing rethink has extensive ramifications for investors. Rather than relying solely on standard hotel due diligence and valuation metrics, this recasting of a pure hotel asset as a self-contained neighborhood opens sustainable, diversified revenue and profit streams. With their promised blend of experiential design and service alongside a community-connected social vibe, lifestyle hotels can match their offer to opportunities as they arise.Lifestyle hotels are uniquely positioned to capitalize on the remote work trend, Bazin said. Although some businesses are pushing for a return to the office or at least hybrid work models, Bazin sees employees preferring to remain remote “for the next 10 years.” But that doesn’t mean they want to be isolated in their apartments all day—especially the tiny spaces many urban dwellers have to call home for fiscal reasons. “For local residents and hotel employees as well as guests, a lifestyle property becomes a comfortable place to work, connect, shop, work out, be entertained and eat,” Bazin said. “Public spaces become monetizable as they shift from strictly transitional or transactional areas to daily destination where locals, employees and travelers spend time and money. This is how you maximize return.”According to Abboud, the numbers bear that out. Activating the lobby with F&B, retail or commercial offers can add 10% to 15% to total revenues. “But, if you have flexible coworking spaces onsite, that figure can jump to 25% to 30%,” he said. It also helps if companies have a newly launched coworking brand such as Working From__, which launched last year.Louis AbboudHowever much public spaces evolve as revenue drivers, room sales are still a core contributor to the bottom line. Delivering the experience guests expect from lifestyle hotels in both the public areas and guestrooms will continue to demand that investors dig deeper into their pockets to create unique design and signature services. Despite the aftermath of COVID and the headwinds of economic uncertainty, Abboud sees no change in travelers’ willingness to pay “significantly more” to have “a specific experience.” “We’ve seen that consumers will pay a premium to be part of something that is authentic and real—something that has a purpose,” Abboud said.Independents’ playThe biggest challenges facing the lifestyle sector also create the most enticing opportunities for multi-brand mega hoteliers such as Accor. Unable to leverage efficiencies of scale—whether in terms of the cost of customer acquisition, the cost of capital or operational/labor costs—independent lifestyle hotels and small brands are finding it hard to compete, if not survive. More and more, they’re seeking shelter under the umbrellas of rich parent companies.“More [lifestyle] investors want the comfort and stability of the big players but they don’t want to stuck to a standardized, boring offer. So, if a big company can give them the distribution and the loyalty programs that help them grow their business without asking them to give up what makes them unique and able to deliver a soulful, authentic experience, you’ve hit the jackpot,” Bazin said. Watch for more of the Top 10 to tuck in strategic deals in the lifestyle sector to cash in on that potential.2023 trend watchThese deals won’t be the only opportunities this year, Bazin said. Like colleagues he talked with at ALIS, Accor’s top executive likes the prospects for all-inclusive resorts—especially for parent companies with strong booking engines.He also foresees Accor’s Fairmont brand adding 20 to 30 more hotels to answer pent-up demand for MICE business and further expansion for Sofitel, one of the few Accor brands earmarked for growth in the U.S. and the addition of more than 140 properties in Ennismore's current pipeline.Don't look for a surfeit of Accor core brand flags to fly over the U.S. “U.S. hotel operators have captured their home market. Six companies control 95% of the market,” Bazin said. “We tried to make it in the U.S. but we failed. There’s a saying that French companies fly the Concorde to the U.S. and return on a charter.”He predicted that “China will be bigger than America” in terms of hotels and travel and, over the next 10 to 12 years, “it will be controlled by three or four Chinese players.” His strategy will be “shooting for growth for master franchise agreements.”Essentially, with North America and China off the table in terms of market dominance, “that means Europe, South America, the Middle East, Southeast Asia, Korea, Australia and New Zealand belong to Accor,” he added.Bazin also debunked the assumption in the U.S. and Europe that the international deal pace will slow as investor wait-and-see what happens with inflation, interest rates and recession. “Money’s tight in the U.S. and in Europe, but there’s plenty of money in the Middle East and Singapore. You just have to get the right network, the right product and the right story,” he concluded.