A divergent portfolio - Carlson Rezidor’s diversification strategy

How does a hotel group navigate itself through market swings and still grow its bottom line? According to Elie Younes, executive vice-president and chief development officer at The Rezidor Hotel Group, the answer lies in one word: diversification.

Younes credits the strategy in helping the operator increase its emerging markets portfolio by 11% a year since 2010 – an advance not to be scoffed at, given developing countries make up nearly 50% of Rezidor’s operating room portfolio.

Nonetheless, diversification is far from straightforward, and hinges on numerous factors and risks – geographical and financial – says the man charged with driving Rezidor’s growth in Europe, the Middle East and Africa (EMEA).

“When you diversify your portfolio, you also diversify your risk,” he explains. “This reduces the risk-adjusted return. Geographically, we have diversified our growth in certain markets – which is in line with our group strategy – but this also relates to a business plan perspective. For instance, in some more-volatile markets, we only use management contracts and franchises, while in others with less volatility, we are willing to commit more financially.

Diversification means a combination of these things.”

Targets identified

Rezidor’s focus, according to the group’s latest annual report, remains on organic, asset-light growth – predominantly based on fee business. This, says Younes, will be generated through “contracts with third-party owners, as well as some management and franchise agreements”.

Under this game plan, in 2016, (“a milestone year”) Rezidor signed 45 transactions in EMEA. The total includes properties in Saudi Arabia, six in the UAE, five in Angola, three in Belgium, three in Latvia and “a handful in Turkey”.

Furthermore, six deals have been signed in Poland, Lithuania and Russia – as well as others in Cape Verde, Cyprus, Georgia, Kyrgyzstan, Nigeria, Romania, South Africa, Ukraine and Zimbabwe.

At the time of writing, 75% of the 45 proposed properties are under construction and are expected to open within the next three months to two years, reveals Younes.

“Some are close to opening immediately, while we’ve only just broken ground on others,” he says. “The remaining 25% are in various stages of design. However, common sense would suggest that out of those 45 hotels, there may be some challenges due to unforeseen business, economic and geopolitical circumstances. This is natural.”

Middle Eastern promise

The Middle East is perhaps the best example of a market currently prone to such vicissitudes. While it remains a profitable region for Rezidor, Younes admits economic hurdles at the hands of dwindling oil prices have not gone unaccounted for.

“Admittedly, if you look at the economic model in the Middle East, and its reliance on oil, we have felt a little crunch there over the past 12–18 months, especially in key markets like Saudi and Qatar,” he says.

Problems with the black stuff aside, the Middle East’s long-term potential remains undimmed, as evidenced by the 30-plus hotels Rezidor currently has under construction there – 75% of the properties are located in Saudi Arabia, with 15 set to open in 2017.

“It’s a very liquid market,” says an effusive Younes. “We choose to believe that the long-term prospects are there, the fundamentals are there, and there will be a recovery soon. If you read the strategies of some of those countries, like Saudi’s 2030 vision [a blueprint devised by Prince Mohammed bin Salman al-Saud to diversify the country’s economy away from oil], that gives us more business, and more confidence in the country and its development.”

Projects elsewhere

2016 was also notable for Rezidor’s acquisition of German hotel start-up group prizeotel. The deal, penned last March to the tune of €14.7 million, gave the operator a 49% stake in the stylish, budget hotel chain.

While Rezidor’s short-term plans for prizeotel will centre on the economy segment in Germany and the Benelux through leases, Younes reveals there will eventually be a global roll-out of the brand further down the line.

“However, in order to achieve that, we first need to create a certain volume of scale in the market that will allow us to create focus on brand awareness in a key critical market. Then we will take the brand elsewhere,” he says.

“The first stage of growth in Germany, Austria, Switzerland and the Benelux will cover the next two years, so as to create a certain amount of scale. This could be, for the sake of argument, 15 hotels.”

In April last year, Rezidor opened its first Radisson RED in Brussels, and plans are already in place to expand the new lifestyle select brand with four signings inked for Jeddah, Dubai, Vilnius and Tbilisi. More are on the way, too, adds Younes.

“There are quite a few under way,” he says. “This year, we are going to open a hotel in Cape Town. We are hoping to launch in Dubai and Glasgow, too, and are also looking at destinations like the Netherlands and Poland.”

Recognised as one of the fastest-growing economies in Europe, Poland is now very much a focus market for Rezidor. According to Younes, further announcements of expansion in the Visegrad nation can be expected in the near future.

“While it is already developed, Poland is, comparatively, probably the last emerging market in Europe,” he says. “The economy has further room for growth, and there is already a reasonable level of liquidity in the market. There is an opportunity for scale, which, as a critical component of our business, makes it extremely attractive for us.”

The same goes for Africa, where Rezidor is “proud and humbled to have the largest upscale pipeline of hotels and rooms” of any operator in the world right now.

As Younes explained in the aforementioned annual report: “With vast natural and human resources; an improving infrastructure and rapid urbanisation; a growing middle class; and huge demand for modern, internationally branded accommodation, Africa is an ideal market for an ambitious hotel operator like Rezidor.”

Always responsible

Rezidor has also gone to great lengths to incorporate corporate social responsibility (CSR) into its portfolio expansion in what is the world’s second-largest continent.

“For every room that we open in Africa, we employ, more or less, one local person or family,” says Younes. “We make a conscious effort to make sure that at least 90% of our employees are from the local society. So, this is the first economic contribution that we make – creating opportunities for local society.”

CSR, for Rezidor, also overlaps with safety and security – identified as a priority for travellers in EMEA. It’s a theme still uncomfortably fresh in the operator’s mind in light of the terrorist attack on a Radisson Blu property in Bamako, Mali, in 2015 that left 22 guests and employees dead.

Having, in 2014, become one of the first hotel companies to join the SafeHotels Alliance – a third-party provider that reviews and assesses hotels for security – more than 160 of Rezidor properties now bear the accreditation.

Whether it be CSR or guest security, Younes believes Rezidor is beating a different path to its competitors.

“It’s the way we do business that gives us true market standout,” he says. “Rezidor’s ‘Yes I can’ ethos means we work with our partners and stakeholders with an approach that is uniquely commercial, solution driven, simplified, geared to the business realities, relationship focused and enduringly nurturing.”