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Chapter III

Optimizing operating performance Accor Hospitality: The New Business Model

The Right Approach

The Right Brands

The Right Network

The Right Operating Performance

The Right Asset Management Policy

The Right Service Provider Culture

Battle of revenue

Yann Caillre COO Hotels France, Southern Europe, Middle East & Africa and CEO Sofitel Worldwide

The Battle of Revenue : 360


Marketing and Communication Loyalty Program AMiles
New team spirit New tools New market share

Reservation (Accor Hub)

Marketplace strategy

Revenue Management & Dynamic Pricing

Sales and Distribution

The Battle of Revenue : 360


Marketing and communication Loyalty Program AMiles
New team spirit New tools New market share

Reservation (Accor Hub)

Marketplace strategy

Revenue Management & Dynamic Pricing

Sales and Distribution

Aligning marketing strategy with mature and emerging markets

Objectives Objectives

Levers Levers
ALIGNING MARKETING STRATEGY WITH MARKET PENETRATION ------------------------------------------When Accor is market leader Strengthen our positioning with powerful advertising campaigns When Accor is market challenger Become the leader and strengthen the brand strategy When Accor is penetrating a market Move up to the front ranks and rapidly gain market share to boost brand recognition

Impact Impact

Accor will adapt its marketing strategy depending on whether it is market leader or challenger in order to maximize the Marketing spend

Variation Variation 06 vs 05 07 vs 06 Worldwide Marketing Spending +35M +30M

When Accor is leader, poweful advertising to strengthen brand strategies

TV advertising in France
Note: Marketing Plans - 2006 - 2007

Print advertising campaign in France, Germany


6

Print advertising campaign in France, Germany, UK

The Battle of Revenue : 360


Marketing and communication Loyalty Program AMiles
New team spirit New tools New market share

Reservation (Accor Hub)

Marketplace strategy

Revenue Management & Dynamic Pricing

Sales and Distribution

Reservation Accor Hub

Objectives Objectives

Levers Levers

Impact Impact

Get Get connected connected to to every every booking booking channel channel and and source source Make Make the the booking booking process process as as simple simple as as possible possible for for the the customer customer Use Use all all the the channels channels to to maximize conversion maximize conversion

Connectivity Connectivity and and innovation innovation:: unique unique TARS TARS reservation reservation system system Availability Availability and and useruserfriendliness friendliness

30% 30% of of room room nights nights generated generated through through central central systems systems 50% 50% of of conversion conversion rate rate for for call centers call centers Up Up to to 50% 50% in in ARR ARR vs. vs. direct direct hotel hotel with with TARS TARS reservation reservation system system (upscale (upscale & & luxury luxury segments) segments) 100 millions 100 millions of of visitors visitors in in Accor Accor websites websites

TARS, a HUB linking hotels to distribution

Brand web sites

Accorhotels.com

On Line hotels

Rates OPEN CLOSE Voice Booking Infos, photos Call Centers

TARS

Room types Commissions management Intra-hotel & inter-hotel

Sales
Conditions

Sales Forces

Electronic Distribution

Travel Agencies

Tour Operators

B to B Web Sites

B to C Web Sites

Web SearchEngines

TARS room nights


CAGR 19% in 4 years (2006 to 2010) CAGR 26% in 10 years (1996 to 2006)

40 million

20 million

2 million 1996 2006


Room nights per year

2010

2006 >31% through central system

2010 >40% through central system

10

Expedia : A worldwide agreement


North America 55%

Roomnights 200 000

United Kingdom 20%

Direct connect
New Contract 50 000

+335%

France 13%

+30%
YTD July 2005 YTD July 2006 YTD July 2007
Origins

Rest of the World 12%

A specific channel in order to target additional clientele

Driving an increase in total of room nights


75% of customers are from the US and UK
11

The Battle of Revenue : 360


Marketing and Communication Loyalty Program AMiles
New team spirit New tools New market share

Reservation (Accor Hub)

Marketplace strategy

Revenue Management & Dynamic Pricing

Sales and Distribution

12

Sales and Distribution

Objectives Objectives

Levers Levers

Impact Impact

More More revenue: revenue:

Capture Capture the the demand demand from from all the existing channels all the existing channels

Effective Effective sales sales force force to to capture capture potential potential wherever wherever it it is: is:
-- Hotel Hotel sales sales force force -- Global multi-brand Global multi-brand sales sales force force -- Dedicated sales force for Dedicated sales force for luxury luxury segment segment

Access Access to to more more than than 65,000 65,000 large large accounts accounts worldwide worldwide Up Up to to 80% 80% of of revenue revenue generated through generated through sales sales and and distribution distribution processes processes (upscale (upscale and and luxury luxury segments) segments) +50% +50% of of increase increase in in sales sales by by 2010 2010 (2005 (2005 to to 2010) 2010)

Better Better revenue: revenue:

Set Set the the right right price price for for the the right right channel, channel, enhance enhance business visibility business visibility

Optimized Optimized distribution distribution costs: costs:


Maximize Maximize cost-revenue cost-revenue ratio: ratio: lower lower costs, costs, higher higher impact impact

Appropriate Appropriate offers offers for for every every channels channels::

-- Corporate/Leisure/MICE/Airlines Corporate/Leisure/MICE/Airlines -- Distribution Distribution -- Online Online // Offline Offline

13

Internet Distribution

Eric Lepleux Chief Marketing Officer

Accorhotels.com and brands.com: a major online player


KEY FIGURES 2007 300 000 visits per day 100 million visitors per year 11 millions room nights 7 languages 30 000 room nights per day 1 room night every 3

seconds

15

2007: changing the business and running the business

Rebuild all brands websites in line with the new portfolio strategy Support the arrival of All Seasons and Pullman Improve content and functionalities (ie new hotel presentation, Google search engine, interactive city guides ) Develop Chinese platforms for our future sites Increase by 31% our volume of room nights

16

Rebuilding all brands websites

17

Rebuilding all brands websites

18

Rebuilding all brands websites

19

Rebuilding all brands websites

20

Rebuilding all brands websites

21

Our portal strategy

Portal Strategy
Generic content

2010 Brand Strategy


Customized content

Mutli brand customization


22

Brand customization

A strong opportunity to drive direct bookings

KEY INITIATIVES
25% 20% 15% 10% 5% 0%

WorldWide USA

to increase our internet penetration


Price transparency

23% 19% 12% 14% 19%

Interconnectivity Brand loyalty Booking experience

and simplicity

Forrester 2006 In % of revenue

23

Penetration ratio by brand

PERSPECTIVES 2007 - 2010 27% 7% 16% 14% 10% 4% 6% 9% 4% 11% 20% 4% 13% 7% 15% 17% 3% 17% 15% 31% overall growth in

2007
Double digit target growth

until 2010
14% overall penetration

in 2007
Penetration ratio target

25% by 2010

Indirect from third party Direct on our site 24

Third parties: a continued focus on other major online players

7,8 millions room nights

Laterooms 2% Ctrip.com 3%

Other third parties 31%

Accor Web sites

Third Party Web site

Wotif.com 10% Hotel.de 10% Bookings 17%

76%

24%
3,2 millions room nights

HRS 14%

Expedia 16%

25

Accorhotels.com and Brand.com: better conversion ratios than the competition

OUR STRENGTHS

5,80% 4,70%

Range of offer: full coverage of the market High operational performance Clear privacy and security policies Logical flow and navigation Graphics and maps adding value to the

booking experience
Accorhotels.com & brands.com Competitors Home page provides clear answer to user
Forrester Web Site Review

Bookings/Visits Competition Forrester 2006

26

Improving our internet reach


Capture

additional traffic

- Travel Search Engines (Kayak, Kelkoo...) - Parternships (Europcar, Club Med Air France) - New 2.0 players (Tripadvisor, myspace.com)
Retain

our customers

- Develop loyalty and customer knowledge (launch of loyalty program, pre arrival mail, conversional agent, e-mail campaigns) - Offer a wide range of products and brands (Accor Brands and partners brands)
Develop

direct connectivity

- Existing interfaces GDS/Pegasus (Orbitz, Lastminute, Travelocity) - Direct Tars (Expedia, Booking, HRS, Hetel.de)
Enhance

our BtoB solutions

- Specific portal and home page - New functionalities for different segments (MICE, Travel Agents, Corporate)

27

A Sales organisation aligned with our Brands needs

Sales and Distribution efforts

Brand Promotion

Push Sales approach + Distribution


28

Dedicated Sales and Distribution teams

The Battle of Revenue : 360


Marketing and Communication Loyalty Program AMiles
New team spirit New tools New market share

Reservation (Accor Hub)

Marketplace strategy

Revenue Management & Dynamic Pricing

Sales and Distribution

29

Revenue Management and Pricing


Booking is possible only if

Revenue Management optimizes what to open for sale and when for when
OPEN CLOSE

Hotel Level OPEN for sale Room type OPEN for sale Rate OPEN for sale

Pricing Is to optimize to always target the right price for the right moment

+
Rate is PRICED
30

()

For the room type, the date of stay and number of persons

Implementation of a new tool: Revenue Management System


REVPAR growth INDEX =1 in 2004

+ 8 pts
Trainings for all 114 hotels

255 hotels

31

Revenue Management System supports Dynamic Pricing

Anew newpolicy policyhas hasbeen beenlaunched launchedin in2005: 2005:Dynamic DynamicPricing Pricing A
BEFORE BEFORE 10 public rates 10 public rates without any logic without any logic For the customer For the customer AFTER AFTER public rates 33 public rates Fully flexible flexible Rate Rate Fully Restrictive Rate Restrictive Rate Prepaid rate Prepaid rate

Nocontrol control No overthe the over finalresult result final

Easier Easier tomanage manage to Withimmediate immediate With results results


+ 30 pts

32

Example of results : 4 Sofitel in Germany


Publicrates rates2006 2006 Public Average==159 159 Average Publicrates rates2007 2007 Public Average==186 186 Average

Without any lost room-nights Without any lost room-nights No increase of the full rate No increase of the full rate

Jan-Jul 06

Jan-Jul 07

Sofitel network worldwide impact: +3M gained with RA3 closed 15 days before

33

Revenue Management Worldwide Map in 2006

200hotels hotelsequiped equipedin in2006 2006 200


(maximum target=1200) (maximum target=1200)
Full Revenue Management System and Methods Or Trained (REV chalenge and / or Revmaster)

34

Revenue Management Worldwide Map in 2009

800hotels hotelswill willbe befully fully 800 equipedin in2009 2009 equiped
Full Revenue Management System and Methods Or Trained (REV chalenge and / or Revmaster)

(maximum target=1200) (maximum target=1200)

35

Revenue Management & Dynamic Pricing Ex: Sofitel USA

Don Kelly VP of Sales, Pricing, Distribution and Revenue Management for Sofitel Worldwide

Sofitel USA (comparable) vs. Competitive Sets


PENETRATION INDEXES
115%

110%

--- ADR --- REVPAR

105%

100%

95%

--- OCC

90%

85%

80% 2001 2002 2003 2004 2005 2006 YTD 2007

Results were driven primarily through the management of our public pricing
37

Sofitel Example: Sofitel New York vs. Competitive Set PENETRATION INDEXES
115%

--- REVPAR Index --- ADR Index --- OCC

110%

Public Prices Definition:


105%

100%

- RA 1 - (best unrestricted) - RA 2 - (72 hour cancellation) - RA 3 - (pre-paid rate)


YTD Room nights (+24% in 2007) YTD ADR (+11% in 2007)

95%

90%

RA 1 - $527 RA 2 - $395 RA 3 - $367

85% 2004 2005 2006 YTD 2007

YTD Room Revenue (+37% in 2007)

--- Competitive Set (Intercontinental, Loews, Parker Meridien, Omni, Royalton, Muse)
38

The Price Movement CRITERIA

3 Automatically Linked Criteria

Lead Time RevPar Pace Competitive Set Booking Pace

Lead-time
Revpar pace at the specified lead
time

Booking pace of key sub-segments


at the specified lead time

1 Subjective Criteria
Competitive Sets Weighted Average Rate is reviewed by the Revenue Manager at the specified lead time

The combination of all four create the probability rules or If statements


39

Price Movements

40

360 EXECUTION

Change of Mindset
Revenue Quality

Performance Measurement System

Performance Indexing

Sofitel Profitability
Psychological Pricing
Willingness to Pay

New Discounting Goals

Account Behavioural Model

41

The Battle of Revenue : 360


Marketing and Communication Loyalty Program AMiles
New team spirit New tools New market share

Reservation (Accor Hub)

MarketPlace strategy

Revenue Management & Dynamic Pricing

Sales and Distribution

42

Market Place Strategy

Salvatore Serio Managing Director France Hotel Division

A Marketplace Strategy

A unique advantage

What is La Place ? A consistent geographical market impacted by the same environment, business flows and events A battle field where Accor can leverage its broad, powerful offering (multi-brands, multi-size, multisegmented) to pump out extra value from demand through coordination and synergy from each Accor Hotel
Each Each hotel hotel is is a a key-player key-player of of the the global global marketplace marketplace strategy strategy
44

A Marketplace Strategy

Objectives Objectives

Levers Levers Global Global competitive competitive market market tools tools Accor Accor integrated integrated reservations reservations system system Coordinating Coordinating Revenue Revenue and and Pricing Pricing Management Management Rerouting Rerouting inter-hotel inter-hotel individual individual and and group group demand demand Synchronizing Synchronizing marketing marketing and and sales sales initiatives initiatives
45

Financial Financial Impact Impact

Increase Increase and and maximize maximize Accor Accor RevPar RevPar Gain Gain extra extra revenue revenue Gain Gain profitable profitable market market share share without without dilution dilution and and cannibalization cannibalization Optimize Optimize each each brands brands value value for for money money in in each each segment segment

Performances: Performances: Tracked Tracked Key Key Metrics Metrics (ARR, (ARR, RevPar RevPar & & RGI) RGI) above above OffOffmarketplace marketplace hotels hotels

13 13 marketplaces marketplaces in in France France will will generate generate 8M 8M incremental incremental revenue revenue in in 2008 2008

Focus France

Roissy Paris Centre Paris Sud Paris Bercy Lille Orly

La Dfense

Today in France :
13 marketplaces (incl Paris IdF: 6) 260 hotels (incl Paris IdF: 90) 36 000 rooms (incl Paris Idf : 20 000)

Strasbourg

Representing :
Bordeaux

Lyon

66% of revenue (40% for Paris IdF)


Nice Cannes

70% of GOP (43% for Paris IdF)


46

Toulouse Marseille

Optimization levers some examples

Reservations Reservations cross-selling cross-selling & & rerouting rerouting

Over Over 100 100 000 000 individual individual room room nights nights cross-sold cross-sold yearly yearly in in French French Places Places Ex Ex :: Paris Paris Sud Sud Over Over 10 10 000 000 groups groups room room nights nights rerouted rerouted yearly yearly Over Over 10 10 000 000 individuals individuals room room nights nights cross-sold cross-sold yearly yearly

Price Price Optimization Optimization (*) (*)


(*) (*) vs vs daily daily market market demand demand by by category category and and segment segment

Example Example la la Dfense Dfense :: Ibis, Ibis, Suitehotel Suitehotel rack rack rates rates adjustments: adjustments: +400K +400K Last Last room room availability availability optimization: optimization: + + 600K 600K Calendar Calendar optimization optimization (calendar, (calendar, events, events, environment) environment) for for 2008 2008 vs vs 2007 2007 (+ (+ 1,5M) 1,5M) Local Local special special offers offers on on needy needy periods periods Sales Sales blitz blitz

Marketing Marketing & & sales sales initiatives initiatives

47

2012 Vision: A worldwide strategy deployed in over 80 Places

Europe 60 Places Americas 5 Places Asia Pacific 15 Places

48

The Battle of Revenue : 360


Marketing and communication Loyalty Program AMiles
New team spirit New tools New market share

Reservation (Accor Hub)

Marketplace strategy

Revenue Management & Dynamic Pricing

Sales and Distribution

49

How the AMiles loyalty program will work


1 Million members 2007

Miles

4 Million members 2012

Enroll for free

Earn AMiles for each spent

Convert AMiles into Hotel checks Airline miles


50

Top members get Gold and Platinum Status

Web based program

AMiles will catch up with our global competitors

Luxury
Miles

Upscale

Starwood
S. Preferred Guest

700 hotels

Mid scale
Hilton InterContinental
Priority Club

Marriott
Marriot Rewards

HHonors

Accor A Miles

+ 2 500 hotels

+ 2 500 hotels + 2500 hotels

Economy

+ 2 000 hotels

51

The battle of Revenue : 360 Consequence on RevPar Index France

France : The battle of the RevPar index (from 2004 to 2006)

140

Ibis and Etap Ho tel

130

Ibis and Etap Hotel Market leaders + 0,7 Pts increase

120

110

100

90 2004 2005 2006

Mer cur e et Novotel

110

Mercure is strengthening its position Novotel is maintaining its positioning + 2,5 Pts increase

100

90 2004 2005 2006

53

Flow-Through Battle

Yann Caillre COO Hotels France, Southern Europe, Middle East & Africa and CEO Sofitel Worldwide

Productivity gains through changes in management of operations

Novotel Caf

56
Y. Lecret

56

Concept
Bar more than a restaurant Trendy and high-quality products Simplified menu 5th products generation in partnership with Lentre Open 24/7

Key figures: 2004 2007

2004 # of covers Prime cost % F&B costs Payroll Other op. exp. F&B margin 1,350 M 73.1% 28.1% 45,0% 7.8% 19.1%

2007 1,430 M 69.8% 27.5 % 42.3% 6.6% 23.6%

F&B margin : + 4.5 Pts in 4 years

Olivier Devys Chief Executive Officer of SuiteHotel

59

Previous advertising: Good Morning by Suitehotel

60

20 original new recipes, especially created by a chef and a nutritionist, presented in individual transparent glass casings. Selection of on-demand ground coffees such as espresso and cappuccino. Creamy hot chocolate and hot water for tea.

3 kinds of bread, freshly baked in the hotel + mini croissants.

2 kinds of organic cereals.

3 fruit juices, 100% pure juice, 100% fruit taste.

4 flavors of jam, porcelain mugs, glasses, cutlery, sugar, etc.

4 kinds of Dammann-brand teas

Fresh milk

Seasonal fruit selection

Trays designed for Suitehotel to meet Good Morning specifications

61

Good Morning by Suitehotel


An innovative breakfast concept based on emerging customer expectations

A new breakfast concept introduced by Suitehotel in two test hotels in late 2006 and deployed across the network in 2007. Innovative both in its design lay-out and in the quality of the products, Responding to customer values: simplicity, independence, easy access, generosity Anticipating emerging customer expectations: broad offering, low-fat, healthy products, unusual recipes, an unexpected experience, etc. Considered by customers as good value for money (12) and highly profitable for Suitehotel (GOP: 45% of To) A high satisfaction rate and a 60% increase in breakfast revenue.

62

Organizational and skills management programs

Salvatore Serio Managing Director France Hotel Division


63

A team organization program

FORECAST DEMAND

Organizes work schedules depending on the hotels forecast demand Organizes work schedules depending on the hotels available human resources (quantity and skills) Ensures compliance with each countrys labor legislation Reduces time spent on administrative tasks and improves cost management.

AVAILABLE PEOPLE

COMPLIANCE COST MANAGEMENT

The right person in the right place at the right time to improve cost management and increase customer satisfaction

64

A skills development program

ASSESSING

An employee skills evaluation system

TRAINING

Training programs providing certification in various fields of expertise

ENCOURAGING MOBILITY

By developing identical skills recognized across the global Ibis network

OFFERING A CAREER

A career plan for each employee

65

A holistic management process


Equipe

Acteurs

Employees
Identify skills Integrate employee desires Offer training

Hotel
Anticipate demand identify skills + resources Build the hotel organization together

Acteurs Employees

Compatibility

Equipe Hotel

Guest satisfaction Employee turnover (- 5%) Labor costs


66

Procurement

Jol Vatan Chief Procurement Officer

Procurement
A service that delivers value to our partners
2006 total Hospitality business volume = 10bn Procurement volume = 3.4bn

Net rebates (% of revenue) Net savings (% of revenue Average 2006 Ebitdar rate (Accor Hospitality)

1.0% 2.6% 30.5%

The TheProcurement Procurementprocess processis isgeared gearedto tooffer offerhotels hotels solutions solutions that thatincrease increasetheir their productivity productivitywhile whilepreserving preserving their theirflexibility flexibilityand andability abilityto tomeet meetcustomer customerneeds needs

68

Procurement: an ongoing strategy to deliver value to all our business partners


35 countries Vol. nom. Purchases = 2.6bn Net savings: 8.5%

20 countries Vol. nom. Purchases = 1.5bn Net savings: 10%

3 countries Vol. nom. Purchases = 0.3bn Net savings: 12%

Extension 1998 - 2005

Creation 1992 - 1997

100m 100min insavings savingsin in5 5years years(2006-2010) (2006-2010) Impact Impacton onPBT: PBT:65m 65m
69

5 drivers for 100m in savings in 5 years PBT impact: 65m

Openings in new countries 10 new countries in 5 years

Expansion of categories managed by the Procurement department 6 new categories in 5 years

Expansion of international contracts From 10% to 20% of our spend

International sourcing in low cost countries New sourcing team in Asia

Improvement of the terms of the existing contracts Category management benchmarks

Italy

China

10 countries Indonesia in 5 years eMiddl East


Argentina South Africa

2005 2010 Coverage rate

UK Category Manager USA Germany

15m

40m

10m

10m

25m

70

Performance Measure

Yann Caillre COO Hotels France, Southern Europe, Middle East & Africa and CEO Sofitel Worldwide

France: Significant growth in results

Development / Network rationalization

Topline Maximization

Profitability (drop through)

2007 RevPar : 49.4 (+9% vs 06) 2007 Ebitdar Drop through : 57% 2007 PBT : 261 M (+28% vs 06)

72

France: RevPar and Drop-Through Impact

REVPAR (in )
49,4 45,3 43,1 41,2

+ 8,2
(07 est. vs 04)

2 004

2 005

2 006

2007 E

Drop Through Percentages 43,0%

57,0%

+ 36,7 Pts
27,6% 20,3%
(07 est. vs 04)

2 004

2 005

2 006

2007 E

73

France: Impact on Profit Before Tax

261 Profit Before Tax

194

200

204

+ 66 M
(07 est. vs 04)

2 004

2 005

2 006

2007 E

74