Luxury hotels are looking to Croatia.
While many first-class hotel brands have come to Croatia in recent years – boasting 12 global and six European brands that offer 46 hotels and a total of 9,500 rooms – Croatia is still below the average level of hotel chains in Europe, says consultant Sanja Čižmar from HD Consulting for Poslovni.hr on July 26, 2017.
“Unlike ten years ago, there is a lot of interest for hotel brands in Croatia, given its growing popularity and attractiveness as a tourist destination. However, there are still not enough quality hotel projects that meet the standards of high quality and luxury hotel brands,” says Čižmar.
Čižmar further explains that Croatia is below the European average because, together with marketing alliances, the share of internationally-branded hotels in the total hotel accommodation capacity is around 25%, while in Europe, this proportion is about one-third of the total hotel capacity.
These are hotels that hotel chain brands manage through a very complex management of contracts or a franchise agreement for many years.
In Croatia, says Čižmar, there are first-class international brands of high-quality hotels that operate in many countries around the world. These include the Hilton Corporation (Hilton in Dubrovnik and Doubletree by Hilton in Zagreb), the Marriott Corporation (Sheraton in Zagreb and Dubrovnik, Westin in Zagreb, Le Meridien in Split), Kempinski in Savudrija, Radisson Blu in Split and Dubrovnik, Park Plaza in Pula and Medulin, Melia and Sol in Umag, Best Western in Zagreb, Split and Rijeka, and Rixos in Dubrovnik.
Apart from these international brands, there are also regional brand hotels in Croatia that operate in a smaller number of countries, such as the Falkensteiner, Karisma, Life Classe, Arcotel and others. Additionally, there are also hotels that are members of hotel marketing alliances, including The Leading Hotels of the World, Small Luxury Hotels of the World, Designhotels, Relais & Chateaux, Kinderhotels, Great Hotels of the World and more.
“The somewhat smaller presence of international hotel brands in Croatia can be partly explained by the strength of domestic hotels and tourist groups because there is a very high degree of hotel market consolidation in Europe, atypical on the European scale, where the 10 largest domestic hotels and tourist companies manage more than 40% of the total hotel rooms. As a rule, domestic groups are investing their resources in improving hotel quality and managing their portfolios and, with some exceptions, do not decide to engage international hotel brands, and some successfully go on to develop their own hotel brands,” explains Čižmar.
But, as investments in the hotel industry are growing, with an increase in the number of new “greenfield” hotels, the number of international brands announcing their arrivals is increasing. This means that some of the world’s leading brands of luxury, including the Four Seasons (on Hvar), Amanresort (in Cavtat), Ritz Carlton (in Kupari), and a few others are currently negotiating their entry into Croatia.
“In general, the entry of hotel brands into the Croatian market is a good thing for the country’s recognition in the international tourist market. Although most do not invest money, the hotel brands bring global marketing and market access through high sales and loyalty programs, as well as quality standards throughout daily hotel management. Of course, every hotel should reap the benefits and costs of hiring a hotel brand because entry into management or franchise contracts has its price. Therefore, it is of crucial importance to estimate how much additional revenue and profits an individual hotel can make by engaging an international brand,” Čižmar continues.
The relationship between costs and revenues depends on the size and market profile of the hotel, its location, seasonality and so on. Therefore, it is logical that in cities, due to the higher competition level and the profile of guests visiting, it is quicker to find a good price for engaging international brands, while seasonal holiday destinations need more attention when assessing possible benefits and costs.
The amounts and estimates for the overall costs of engaging a hotel brand through franchise or contract management are around 7 to 10% of the total annual hotel income, which is a high cost that should be compensated by the revenue generated which would exceed these costs. Moreover, hotel operators in management contracts typically do not provide a guarantee for achieving business results.
“Hotel chains do not usually invest their capital in the places they enter, and there are very few cases of hotel chains investing in the property of a hotel. When they decide to do so, it is only for the so-called ‘premium destinations,’ such as the best locations in the largest European cities, or the most attractive holiday destinations that are globally well positioned on the tourist market and are generally not marked by a high degree of seasonality,” Čižmar said.
Čižmar’s strategy for the development of domestic hotel groups is very different, and some are trying to apply similar strategies to international hotel operators, which is spread across multiple destinations through contract management with hotel owners, without investing in buying or building new hotels. Some of the strongest, however, are showing the ambition to expand their portfolio outside of Croatian borders.
Translated from Poslovni.hr
