Ever since its Velvet Revolution in 1989, the Czech Republic (or Czechoslovakia as it was then), and particularly Prague, has been a ‘must be’ place for most of the biggest hotel brands, and the number of major players has been increasing consistently for the last thirty years. At the last count, there were nearly 50 ‘five star/five star luxury’ hotels in Prague alone, with more planned to open soon, whilst small hotels can be found on nearly every street of the upmarket residential areas of Prague 2, 3, 5 and 6 (after the Revolution, huge numbers of residential buildings were converted into hotels, partly to fulfill the demand, partly as that was where the money was (and the question now, is, of course, how many of those will soon be converted back!)).
Even during the years of the financial crisis (2008-2009) luxury hotel brands have continued to enter the Czech market – the Kempinski and Rocco Forte hotels being two that suffered the difficulties of opening around that time and, coincidentally, both of those have since left due to the buildings where they were housed being sold. What was once the Kempinski is now a stand-alone boutique brand, whilst the Augustine, once Rocco Forte, is now a Sheraton (and Sheraton belongs to the Marriott).
With the hotel industry thriving over the past thirty years, many other companies related to the business have also succeeded; PR agencies specialising in hospitality (such as mine), event and wedding organisers, restaurants and others have all benefited from the continual rush of new hotel openings and expansions, so it is no surprise that the many people involved in the hospitality business are those that are suffering some of the most during the ongoing Covid pandemic in the Czech Republic.
In this, my fourth blog in the ‘hospitality in crisis’ series, I decided to talk to one of my partners in Synergy Hotel Consultants, Jan Adamek, and find out what he thinks the future holds for the hospitality industry in the Czech Republic (and elsewhere) after the last ten months of closing, opening, and closing again. Jan has been working in the hospitality industry for more than 20 years, having trained and then worked as a General Manager (at the five star Hotel Jalta in central Prague) and then, more recently, starting his own agency, JAN Hospitality, which focuses on a whole range of consultancy services relating to the buying and selling of hotels. He is, therefore, the ideal person to give an overview of what we can expect.
As a bit of background, I wondered how it was that Jan had given up his very good job as a hotel GM to go into the real estate side of the business and his answer was that he had always wanted to have his own company; somewhere where he can be creative and use the many ideas and experiences that he had garnered during his years as a GM and share them with other hoteliers and restaurant owners. Since the Jalta itself is owned by an entrepreneur who has always had his eyes on expanding his own hotel business, it is no surprise that even during Jan’s work at the hotel, he was involved in hundreds of feasibility studies of existing hotels, either for potential buyers or for the banks and/or sellers too. And today, as he says, there are not so many experts on the Czech market that have worked inside the business and are also able to work with projections, banks, and large-scale investors. So began the idea of JAN Hospitality.
JAN Hospitality was established in 2010 and since then the agency has worked on many large-scale deals, whether for the buyer, seller or, in some cases, both. What a lot of ‚non-hospitality people‘ don’t realise is that the buildings that house the major brand hotels (95% or so in the Czech Republic) are usually owned by someone other than the actual hotel operator, which makes the buying and selling of them a lot more complicated than when buying or selling regular buildings. What often happens, therefore, is that JAN Hospitality will end up working for both sides of a deal – initially preparing the valuation for the building owners and then helping them to select the most suitable brand to operate the hotel itself, and then working together with everyone involved to ensure that the final deal works for all parties (whether that is a lease contract, management contract or something in between). This is, of course, different when it comes to the smaller hotels, where the owner of the building may well be the operator of the hotel, although they, too, have their own issues.
According to Jan Adamek, at the start of 2020 (ie pre-Covid), there were cca 22 4 or 5 star hotels being built/near to completion in the Czech Republic and 57 existing hotels under refurbishment/reconstruction. I wondered whether those that were in the process of being built had continued (or will continue) to completion, or whether they may be sold as is, and Jan’s view is that they will probably be completed, but, of course, there may be some delay. And as far as reconstruction works are concerned, whilst it looks as if some hotels have put the works on hold, others actually started their reconstruction works during the first lock down – in some ways, one could say that lockdown was a ‘good’ time’ to carry out such works, since usually the bigger hotels try to keep open (in order to satisfy their regular clients and keep their market share) during any reconstruction, and try to do it one floor at a time or similar. The Intercontinental Hotel Prague (which is due to be operated as the Fairmont Golden Prague Hotel by Accor) started its complete reconstruction right at the start of the first lockdown, and so it continues, as did the Marriott, who had started before the pandemic, but continued throughout lockdown and up until completion (see my previous blog).
For smaller, owner-run hotels, the whole situation regarding reconstruction is always complicated, as it is much more difficult to close part of a relatively small building without inconveniencing the guests staying there, and to close-down completely is difficult – especially in a city like Prague, which is a tourist destination pretty much the whole year round (or was!). However, whilst carrying out reconstruction work makes sense right now, smaller hotels may not have the financial means to do it and/or any bank may not be willing to offer a bank loan. Plus, of course, the lack of construction workers in the Czech Republic generally, makes it even more complicated when there is a bigger demand for them but a much smaller workforce. For that reason, just now there are a lot of small, boutique hotels looking very sad and unlikely to survive the next few months.
Despite a good summer, when the Czech Republic was operating pretty much as normal (except Prague, Český Krumlov and other destinations that rely on international tourists who did not appear), just now the Czech Republic is back in lockdown, so one has to wonder how much longer any of the hotels are going to be able to survive. Presumably the big brands will eventually bounce back (Prague is always going to be a hugely popular tourist destination), but there are hundreds of small boutique hotels around Prague and outside in the country and I wondered what Jan thinks the future holds for them, and whether they are likely to survive or sell up?
As far as the big brand operators are concerned, Jan agrees with me that they will definitely survive although some operators may change or move around. But the owners of the buildings may well be in trouble, with reduced rents necessary and very little government support (plus hotel leases often include special clauses that require them to pay a percentage of their income to the owner – so no income, no percentage). Jan expects that we will see many hotel buildings changing hands over the next 2-3 years.
So far as the outlook for the smaller hotels are concerned, especially outside Prague, Jan’s answer was quite surprising to me, since he expects that at least two third of them will be OK. His feeling is that whilst hotels in Prague, Český Krumlov, Brno, Ostrava may be suffering, there are other areas of the Czech Republic that have had bumper years – mountains and water destinations (e.g. Lipno lake) – since many Czechs have travelled around the Czech Republic a huge amount more than they would normally, taking breaks from the city in the countryside and their holiday this last summer and Christmas in the mountains.
Having said all of that, Jan’s general feeling is that once the Covid situation is under control and we move into the ‘new normal’, the whole hotel market in the Czech Republic will go through huge changes. Far, though, from crashing and burning, it sounds as if it is going to get very interesting; I told Jan that I had read that one of the big Czech billionaires had put a huge amount of money to one side in readiness for buying hotels once things go back to normal and I asked him what he thought about that and whether it was a positive sign that those ‘in the know’ feel sure that the hotel business will bounce back. Jan agreed that we should assume that soon there will be a lot of opportunities for those with money to buy a good hotel property in a great location.
I also asked him whether he was ready to take on anything, or whether he will be selective? He responded that it is always important to understand why an owner wants to sell and then to prepare a market value report and be able to discuss with the owner the market selling price – especially now, when a lot of nice hotels are not having results good enough to be sold for their best price – for those, he would recommend that they take 12-18 months with good management in place (and his team is able to propose the right managers), and then start the selling process once they are back on their feet, with better financial results.
Key in all of this is, of course, the future potential occupancy of an hotel, its average daily rate, and any other income and profit, as well as its location and the condition of the building. Plus, in the present situation, it will be key to know which employees are still involved and working as they are a big part of what makes any hotel successful.
Finally, and with my marketing hat on, I asked Jan what he would be doing to survive right now, if he was a hotel manager, and how he would plan his strategy for the future. Many of his answers, dare I say it, apply to all businesses, not just hotels. His suggestions:
- Digitalisation of everything possible
- Putting a lot of effort into marketing, especially social networks – Facebook, Twitter, Instagram etc.
- Improving customer service and CRM (customer relationship management)
- Re-thinking their target audience – for example, in the past, many of the hotels have focused on the US and Asian markets – and for the immediate future, more focus is going to have to be put on Europe
What Jan also mentioned is the importance of hotels making make sure that their offering and target audience match – i.e. how the hotel itself looks (the product), who the hotel is marketing its offer to (does the target audience match with the look of the hotel) and is that target audience actually the clientele that the hotel actually ‘wants’ to attract (there is no point in marketing to, say, the high-end luxury market, if the hotel doesn’t look very nice, or is super-modern and more likely to attract the younger and, in some cases, less affluent groups). It all sounds obvious, but, as with so many things marketing, many campaigns go astray due to forgetting these three key points.
So that’s it; the coming months are going to be very interesting for the Czech hotel industry, and whilst we can expect that a lot of the smaller operators may sell up, there is obviously a lot of money out there waiting to grab any deals. And the big guys; well, as I have said, we can expect them to bounce back pretty quickly – all may not be doom and gloom in the hospitality industry.