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Accor’s Hennequin May Draw on McDonald’s to Boost Hotel Brands

Accor SA Incoming CEO Denis Hennequin
Denis Hennequin, incoming chief executive officer of Accor SA. Source: Accor via Bloomberg

Denis Hennequin has to turn hotels into hamburgers.

The 52-year-old Frenchman becomes Accor SA’s chairman and chief executive officer tomorrow after 26 years at McDonald’s Corp. He should take cues from his former employer to provide consistency at the Mercure and Novotel brands, investors said.

Like “the Big Mac, Accor brands need to be able to deliver the same product wherever you go,” said Ian Gamse of London-based Otus & Co., which advises Marriott International Inc. and Hilton Worldwide Inc. “Accor may have to trim its portfolio of brands if it can’t coherently explain the difference between them, and prune hotels that don’t conform.”

Hennequin will be Accor’s fourth chairman in six years, replacing Gilles Pelisson, 53. The Evry, France-based company’s chains range from the budget Motel 6 that offers $35.99 rooms on U.S. highways to Sofitel Luxury Hotels, where suites can cost more than $4,000 a night.

Stronger brands, consistent quality of rooms and staff may allow Accor to raise prices and could boost revenue per available room by at least 10 percent, said Cédric Walter, who helps manage 4 billion euros ($5.3 billion) at Lux-Investment Advisors in Luxembourg. Higher occupancy and rates will make it easier for Accor to meet its goal of becoming Europe’s biggest franchiser, he said.

“Customers need to recognize what they are looking for in a brand and today it can be a bit of a lottery” with some Accor chains, said Walter, who may buy more shares. Hennequin’s experience will be a “great help” in increasing consistency.

Share Performance

Accor shares have gained more than 45 percent since the hotel business was split from its service-voucher business in July and about 80 percent since Pelisson took the chairman position in 2009. In that period, InterContinental Hotels Group Plc and Marriott almost tripled and Wyndham Worldwide Corp. rose nearly eightfold.

Pelisson’s appointment as CEO was terminated in November because of differences with the board. Colony Capital LLC became Accor’s biggest investor in 2005 and currently holds almost 19 percent. They helped oust Jean-Marc Espalioux, who had been chairman since 1997.

Accor, which also owns the Ibis and Etap Hotel brands, aims to open at least 35,000 rooms a year, with more than 80 percent under management-or-franchise contracts. The company is selling hotels and signing agreements to operate or franchise most of them, which it says may help reduce adjusted net debt by 2 billion euros between 2010 and 2013.

Franchise Strategy

Hennequin headed McDonald’s in Europe from 2005 until Nov. 30, with responsibility for more than 6,800 restaurants in 39 countries and a strategy based on franchising. He joined Oak Brook, Illinois-based McDonald’s in 1984 as an assistant store manager and has been a director of Accor since 2009.

“Hennequin’s experience is exactly what Accor needs to turn the group into a cash cow,” said Guillaume Rascoussier, an analyst at Oddo & Cie. with a “buy” recommendation on Accor. “He is better positioned than his predecessor to manage Accor’s move from leased to franchise hotels. The biggest change needs to be made inside the company, which isn’t experienced in promoting and attracting franchisees.”

Accor should ensure consistent service and quality throughout the Mercure network, including staff training, taking action on feedback from customer surveys and “mystery” clients that report on hotel standards, said Vanguelis Panayotis, director of development at Paris-based MKG, which advises hotel investors and operators.

Hotel Renovations

The company closed more than 50 Mercure hotels between 2008 and 2010 and rolled out a new Novotel room last year starting in Asia. Renovated hotels produce better results because customers pay more for the update and the properties attract new clientele, Accor said.

Motel 6 has refurbished about 70 percent of its 1,000 locations in the U.S. and Canada, adding wood-effect floors, 32-inch flat-screen televisions and couches in some bedrooms.

“Accor needs to create stronger brands now so customers will choose to stay at its hotels and franchisees will see the benefits of being associated with the group,” Otus’ Gamse said. “Otherwise, the brands may end up being further diluted as the group tries to expand outside Europe.”

Hennequin said at a Dec. 12 meeting with reporters that the business plan won’t change “drastically” and Accor must increase its presence in all regions, especially developing markets. Accor declined to make him available for further comment.

‘McDonaldize System’

“Hennequin will McDonaldize the system” at Accor, said Mario Resca, former head of the world’s biggest restaurant chain in Italy. “He’s a bit of a bureaucrat, an important attribute as a regional manager at a huge company like McDonald’s, and he was a good executor,” said Resca, who worked at McDonald’s for 15 years until 2007.

Intercontinental, the world’s largest hotel group by number of rooms, says its Holiday Inn brand has increased average revenue per available room by as much as 7 percent after a $1 billion renovation.

At the end of 2009, Accor hotels had an operating income of 235 million euros, compared to $363 million at InterContinental.

“Hennequin will have to re-challenge himself for Accor, where he takes global decisions, rather than follows orders to implement strategy decided by top management,” Resca said.

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