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New Hotel Brands Target Germany

21 September 2011
Mayer Brown JSM Newsletter

The German hotel market remains vibrant. In particular, a great number of previously unknown brands are seeking market entry throughout Germany.

Most of these new brands are being introduced in the budget segment which in the past has been dominated by private, non-branded hotels. New brands are, however, to a certain degree also emerging in the still crisis-ridden luxury segment as well as in the apartment hotel segment.

This increase in brand diversity stems from three main sources:

First, from the large international hotel chains (already present in Germany) which are either creating wholly new brands or introducing for the first time to Germany previously existing brands. As an example of the latter situation Hilton has announced the opening of its first Waldorf Astoria hotel in Germany in Berlin by the end of this year. The budget trend continues strongly. For example, Accor has created three additional brands (all seasons, Label McGallery and Adagio) which have recently been introduced to Germany offering potential franchisees more flexibility in contrast to the strict standardization rules of Etap and Ibis.

Second, from foreign hotel chains seeking entry into the German hotel market mainly in the mid and luxury market segments. For example, the Dutch Sandton Group is targeting existing hotels or project developments in the 3- and 4-star categories and offers both lease as well as management agreements. The luxury group Jumeirah from Dubai has opened its first German hotel in Frankfurt and a first hotel of the 5-star brand Meritus from Singapore is currently under construction (in pagoda style) in Frankfurt.

Third, from newly founded hotel groups. For example, in line with the budget trend, the low budget design brand McDreams-Hotels has recently opened its first hotel in the Rhein-Ruhr area with prices starting at EUR 29.00 for rooms as of 10 sq. m.  They are looking to expand up to 50 hotels across Europe within the next ten years.

Critical voices fear that this increase in brand diversity will make the hotel market more complex and less transparent for the consumer and also make it more difficult for the individual brands to remain visible in an environment of increasingly cutthroat competition.

We believe that this new development will certainly benefit those brands which succeed in establishing themselves visibly in the market on a long-term basis. This poses a particular challenge in the fragmented budget segment where brand-awareness and brand visibility is so far practically non-existent in Germany. Nonethelesss, we believe that these are important factors for success in the budget segment where consumers are also looking for the value proposition offered by brands.  In any event, this new wave of brand diversity in Germany offers exciting new opportunities for international investors. A trend which we may see in other markets, for example, is Asia.

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