Grelowski: The trick is to build a €1 million hotel and make it profitable
Q: Orbis's revenue in the first half of the year was 13.5% lower than in the same period of 2001. Why? A: We are doing worse than a year ago, but compared to the whole industry, it becomes clear that we have found the means to minimize severe economic conditions. We have learned several things. Our privatization process and the way to (our) current market position took a long time. We started restructuring and cost-cutting before our competitors. Our industry is extremely sensitive (and) is known as an "early warning system" for economic cycle changes both upward and downward. During the last year, we observed that our results and our number of (room) vacancies indicated that Poland was heading toward an economic slowdown. Analysts, who are not directly involved in our industry, were surprised and believed that we only wanted to find an excuse for our weak financial results.
Q: What are the specific reasons for the drop in revenue? A: The sources of revenue in our industry are divided into two (parts). The core of our income is based on companies and businessmen, and it is only complimented by tourism. We are no tourism giant. We have no tourist attractions that people dream of. The tourism part accounts for as much as 30% of our revenue. The rest is up to business. That is why we are directly connected to the economic cycle. When gross domestic product (GDP) growth amounted to 6%, we were doing exceptionally well. When GDP growth is at last year's or this year's levels, we are its first victim. During an (economic) crisis, business trips are the very first area of cost cutting. Today businessmen arrive in the morning and depart in the evening. The number of foreign businessmen arriving in Poland has significantly dropped (since) there are fewer reasons for them to be here. We can say that the falling demand is followed by structural changes in the industry that are positive. Every downward slope forces self-evaluation saturated with criticism, and that is the reason for us being much more efficient now than two or five years ago.
Q: Has a drop in market share accompanied the falling revenue? A: Our market share is naturally eroding (since) our industry is probably the only one that experiences a constant growth of supply. Office building construction seems to slow down while there are still new hotels being built. We estimate our market share to (be) about 35%. Of course, there are cities where we are dominant with 50%, but there are (also) cities where our share is decreasing, such as Kraków and Warsaw. We are still the leader there, but we have to compensate for losses of market share with better organization of services.
Q: What is the competitive advantage of Orbis? A: Our golden asset is the location of our hotels because in most cases Orbis hotels are in city centers. This is of crucial importance.
Q: What advantages are there in being tied to Accor? A: Our marriage to Accor was a good choice because it is stabilizing our position in the domestic market. In our 1997 initial public offering, we declared ourselves a hotel group operating in the middle and lower (range) of the market, meaning economy class. Nothing has changed since then, and this (idea) also helped us to pick a strategic partner. Accor is a world leader in economy-class hotels, whereas the other hotel chains that are present in Poland are more focused on the high-end segment of the market, which is highly limited. The future of the hotel market is about the domestic market, meaning more Polish guests. We are going in this direction, although the proportion is currently unnatural. Foreigners amount to about 70% of the total number of our visitors. The ideal would be 50-50. It's possible, (and) we have a good start with the Ibis brand. The prices there are comparable to those of cheap hotels, (and Ibis) is a sort of best-seller on the market. We would have no problems selling an expensive product at a low price. It is harder to create a cheap product and sell it at a low price and still make a profit. This requires experience.
Q: Considering the current state of the market, is there room for Orbis to grow? A: Yes. After our competitors complete the construction of their (new) hotels, we will still find an unsatisfied demand for economy-class hotel rooms. There is much to do in eastern Poland. I don't mean building luxurious residences, but cheap and comfortable hotels. Here the French experience will help us. It's not hard to build a €100 million hotel in the center of Warsaw, but the trick is to build a €1 million hotel and make it profitable. This is an extremely sensitive area, and our knowledge (of the market) will be of use here. Q: Now that your position in Poland is stable, will you expand abroad? A: When considering expansion abroad, one can only think of going east. The West has its own rules that we haven't understood yet. We received several offers from Lithuania and Ukraine, but luckily we did not accept them and purchase any hotels there. Accor turned out to be an active investor there and is heading for Russia. As we are taking over Accor hotels in Poland, we may expect that the management center of all the hotels in Central and Eastern Europe will be located here. If Novotel and Ibis hotels are created in the east, they will naturally be consolidated under the Polish banner. It would be inefficient to create a second, very similar structure just across the border.
