Strategic alliances proliferate in all-inclusive space
 
Strategic alliances proliferate in all-inclusive space
07 NOVEMBER 2018 8:11 AM

Strategic partnerships in the all-inclusive resort sector are becoming more common. Here’s a look at what’s fueling that trend.

Several strategic alliances have been announced in the all-inclusive resort sector of the Caribbean and Latin America over the past six months.

What exactly is behind this growing trend?

Growing competitive intensity within the global hospitality sector, technological changes and shifts in customer preferences and profiles are fueling disruptions, consolidations, new brand launches, and specifically, strategic alliances between all-inclusive players.

Although strategic alliances might be created to reach different goals, all of these all-inclusive resort companies are leveraging each other’s respective strengths, resources and expertise to achieve a shared business objective, sustain a competitive edge, curtail a competitive threat and increase profit potential and enterprise value. This presents the query: Are two better than one?

Below is a deep dive into recent all-inclusive sector strategic alliances, commonalities and challenges among these alliances and their key success factors. These alliances are listed in order from the most recently announced.

Apple Leisure Group (ALG) and Grupo Inversor Hesperia (formerly with NH Hotel Group)
This month, ALG and Grupo Inversor Hesperia (GIH) announced a strategic alliance to operate four resorts under the AMResorts brands in Spain.

Previously, the GIH’s four resorts were operated by the NH Hotel Group, which had formed an alliance with ALG in May 2018 to fuel European expansion for AMResorts’ existing high-end brands (Secrets and Dreams) and introduce a new mid-tier brand (Amigo) in that region.

Under the original alliance with NH, AMResorts would oversee brand management, distribution, marketing, and sales, while NH would maintain operational management responsibilities for GIH’s assets.

In fact, the original ALG-NH strategic relationship began in 2011 on a smaller scale with three properties in the Dominican Republic whereby the respective parties’ commercial (AMResorts) and management (NH) synergies were leveraged successfully.

However, since Minor Hotels acquired majority control of NH in late October 2018, GIH terminated the aforementioned resort management agreements with NH and entered into the strategic alliance directly with ALG for both licensing and operations of these first four resorts.

This is a prime example of ALG applying a conversion model to achieve speed to market and leverage its all-inclusive sector expertise, combined with GIH’s local presence and relationships.

Sunwing Travel Group and Rex Resorts
In October, Sunwing and Rex Resorts announced a strategic alliance to enhance Rex’s portfolio of six Caribbean properties through product renovations and rebranding in order to leverage Sunwing’s distribution, scale and generate incremental value to guests, employees and Rex’s ownership.

Hilton and Playa Hotels & Resorts
In September 2018, Hilton and Playa created a strategic alliance to expand Hilton’s all-inclusive resort portfolio in the Caribbean and Latin America with the first two converted properties to open later this year, with initial plans to open eight additional all-inclusive resorts together by 2025.

This strategic alliance provides Hilton with speed to market through conversions of existing assets—generating immediate unit and fee growth—new product offerings for its guests and all-inclusive operational expertise from Playa. In exchange, Playa benefits by converting some resorts to a well-recognized brand with ample distribution, accessing new customers and generating growth.

Apple Leisure Group and Grupo Hotelero Santa Fe
In June 2018, Apple Leisure Group and Grupo Hotelero Santa Fe announced a strategic alliance to brand and operate all-inclusive resorts in Mexico whereby Apple’s subsidiary AMResorts launched a new family-oriented resort brand (Reflect) to be co-branded with GHSF’s existing Krystal Grand properties in Cancun, Los Cabos and Nuevo Vallarta.

Under this cobranding arrangement, AMResorts is responsible for sales and marketing, while GHSF retains ownership and operations of the properties.

As a result, GHSF expects to optimize its properties’ performance by generating higher international dollar-denominated sales, achieving lower customer acquisition costs and accessing more direct distribution channels. These are all crucial organizational goals, especially for institutional investors in Mexico.

Commonalities and challenges among recent strategic alliances
Separating branding from operations in order to achieve shared business objectives is a key goal and an important commonality among the strategic alliances presented above. Other commonalities include:

  • achieving rapid and cost-efficient market entry strategies through conversions;
  • defraying costs and risks associated with research and development;
  • creating value through learning (knowledge transfer) from specialized partners;
  • facilitating access to new geographies;
  • leveraging brand recognition; and
  • enhancing returns on investment.

Strategic alliances, however, also are quite complex and present unique challenges.

Fundamentally, strategic alliances require a high degree of interdependence between businesses, which might continue to compete with each other in the marketplace.

Therefore, it is important to contractually document the strategic alliance details such as the responsibilities of the parties, obligations, risks, rewards, governance, financial commitments and accountability, among other key specifics.

Often, three components of strategic alliances are not planned for in sufficient detail: legal risks and responsibilities, agreement adaptations for unforeseen business and industry changes and the potential formal processes needed for unwinding or dissolving an alliance.

In some cases, two can be better than one, but the complexities of such a union must be planned for accordingly.

Key success factors for strategic alliances
Keeping in mind the challenges of strategic alliances, companies should also focus in on some of the key success factors to successfully implement these specialized collaborations, including:

  1. Affinity: having strategic, cultural, operational and organizational fit between the parties;
  2. Alignment: sharing a common vision and approach between teams and cultures;
  3. Accountability: possessing the appropriate shared metrics for tactical execution; and
  4. Agility: recognizing that change is constant and adaptability is the key to longevity.

As evidenced by additional global examples of recently announced strategic alliances, hospitality companies like Auberge Resorts, Hyatt Hotels Corporation and AccorHotels, among others, are embracing like-minded partnerships and a mutual exchange of unique strengths to capture new sources of innovation and monetization.

French writer Antoine de Saint-Exupéry once said, “One man may hit the mark, another blunder; but heed not these distinctions. Only from the alliance of the one, working with and through the other, are great things born.”

Now, as larger international hospitality stakeholders are focused on penetrating the different Mexican, Caribbean and Latin American hotel segments and sectors, smaller yet well-qualified local and regional groups are likely to pursue these flexible strategic alliances to more effectively compete and grow, especially during upcoming industry sector cycle downturns.

Are two better than one? As we look toward the future, hopefully great things—and great alliances—will tell.

Jonathan Kracer is Managing Principal of SION CAPITAL LLC, a hospitality and real estate consulting and investment firm focused on the North American, Latin American, and Caribbean regions. He is a recognized expert on the hospitality sectors of South Florida, Latin America, the Caribbean, and Mexico. He has been a columnist with HNN since 2012 and can be reached via email at info@sioncapitalco.com. More information about SION CAPITAL LLC can be found at www.sioncapitalco.com.

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