Deutsche Hospitality has made a 51% investment in Zleep Hotels, giving it an economy brand and taking its stable to five flags.
The company is planning to expand the brand into Europe under a licensing agreement, while Zleep’s founders will grow it in Scandinavia.
Peter Haaber, the founder & CEO of Zleep Hotels, told us that the deal came about as a result of good “chemistry” with Deutsche Hospitality. He said: “They understand this for the long-term. Zleep Hotels in Denmark will look at the Nordics and Deutsche have a team in Frankfurt who will look at the rest of Europe.
“They will be operating out of Germany and we will be supporting them like a franchisor. How exactly this is going to work we haven’t exactly agreed on, but we will work it out with the first couple of sites. They are highly motivated to get lots of hotels in Germany and Europe – they have a lot of opportunities now that they have this brand that they could move on before.”
Deutsche was expected to look to leases in Germany, with Haaber adding: “It’s going to be difficult to do management contracts, we have some in Denmark, we have some leases and one franchise – we need to work on the franchise model. We are better operators than franchisors.”
In 2017 Haaber created third-party operator Core Hospitality, looking to benefit from the appetite for growth through franchises in the Scandinavian region. He said: “Core is a separate company with a new CEO which sits alongside us, giving Deutsche opportunities with its other brands.”
Andrew Harrington, retained investment banking advisor to Zleep, told us: “Zleep is a wonderful business. The Scandinavian countries are high labour cost countries, so you need to be efficient on the labour side. Right from the beginning Peter found ways to minimise the labour costs – his great secret is good quality, limited service and manageable costs.
“It’s not just Denmark, it’s the whole of Scandinavia which has a dearth of limited service brands. There are no big brands in Scandinavia, there’s an opportunity there.
“The company was approached by a number of investors – private equity groups, real estate investors, strategic investors, with lots of interest from private equity, family offices, trade buyers and Deutsche Hospitality was the one where the fit was good. They were looking for a limited service brand that they could take into Europe, into Germany and there were good synergies on all sides. It’s a win win.”
Commenting on the issues which have so far faced international flags looking to expand in the region, Haaber added: “Every international brand continues to have difficulty operating here if they don’t have good local partners. Labour costs her are extremely high – we pay a housekeeper EUR20 per hour, so we need to be more efficient. You need fewer people here because we have a flatter management style and people are taught to take responsibility. If you look at the social models of Scandinavia, we can cut out a lot of middle management and give opportunities to the workers instead.”
Deutsche Hospitality CEO Thomas Willms added that Haaber had “created a remarkable success story in the past few years in establishing a well-known brand among those guests who are price-conscious but at the same time emphasise on design and quality during their hotel stay.
“With their strong presence in Scandinavia, Zleep Hotels are the ideal partner for the further growth of Deutsche Hospitality.”
The four other brands in the group’s portfolio were: Steigenberger Hotels and Resorts, Maxx by Steigenberger, Jaz in the City, and IntercityHotel.
Zleep currently has 10 hotels in Denmark and one hotel in Sweden, with four in the planning stage. Both parties, Deutsche Hospitality and Zleep, will invest a multi-digit million amount in the further development of the company.
Haaber added: “Zleep’s vision is to always deliver quality, service and design at a great rate for the many. Since our founding in 2003, Zleep has developed into a well-known and successful hotel brand in Scandinavia. The cooperation with Deutsche Hospitality enables us to gain a foothold in Central Europe in particular. So the different brands complement each other perfectly and we can develop together.”
HA Perspective [by Katherine Doggrell]: Many operators have looked at the Scandinavian market with a certain covetousness, but with the kind of wariness reserved for battering themselves with birch twigs, eating pickled fish and other Scandi clichés. Success has not been a feature – as Haaber noted when he set up Core.
Deutsche Hospitality is not looking to take any Northern risks, leaving that to Haaber and his team and focusing instead on the regions which it knows.
As Haaber noted, the Scandinavian market is not the only one with staffing issues and the learnings made at Zleep are infinitely transferrable, making it a brand which can immediately prove its worth.
Additional comment [by Andrew Sangster]: Here at Hotel Analyst we were very happy to see the consummation of this deal. Andrew Harrington first got to know Peter Haaber at one of our events. To have the buyer be one of our long-standing corporate subscribers was the icing on the cake.
Looking at the wider implications of the deal, it is clear just how intent Deutsche Hospitality are in becoming a pan-European group that reaches beyond its German roots.
Previous CEO Puneet Chhatwal (now CEO at Taj) created the umbrella branding Deutsche as a platform for such growth and now Willms is executing on that vision while tweaking with his own perspective.
With Zleep, Willms has taken Deutsche in an unexpected direction – towards economy hotels. But the move gives the company a full offer across the chain category spectrum.
Hotel brand companies like Deutsche face a challenge, being squeezed from above by the big global brand companies and squeezed from below by the newer and nimble start-ups which are often geared into emerging lifestyle segments.
By building strength and depth in home markets, national and regional chains can construct a bulwark against the twin threats. For Deutsche, it has the added advantage of operating mostly in markets that are predominately leased.
For global brand companies, leases are anathema – witness Core Hospitality’s deal to run two Moxys – and start-ups do not have the same covenant to offer.
There are still challenges, not the least being how do you develop a brand with the more limited resources available when compared to the global players, but this too can be an advantage. Regional chains can be more flexible in how they approach the distribution of their room inventory, particularly if they are operating leased or partially owned properties.
A decade or so ago, many in the hotel industry were writing the obituary for midmarket hotels. While these properties were indeed squeezed between branded budget hotels and more upscale offerings, nearly all survived and have reinvented themselves, even if sometimes under new ownership and branding.
The same is now true for Europe’s mid-sized hotel chains. While some are indeed being consolidated, many continue to offer a unique and compelling proposition to property owners and their company shareholders. They do so by constantly reinventing themselves as Deutsche has done.