My choice of location for opening hotels depends on what a location could become, rather than what it currently is. If I could choose, I would opt for central Dalmatia.
Interviewed by: Sandra Babić
[email protected]
Photo: Željko Jelenski
It has been a full ten years since Ugo Group joined domestic and foreign hotel companies in the race for the leading position in domestic hospitality. Although many were surprised that a company whose core business is design, construction, reconstruction, and equipping of facilities stepped into a business with traditionally low rates of return, its business strategy has shown that there is indeed room for growth. More precisely, the group earns more than 60 percent of its total revenue from the hotel business. Ugo Group, owned by Veljko Župan, who remains out of the public eye, made its first hotel acquisitions after establishing Ugo Hotels in the Kvarner area, becoming the owner of the Milenij, Agava, and Grand Hotel 4 opatijska cvijeta.
At the end of 2001, the portfolio was joined by the Solaris hotel resort. Although the transformation of this hotel resort in the early nineties became the subject of an investigation in the Maestro affair, Ugo Group quietly became the owner of 66.5 percent of Solaris shares without much media noise or a desire to comment on it. Along with a campsite, marina, and an apartment complex, the group elevated four out of five hotels in Solaris to a four-star level, finishing the 2006 season with a record number of overnight stays. Although the business results of Solaris for this summer are not yet known, the company managed to increase revenue by 21.4 percent in the first half of the year, but also operated at a loss of 10 million kuna, which the management justifies by high investments. While investors on the stock market expect the price of Solaris shares to rise, Ugo Group is planning the development of both that company and Ugo Hotels, which will distribute ‘rewards’ cards to its most loyal guests and promote the Ugo Club program at the end of this week. Branimir Jurišić, the director of Ugo Group, spoke to Lider about the company’s strategy and domestic hospitality.
• Despite good statistics in domestic tourism, the rates of return on invested funds are still very low, estimated between one and three percent. How did Ugo Group enter the hotel business given these low returns?
– Unfortunately, we chose such an industry, perhaps out of love, how else to explain it? There is no one who could objectively assess the profitability of the hotel business. On the other hand, taxes and various contributions that often change retroactively, mostly upwards, are a significant unknown when planning the profitability of future investments. That is why many hotel companies are unable to service even basic obligations, let alone invest in future development and staff.
• You are a company that can do that? What is your approach?
– Since the core business of Ugo Group has been equipping, constructing, and reconstructing primarily hotel facilities, we have gained significant experience that we have applied in the construction of our own facilities. Thanks to this and the technology we use, we can build significantly cheaper, meaning that the technology reduces the operational costs of the facility and thus the total investment. For those who know how to build and work this way, the return on investment will also be faster.
• Why do you more often adapt existing facilities? Why not go for greenfield investments in the hotel business?
– In order to rebuild something, and also to demolish (when it comes to existing facilities), permits need to be obtained. The most common problem is obtaining documentation to enter new projects. The process is lengthy, so it is not surprising that investors give up on investments. Otherwise, most of our hotel facilities in Opatija are newly built and, as is known, of the highest category.
• Which segment do you invest in the most?
– We continuously invest in non-board consumption because that is where hoteliers can earn. Hotels that expect profit from board offerings and prices can lock their doors or at least will not achieve satisfactory results.
• So, do you think that domestic hoteliers still do not pay enough attention to non-board consumption?
– Hospitality in Croatia is still perceived through the sale of hotel rooms, which should have been abandoned long ago. Today, the most successful hotel companies base their operations on non-board offerings as a generator of high consumption levels. To develop non-board offerings and stimulate consumption as a cause-and-effect relationship, we need to develop programs, content, and new ideas, the implementation of which requires significant and creative work and engagement.
• What else would you highlight as weaknesses of hospitality in Croatia?
– The inconsistency of quality within destinations is a major problem in the development of tourism and hospitality here. Namely, investments in hotels and facilities that significantly raise and stimulate quality, evident in recent years, are mainly carried out in the privatized sector. Destinations where such facilities or even entire hotel complexes are located do not keep pace with that step. Especially the development of communal infrastructure lags behind, so the hotels themselves as micro-locations, regardless of investments and achieved quality, cannot fully express themselves. The communal fee and contributions paid, as well as the tourist tax, do not have enough return effects on the hotelier.
• How do you develop different destinations (central Dalmatia and Kvarner) where you own hotels?
– Solaris is primarily designed as a destination for vacation, family, and congress tourism. It has everything such a hotel needs: from a wellness center to a sufficient number of halls and accommodation capacities for many people. There are plans for Solaris that you will hear about soon.
• So, each hotel is specialized?
– Yes. For example, Ugo Hotels Opatija has seven top hotels in central Opatija positions: from the Milenij Hotel, which is the first five-star hotel in Kvarner and a promoter of Opatija tourism, to the Grand Hotel 4 opatijska cvijeta. The Milenij Hotel is recognized among business people as a place for meetings and relaxation. In 2005, it was chosen as the hotel of the year in the highest class, that is, the five-star category, on the Croatian Adriatic coast. This year, it is also nominated for the best hotel in the five-star category. The Grand Hotel has positioned itself as a congress and wellness center. This year, it has been nominated for hotel of the year in Croatia in the four-star hotel category. The Agava Hotel opened last year and is recognized as our boutique hotel with a special charm of old-time architecture and classic interiors.
