Three hotel groups manage nearly 50 percent of total Croatian capacities

The Croatian hotel sector is highly consolidated, with three groups – Valamar Riviera, Lukšić Group, and Maistra managing nearly 50 percent of total capacities, and another major consolidation and the emergence of another strong hotel company is expected soon.

This assessment comes from Sanja Čizmar, a senior partner at the consulting firm Horwath HTL Croatia and a long-time analyst of the hotel sector in Croatia, the region, and beyond. She emphasizes that consolidation processes in the hotel industry worldwide are very common, and in Croatia, they have intensified in recent years through several larger transactions after more than a decade of ‘stagnation’.

She cites examples of some of the largest consolidation processes in recent years during which Lukšić Group acquired Adriatic Luxury Hotels, Liburnia Riviera Hotels took over Hotels Cavtat and entered the region through acquisitions, Valamar Riviera integrated its ownership and management companies and announced interest in new ones, while Maistra acquired Hilton Imperial Dubrovnik and announced the possibility of portfolio expansion.

– In Croatia, considering global trends, as well as the situation in the country and the region, it is expected that leading companies will continue to ‘acquire’ smaller ones, and the continuation of the strategy of merging companies within the same ownership portfolio into a single company is also anticipated, says Čizmar.

She adds that the attention to consolidations in Croatian hospitality was also drawn by the recently announced one of the largest transactions in the hotel industry in the world, valued at 12.2 billion US dollars, in which Marriott International is acquiring the Starwood Hotels and Resorts group.

This announcement became more interesting for Croatia as it was approximately at the same time announced that the Marriott group with the Ritz-Carlton brand intends to participate in returning Kupari to tourist function with Avenue Investments, whose offer for that complex was accepted, and also because there are two hotels under the Starwood brand Sheraton in Croatia, in Zagreb and Dubrovnik, backed by HUP-Zagreb. Besides these global changes, Čizmar believes that another major event could occur in the global hotel industry as, she says, it seems that the InterContinental Hotel Group is also ‘on the radar’ for acquisition by Chinese investment groups.

‘Flag planting’

Following such trends, Horwath HTL, namely Čizmar and consultant Mirko Jergović, have prepared a market report titled “Consolidation of the Hotel Industry: From Global to Local,” which analyzes not only the global market but also the Croatian market. They emphasize that Croatia, although lagging by three to four decades, is becoming part of global trends in these processes, not just in terms of growth rates of tourist traffic and popularity as a tourist destination.

– In a time of rapid changes in the global market, the reasons driving the consolidation of the hotel industry are equally strategic and economic, and it can be expected that the processes of takeovers and acquisitions among global hotel companies will continue as a strategy to gain a larger market share, but also to create added value and a higher level of efficiency, emphasizes Čizmar.

In the global market, an important motive for the consolidation of hotel companies is also the need for a more efficient response to the challenges posed by the growing position of online travel agencies and the online business model in general, including the rising ‘sharing economy’. However, in the Southeast European region, which significantly differs in the level of development of the hotel market from highly developed markets, the motives and goals of acquisitions and consolidations are different compared to the world and are more conditioned, as Čizmar says, by securing attractive locations.

– Consolidations in the Croatian and regional hotel market are primarily conditioned by ‘flag planting’ on attractive geo positions as location is the ‘key to success’ in tourism, or by purchasing less valuable properties that can be converted into an attractive tourist portfolio, which increases the market share of the acquirer, but also opens the way for restructuring or reengineering of companies, thus leading to increased savings, productivity, and of course ownership profit increase, analyzes Čizmar.

She estimates that, considering the past and planned processes in the medium term, local and regional players will continue to prevail in Croatia, as they more easily overcome and eliminate obstacles in the local environment.

– With the increase in competitiveness of the business-investment climate in Croatia, international investors can also be expected, but mainly on a greenfield basis since such projects have no internal restrictions and allow for maximum professionalization and management, concludes Čizmar.