Radu Enache, Continental Hotels: We expect that in 2022 we will reach 80 percent of the turnover achieved in 2019

The COVID-19 pandemic hit bad HORECA industry in the last two years. Hotels and restaurants were forced to close and suffered heavy financial loses. Hopes were high for 2022, but the pandemic is not over yet and the gas and electricity prices are adding pressure on the industry. Business Review talked to Radu Enache, CEO at Continental Hotels to find out more abut the state that HORECA industry is in today and what are the hopes for the future. 

Business Review: How has the Continental Hotels business evolved since the start of the pandemic? How much did the restriction period affect the company’s activity?

Radu Enache: The beginning of the pandemic, which started with the state of emergency, practically reduced the business to zero, from where we had to start again in June, trying to rebuild the trust of the guests through the hygiene measures implemented in an emergency situation.

When it became clear that the pandemic would not end soon, very painful measures were implemented. Thus, we decided not to reopen the 4 hotels at that time still under Accor management and to start a wider renovation process, “taking advantage” of the drastic decrease in market demand. This decision combined with the need to resize the existing teams according to the new reality led to the loss of almost half of the employees.

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Regarding the year 2021, during this period, the 8 established hotels that we have in our portfolio, without considering the results of the newly opened hotels, brought significant increases compared to 2020. We are talking here about a percentage of over 40 percent. Unfortunately, the same percentage is the decrease compared to 2019, an extraordinary year for us.

From the industry’s point of view, however, the situation is not at all optimistic. In addition to the losses that we and other colleagues registered due to the restrictions, 2021 it was only the beginning of hell for our industry. Both 2020 and 2021 were years in which HORECA’s businesses were supported, more or less by each company, with their own money, with reserves gathered in recent years. We all had high hopes for 2022. However, the second half of the last year started with troubling and unpleasant news: the rise in gas and electricity prices, which are felt in early 2022.

B.R.: Restrictions have changed consumer behavior when it comes to tourism or going to a restaurant. Do you think there is a chance that this behavior will continue in the longer term?

R.E: As a result of the two years of restrictions and limitations, we expect a higher effervescence in the typical periods for individual tourism, leisure, for classic cities in customer preferences, but also for new destinations so far. A good example in this sense is the Mehedinti area, Drobeta Turnu Severin, an area that, before the pandemic, despite its beauty and numerous tourist attractions was not known by Romanians, but with the limitation of international traffic tourism in the area has grown exponentially.

It is true that during all this time the “virtual” restaurants that deliver at home have had extraordinary increases. However, we do not believe that in the medium term the tendency to order in a package will be maintained.

As for the customers’ attention to “consumption”, it is an element that has nothing to do with the pandemic period, but with the economic situation that awaits us, as mentioned above.

B.R.: You didn’t stop investing in 2021. How much investment is needed in general in HoReCa in Romania? What about Continental Hotels assets?

The year 2021 marked the celebration of 30 years of activity. 30 years of expertise, with a great team behind it. Also in 2021 we invested approximately 7 million euros in the renovation and reopening of 3 hotels under the Continental brands: Continental Forum Constanța, Continental Forum Bucharest and MyContinental Sibiu as well as in the preparation of the fourth hotel for opening in the first quarter of 2022, which is MyContinental Bucharest.

In general, in HORECA businesses you can never stop investing, because the client’s profile is constantly changing, becoming more and more informed and up to date with international trends, having permanent access to online platforms.

It is even harder for restaurants not to invest permanently and to reinvent themselves in certain situations, given the hyper-competitiveness in the field (most bankruptcies worldwide come from the field).

B.R.: How has turnover and profit evolved in recent years? When do you think you will reach the income of the years before the pandemic?

R.E.: As I mentioned, starting from scratch in March 2020, the year 2021 came with increases of approximately 40% compared to what we managed to achieve in 2020 under the given conditions. Profit margins during this period, despite all the measures taken and the relative aid provided by the state, deteriorated considerably.

Although we expect that in 2022 we will reach 80 percent of the turnover achieved in 2019, an extraordinary year for the industry, when we talk about profit margins the figures are darker due to cost increases – utilities, raw materials and materials, such as and interest costs – and the impossibility of finding these costs in hotel rates, to which is added the pressure on wage costs generated by the acute shortage of labor.

Regarding the revenues from the years before the pandemic, we estimate that the turnover in 2019 will be reached and, hopefully, exceeded in 2024.

B.R.: How much has the exponential rise in gas and energy prices in recent months affected you? How much will you increase your fees to cover the extra costs?

R.E.: As I said, these increases are a major contributor to eroding operating profit margins. The increase of tariffs, although necessary and justified, cannot be easily achieved in a market with low demand but especially unpredictable.

It should be noted that in the industry the competition is not only the hotels in the country but it is found in many other alternative tourist destinations, which, however, do not face these economic problems.

If this rise in price persists for more than a few months, the consequences will be severe for the HoReCa industry but not only, probably degenerating into unpredictable inflation.

B.R.: What are your plans for the coming years in Romania? In addition to investing in owned assets, do you intend to purchase new assets?

The Continental Hotels investment program remains the same from the point of view of the intention to develop hotel capacities on some of the owned lands, namely in the period 2022-2023 a hotel with 150 rooms 4 * Forum in Brasov and in the period 2024-2026 a hotel complex of 200-240 Hello and Forum rooms of 2 and 4 stars, in Iasi.

We do not exclude in these intervals any other investment opportunity for the expansion of the number of operating rooms of the Continental chain. In this sense, we explore with interest the entire Romanian hospitality sector, both business and leisure.

B.R.: How do you think tourism in general will evolve in Romania in the next period?

R.E.: The evolution of this year’s demand will depend very much on the number of “waves” and new variants of SARS-COV-2.

At this point, we expect the first quarter to be affected by what has already begun, and we do not anticipate significant increases from 2021. The rest of the year will depend heavily on how the authorities react to any new strains.

That being said, we have reason to be optimistic. The reintroduction of holiday vouchers for budget holders is an opportunity for the summer period.  The need for certain companies, and especially for their employees, to rebuild business relationships in the traditional way, probably tempered by the reduction of travel budgets after 2 years of “online”, as well as the savings made by people in these two years in which the possibilities of travel were limited, cumulated with the need for normality are some of the pluses of this period. In addition, the availability of EU funds for specializations, trainings in various fields can increase the segment of MICE (Meetings, Incentives, Conferences, Exhibitions).

It remains to be seen what the impact of cost increases, whether on staffing, inflation or energy costs will be on the prices of industry players. Normally, we should see a significant increase in tariffs, but this will probably be tempered by the need to recover the pre-pandemic turnover.