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Inter-Continental plans expansion in Brazil
Hotel & Motel Management / October 7, 1996

By Larry Luxner

SAO PAULO -- Inter-Continental Hotels, which has just opened its newest Latin American property, the $55 million Inter-Continental São Paulo, plans to spend up to $300 million over the next five years on 10 hotels and resorts in Brazil's biggest travel markets.

On Sept. 9, the chain -- owned by Japan's Saison Group -- officially inaugurated its 193-room luxury hotel in São Paulo, Brazil's financial capital and the largest city in South America, with a party attended by 700 people including Brazilian actress Marilia Pera, the governor of São Paulo state and dozens of politicians and CEOs.

General Manager Xavier Veciana said the hotel, which had a soft opening June 11, finished August with a 62% occupancy rate, and will probably end the year at around 75%. The all-business property relies on large corporate accounts such as Johnson & Johnson, Mitsubishi, Toyota and Citibank (whose Brazilian headquarters are just across the street on Rua Alameda Santos).

"We are a medium-sized hotel which has positioned itself as the No. 1 hotel in the city," Veciana said in a recent interview here. "The concentration of trade and financing in São Paulo through the increase of commerce among Mercosur countries creates a growing demand in São Paulo for hotel rooms, and a lot of international companies are moving their Latin American headquarters here from Miami and other cities. Also, inflation has been steady, and the country is much more stable than before."

About 95% of all guests are business travelers, and at least 40% of them are from Brazil or other nations belonging to the Mercosur trading bloc. Another 30% come from the United States and Canada, 20% from Europe and the remaining 10% from Asia.

The hotel itself is 40% owned by Inter-Continental and 60% by Brascan Imobiliária S.A. -- a Brazilian-Canadian conglomerate with interests in construction, real-estate, shopping malls, insurance and banking. The property, just off Avenida Paulista -- São Paulo's main thoroughfare -- boasts business desks in every room, along with special outlets for computers, fax machines and modems, and phones equipped with answering machines that leave pre-recorded messages in four languages. Other amenities include jacuzzis in every bathroom, and a convention center with meeting space for up to 1,000 people, and the 139-seat Restaurante Tarsila, run by French chef Dominique Gapany.

According to Veciana, 47, who has been with Inter-Continental for 14 years, the hotel has 230 employees, charges an average $210 per room and will generate $20 million in sales next year, rising to $30 million annually over the next five years.

That's certainly welcome news for J.T. Kuhlman, Inter-Continental's president for the Americas, whose company opened its very first property 50 years ago in the Brazilian city of Belem.

"We've always been in the Latin market. There was quite an expansion in the 60s and 70s, then things went stagnant," the Miami-based executive told Hotel & Motel Management. "But in the last three years, we've really come back strong in South America."

"We see South America going the way of Asia 10-15 years ago, thanks to a tremen-dous boom in both business and leisure travel, not so much fueled by North American and European markets, but by intra-regional travel -- i.e., Mexicans going to Brazil, Argentines going to Chile. We see that as one of the fastest growth markets in the world."

Brazil alone has 160 million people, or more than half of South America's population. Inter-Continental has long been present in Rio de Janeiro -- Brazil's leading tourist destination -- where it runs its flagship 437-room Rio Inter-Continental together with Brascan. In fact, Rio is the home base for Paulo Senise, head of the recently formed Inter-Continental Development Co., whose sole job is to find new sites, partners and opportunities throughout Brazil.

Figuring 10 properties costing an average $30 million each, that's an investment of $300 million, said Veciana, who recently ventured into Brazil's vast interior to drum up weekend business for his elegant new hotel. "There are lots of rural families with huge revenues from cattle, citrus and sugar cane. They travel at least three times a year."

Kuhlman says he'd like to see Inter-Continental open business-class hotels in Brasília, Porto Alegre, Minas Gerais, Bahia, Curitiba, Belo Horizonte and Manaus, and resort hotels in Fortaleza, Recife and Foz do Iguaçu. He made it clear that Brasília -- the nation's capital, carved out of the wilderness in the 1950s -- would be Inter-Continental's next destination in Brazil.

"Brasília has no international hotel brands," he said. "It's been a tough market for years, since there's no weekend or holiday business there."

According to Kuhlman, Inter-Continental is looking at business hotels of 200 to 400 rooms, with an investment level of $150,000 to $200,000 per room, and resorts of 150 to 300 rooms, with investments of $200,000 per room. Asked whether Inter-Continental would build new hotels or take over existing ones, he explained that "it would be a mix of independent hotels that needed to be affiliated, and new construction. We're still doing our initial surveys and making initial contacts."

Kuhlman said he also wants to expand Inter-Continental's four-star Forum brand, which is aimed at a younger, more value-conscious market. "I can easily see Forum hotels in São Paulo," he said, adding that "a second Inter-Continental in São Paulo is very possible."

Nevertheless, Inter-Continental's latest hotel opening hasn't been without its headaches. The biggest is Brazil's customs service, which Veciana says is "something out of the 19th century." According to the manager, a 120% duty on imported goods meant the hotel had to pay $1 million instead of $500,000 for a Northern Telecom PBX system. Customs also blocked the delivery of 200 ice buckets (worth $10 each) for 45 days because the numbers were off slightly.

"We had to fight like hell," said Veciana. "A pasta station for the restaurant stayed four months in customs. Most of our banquet equipment was imported from the United States or Europe, but because of customs, we couldn't open the banquet room until July 15. This really discourages companies from buying the latest equipment."

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