LVMH Stake Helps Boutique Hotel Group Triple Its Growth Outlook

When it comes to launching a luxury hotel brand, Frédéric Biousse could offer a master class. After a long career building ‘affordable luxury’ fashion brands, he’s just managed to ink a deal with the world’s largest luxury conglomerate, LVMH, for his small hotel startup, Fontenille Collection.

The company, which Biousse co-founded in 2016 together with art gallery owner Guillaume Foucher, is now able to acquire new properties. Since the deal went through in December, they have grown the portfolio from 11 to 15 hotels, located throughout France, Italy and Spain. And their spending spree continues under the direction of a new CEO, Linda Hazi, formerly the commercial director of beauty retail giant Sephora.

Though the financial terms were not disclosed, LVMH's stake in this small company suggests an interest in expanding its travel offerings into more affordable markets, compared to their ultra-luxe brands like Belmond, Bulgari Hotels & Resorts, and Cheval Blanc. Jean-Jacques Guiony, then CFO of LVMH, called it “an opportunity to discover a complementary universe.” (He has since taken the position of Chief Executive Officer of Moët Hennessy, the wines and spirits division of LVMH).

What does it take to get LVMH to invest?

It would be easy to say this is simply a love letter to French savoir faire. But if you look under the hood, it’s much more tactical. Frédéric Biousse is the former fashion executive of SMCP Group who made multi-million dollar deals long before buying a French vineyard that eventually became Fontenille. These days, high-end retail and luxury hotels are looking more and more similar. And as Biousse himself will tell you, it’s the years in retail that made the difference.

“When I acquired Sandro in 2007, there were just 21 people in the company and we had two stores. So we grew it. We opened in 34 countries, and we grew from $2 million to $1 billion in nine years. In 2010, I sold a 51% stake in SMCP to LVMH, and then in 2013, the [American private equity firm] KKR took a majority stake,” recalls Bouisse. The Chinese company Shandong Ruyi acquired the group from KKR in 2016.

“What happened during those years is that you had luxury brands, and you had mass market brands. No one can be better than Zara or H&M, at mass market; it's such a difficult job. In luxury, no one can be better than Hermès, LVMH, or Richemont. So in between, we decided to go into this new affordable luxury market, which would bring the best out of luxury with a business model based on mass market operations. We are the first ones to do that in the world.”

At Fontenille’s hotels, the word luxury is meant to convey a certain lifestyle: that ineffable “quiet luxury” that the French do so well. And it seems, for now at least, they will forge ahead despite a possible U.S. recession forecast by a growing number of prominent economists. One wonders if the American consumer, long considered the sugar daddy of the luxury travel industry in Europe, will maintain this status in the years ahead?

Over coffee at the Ned Nomad, one of New York City’s membership hotel clubs-du-jour, I sit down with Frédéric Biousse to learn more:

At the beginning, how did you attract investors?

At the start, I was the main shareholder. And then I invited a few families with whom I've been working for many years in my retail projects. They invested with us in order to fuel the growth. And very recently, we had two newcomers. The first one was [Caisse des Dépôts et Consignation] which is the French state bank. They invested with us, and together we bought French properties. And three months ago, LVMH invested in Fontenille. For us it was important, because exactly like LVMH invested in Sandro in 2010, now they invest with me again in Fontenille.

Is that how they discovered you, because they knew you personally before?

Yes, they knew us. But there was also another thing. In Cheval Blanc Paris [owned by LVMH], many customers were saying to the general manager: when we don't go to Cheval Blanc, we go to Fontenille. Because, you don't want to be in a palace every time you travel. When you come to us, you'll have this unique feeling, but it's a lot less expensive and more casual. Today, I think we are the most legitimate and visible collection in this premium brand market. And we buy our properties, which is very unusual. Most American hoteliers don’t own; they just operate.

You're not asset light, in other words.

We are asset heavy.

You own all your properties?

All 14.

One could say you’re a real estate company.

We don't think that way. We are not afraid of buying a decayed private house, turning it into a hotel, and taking three years to do it. Because we know that we're going to create value for the brand, and for the real estate. But we are changing, meaning that on some of the upcoming projects, we still buy the real estate. But Aix en Provence, for example, it's a management contract. I'm looking at a project in Burgundy, which we would rent. So we are very flexible. If we were to come to the States, it would be under a management contract.

I see, so it depends on the market.

Yes, it depends on the market and the kind of property.

How much renovation is needed, et cetera?

Yes, every time you can create value added for the property, we do it by acquiring the real estate. When the property is already highly valued, we operate as a management contract.

Fontenille is also a management company?

Yes, we set this up already. Now we are negotiating with a company in Italy to run a hotel as a management contract in Paris as well. We want to offer both, but we only do it if we like the property so much that it's a shame we didn't buy it.

The growth is picking up now. Is there a number you have in mind? Do you want 20 properties in your portfolio?

20 is already very close. I think we’ll have 20 in two years from now. Within five years, we'll have 25 hotels open. I think we have the momentum to double or triple our business.

What is singular about your approach?

Every time we open a hotel, we have a waiting list for people who want to try. And we invite our best customers, the most complicated customers. We invite them before opening, and we ask them to tell us, what do you think? Sometimes it's too soon, we're not ready. Sometimes there's no hot water, no electricity.

That’s brave.

They love it, because they are part of the adventure. They are part of the family. The first one was this vineyard in 2016 called Bastide, and we decided to create a hotel. We designed everything ourselves, and we decided to do something unique with a lot of soul, a lot of details, a lot of depth. Each hotel is unique. We are not a chain. This is why it is a collection. Every hotel has its own name, but you have this ‘fil rouge’ behind it, this bond with the community. We always have the same way of welcoming guests, of making them feel recognized and comfortable.

So that is how we developed Fontenille. We started with Provence, then opened four hotels within six months. One in Marseille, two in Menorca, one on the Basque coast. And then we kept on growing. Today we have 12 properties and two under construction, in addition to one in Aix en Provence, which will open next year. So that’s 15, not to mention that Domaine de Fontenille is going through a full renovation.

After that, we’ll open a property in Tuscany. It was the summer residence of the Bishop of Siena. It's a small village with a church within 30 acres of olive trees. It's incredibly beautiful. We just bought a hotel in Burgundy, but we don't talk too much about it because we are going to renovate it next year. We will open in Brittany in May, a beautiful hotel overlooking the sea. And we just found another one in the French Alps last week. And another one in Rome, where I am now working. We want to offer our take on the best of Europe.

I’m curious about the way fashion brands use social media for e-commerce; is the same thing coming to travel?

Yes, and we do a lot of business on social media. Because young people, they don't read travel guides, you know, they just look at where this lady or guy is going, and get inspired. We sell through Instagram, but for the moment, it's not direct—they still go to the website to book. But we use social to fill the hotels. For example, Marseille is one of the hotels where we have a 100% occupancy rate in the summer. When you have a cancellation, we say we have a room available. People call, and it's sold in 30 seconds. For the restaurants, it's exactly the same.

It’s like dynamic pricing?

It's dynamic pricing, and it's also dynamic availability. What amazes me is that after Covid, a lot of the business became transactional. It's not a relationship anymore. Even in beautiful luxury hotels, things got so money oriented that you have to pay resort fees; they could just increase the price of the room, but they don't want to do it, because it will look too expensive. We've never done this. What we've done instead is tell the story of Fontenille: who we are. Every time we buy a property, it’s because we would like to buy it for ourselves. We stay there, experience it, and when we build it, we know exactly where the sun sets. As the architects will tell you, that becomes part of the final floor plan. The idea is to use social media to explain who we are and how we work, to create a bond. It’s important, because today in all of our hotels, one third of the customers are below 35 years old. Another third are between 35-45, and the rest are above 45 years old.

Are most of your clients European?

Well, 45% are French. 25% are American now. It's growing. It was 18% last year. I think it's going to grow even more next year. And then it’s Europeans, mainly. They want to feel this level of recognition you have in luxury, but they’re spending a little less. Our pricing is upscale, but still affordable. And it works.

What strategies do you take from retail?

A lot. This is the way we organize the company: The most critical level is the hotel managers, the ‘aubergists’ who come from hospitality, because these are the people who represent us, and they're in direct contact with our most precious assets: the guests. Almost everything else is centralized, and managed by people with a retail background. Hospitality and restaurants have become much more sophisticated in recent years. Sometimes old fashioned hotels will have five people at the reception on Monday morning, and they will be understaffed on a Saturday afternoon. When you come from retail, you look at everything based on the activity and the time slot. You know exactly when you need people, and how to organize their workflows, so that they spend more time with customers and less time with administrative work. It completely changes the way you organize the company. We are bringing the level of sophistication in terms of processing and IT from retail, and we import it into hospitality.

What technology do you use?

The backbone of our IT system is Opera [Oracle], which I think is the biggest company in the world for hospitality management. If you want to sign management contracts credibly, you need to use the tools everybody knows. We are testing a lot of new front office systems, whether it’s about checking in, or managing prior-to-arrival communication. We don’t use AI for the time being, because we are a small company. We don’t want a robot talking to you. We want to have a real person talking to you. It’s the opposite of AI, it’s real intelligence.

Your new CEO, Linda Hazi, came over from Sephora?

Yes. The arrival of Linda [in 2022] was decisive for us, because we were working so much, we really needed to have a 360 degree vision. Now that she's here we can breathe again. The company is very well managed, and each of us can focus on our strengths. Linda runs the company on a daily basis. Myself, I’m more in charge of the global M&A, financing, development. And Guillaume, my partner, is in charge of design and construction.

Hospitality is a complicated business. It's like retail, but it's also an adventure. And you know, the problem is that we travel and we fall in love with a lot of the properties. The trick is to know when to say no to projects that don’t reflect our taste and our values, even if they make sense for the P&L. We cannot lose that trust.

ByJennifer Leigh Parker, Contributor.