McD eyes hotels on the Swiss horizon

Nation's Restaurant News, Dec 4, 2000 by Amy Zuber

Golden Arch hotels set to open in spring

OAK BROOK, ILL. -- Reacting to a disclosure by McDonald's Corp. that it will open two branded hotels in Switzerland by March, Wall Street says it doesn't see a McHotel chain in the fast-food company's future.

The Swiss arm of McDonald's, which has 116 branches, plans to open the two Golden Arch Hotels next spring. The properties will be aimed at business travelers during the week and families on the weekend.

The company is opening a 211-room hotel in the Zurich Airport region and an 80-room hotel on a new stretch of highway in the French-speaking part of Switzerland that links Germany and Austria with France.

Rooms will be priced at an equivalent of $100 and will offer such amenities as 24-hour service and room service, which are required to qualify for four-star status.

The Oak Brook, Ill.-based fast-food giant, which has more than 27,000 restaurants around the world, said the project is limited to Switzerland, but officials acknowledged it is a venture that the company will watch closely.

"There is symbolism beyond the hotel," said McDonald's spokesman Walt Riker. "The thinking is that the McDonald's brand above all represents to people all over the world a high level of quality and value. There is an instant high-confidence level with the McDonald's brand overseas."

In recent years McDonald's has embraced ideas that had their roots in the international business. The McFlurry ice-cream dessert line, which is soon to become a national menu item in the United States, had its origins in McDonald's Canadian division. The chain also is looking to initiate next year a domestic test of the McCafe coffee bar concept, which started in such countries as Australia and Portugal.

"McDonald's puts a high premium on innovation and new ideas," Riker said. "Like any of the new concepts out there, we will certainly watch the progress of the hotels, but it is way too early to jump to any conclusions."

Under the direction of Jack Greenberg, McDonald's chairman and chief executive, McDonald's has shifted its growth strategy over the last few years beyond the burger business by adding several new brands -- including Boston Market, Chipotle Mexican Grill, Donatos Pizza and the London-based Aroma Ltd. -- to its restaurant lineup.

However, Wall Street analysts said they don't expect to see hotels playing a major role in the company's near future.

"My understanding is that what is going on here is that the entity that is responsible for franchising McDonald's in Switzerland also has decided to get into the hotel business," said Damon Brundage, a restaurant analyst with Raymond James & Associates in New York, "This should in no way be misconstrued as a shift in strategic direction in terms of McDonald's getting into the lodging business. The hotel business is not a great business because historically it is more cyclical than the restaurant business."

Brundage added, "I would be very surprised if the company made a real push to get into the hotel business here or abroad. Selling Big Macs and fries is a very different business from selling hotel rooms."

Robert LaFleur, an analyst with Bear Stearns in New York, noted that while McDonald's has a favorable brand image associated with convenience, hospitality and cleanliness, he doesn't expect the company to begin rapid expansion of hotels in the next few years. LaFleur described the Swiss venture as a blip on the radar screen for major U.S. hotel chains.

"I don't see this as a competitive threat to the lodging industry," LaFleur said. "There are 38,000 hotels with about 4 million rooms in the United States, and this is a test in Switzerland. It will be interesting to see if this succeeds. But even if it is wildly successful, I still don't see it as any short-term or medium-term risk to hotel players in the United States. Switzerland is a small market, and the penetration of branded hotels is much lower in Europe than it is in the United States."

The Golden Arch Hotels was a project developed by Urs Hammer, chairman and chief executive of McDonald's Suisse Holding SA, the Swiss partner of McDonald's Corp. Before joining the fast-food concern in 1980, Hammer was a hotel manager whose work experience spanned from Asia to Europe.

Each room in the Golden Arch Hotels will feature high-speed Internet access, a cable-less keyboard usable from any part of the room, a digital "infotainment" system and a "sit'n'sleep" bed that can be transformed from a couch into a top-of-the-line comfort bed, according to a web site at www.goldenarchhotel.com. The hotels also will feature fitness centers, online booking and automatic check-in upon guest arrival.

"Depending on the level of success as measured in financial terms rather than just customer satisfaction, that will tell the tale," said David Leibowitz, a managing director of Burnham Securities in New York. "This is going to have to be a venture that proves itself in the numbers. The opportunity is quite high, but the reality is what remains to be seen."