ABTN speaks to Aldo Melpignano, development director at San Domenico Hotels, about the hotel business in Italy.
San Domenico Hotels is a family-run business in Puglia, in the south of Italy. How did you start on the road to becoming a hotelier?
It all happened by chance. Our family are not hoteliers by birth. My Mum is a retired primary school teacher and my Dad is a tax advisor, while my sister used to be an art major. My background is in economics and finance. Somehow we all got sucked into the hotel business.
We had an old family estate, in Puglia, which we used as a summer residence. After a few years, my Mum realised she is a very good hostess and enjoyed it a lot, so she decided that she wanted to turn it into a business. My Dad is a hunter and he goes to Scotland to stay in old castles and manor houses converted into luxury hotels, so that’s where the idea came from.
My Mum wanted to run a small bed and breakfast, but she was advised that our property was worth a five-star luxury experience, so that’s how it happened. This was in 1996, so 15 years ago. Since then, the hotel became very successful and we all started to get involved.
We found some interesting land nearby and decided to build a golf course on it, so in 2003 we opened our golf course. Meanwhile we had bought another Masseria in 2004, restored it and then opened it as a hotel in 2006.
You also have a London hotel…
Yes, in Chelsea. We bought it in 2005. It’s really like a home away from home. We get a lot of repeat guests, especially business travellers. They leave their pyjamas here. Around 50% of our guests are Italian, with a business-leisure split of 60-40.
And San Domenico Hotels has recently opened a fourth property, Borgo Egnazia…
Yes, we started developing a larger resort project, Borgo Egnazia, which is where I come into the picture. I oversaw and still oversee everything about this project – the design, construction and development phase, and now the hotel operations process. Right now that’s my main job.
You’re also opening a new property in Brazil…
Yes. Miramoro Ecoboutique Resort in Itacare, Bahia. Brazil is a massive growth market with lots of potential.
Your background is in finance. What attracted you about hotels?
I studied business and finance and everybody was going into investment banking, so I thought I should give it a try. I did that here in London for a small bank. I enjoyed it and it’s good training, but I knew it wasn’t what I wanted to do long-term.
While we opened Masseria San Domenico I was taking my gap year so helped my Mum, as I was the only one in the family who spoke a bit of English. I was doing all the sales and marketing activity overseas, which was a lot of fun. I already had that experience and in the back of my mind I knew that eventually I would be doing something that was related to hotels. What I want to do now is develop the family business into something larger.
What is it that interests you about the hotel business – the hospitality side or the property side?
It’s both. With my background being finance I like the real estate side of the business, but what I really get passionate about is the hospitality and the service; the one-on-one relationship that you build with people – your co-workers, collaborators, and the clients. I’ve realised I’m more of a people person than a numbers person, but I have a fair balance of both, which will hopefully help moving forward.
You’re hoping to start helping other hoteliers, as a consultant. Tell us about that.
Borgo Egnazia was a very different project from everything else we have done. The other ones are like small family hotels, this is a large family hotel. We went through a very steep learning curve. We are the owners of the land and we did everything on our own, and now we’re running it.
Working on this project I built a fair amount of expertise in various aspects of the business. I have come to realise that there are a lot of private individuals who either own hotels or are looking at going into the hotel business and don’t necessarily want to entrust themselves fully with the large hotel companies.
I am starting up something that is sort of a consultancy for people who want to get into hotels in Italy. For them we can do everything, which is quite unique. We have expertise in design, planning and operations. As a consultant I am a lot more cost-effective than going to five different guys. Also, I look at things from the owner’s perspective. We are very careful about how the money is spent and our interests are in those of the owners, which I think is different from how most management companies operate. The other thing that I’m working on is to build a platform which is a support to other independent hotel owners.
Many say Italy is a unique market. Are you hoping your experiences can help others?
In Italy the market is very fragmented. Historically it’s not just the case in the hotel business, but all across any business in Italy. Italy is a country of family businesses and small to medium enterprises. In hotels it’s no different.
Around 90% of the market is made up of independent hotels. We’ve struggled up until we opened Borgo Egnazia, as a small family business, to get into all the distribution channels.
In Rome and Milan you see the big hotel chains coming in. If you’re a small hotel owner, no matter how good you’re hotel is, it’s tough to compete with these guys.
Now we have a large family hotel we’ve had to learn a lot. How to use the distribution system, build our own technology platform, negotiate with the various suppliers. Because now we have the skills to do it, what I want to do is share those expertise with other independent hotel owners. And not necessarily to make a huge profit on it, but to create a platform that everybody can use – we can split costs and we can all benefit. What I’m looking to do is something 360 degrees.
Take technology as an example. We have developed our own project management system. It’s a very Italian system – it understands the tax problems that you can have in the country. We had to do that because we were using another product developed in another market, and it was really hard to adjust it for Italy. This is something I would like to share with other hotel owners. The purchasing side is also very important. Now we have a fairly decent economy of scale, but nothing compared to the big players. We’d like to use the contacts we have built up and share them with other hotel owners. Then we can all reduce our costs.
What I’m targeting is luxury independent hotels in Italy, for now. We will hopefully go beyond that. The hotels will be all unique in their own way, but of the same standard.
Do you think the predominance of independent family-owned hotels will remain?
I see it changing. Especially in the large city markets, because of the challenge of competing against the big chains that have large distributions. But, there’s a resistance in the market. So it won’t be fast.
In general in Europe the penetration of those big brands is much lower than in the US, but in Italy it’s even less. And it won’t change fast because the basic structures, like the franchise agreements and the management contracts, are not that appealing.
If you go and talk to a hotel owner, the majority of them are running the hotels themselves, but are thinking about giving it up. They are looking for a steady income – somebody that will go in and lease the hotel from them. But there are not that many large hotels, and below 150 keys there are very few chains that would be interested. I don’t see brands increasing their presence in the market quickly.
How do you view the luxury hotel model in particular, and its future?
The luxury model is a very broad statement. What is luxury? I think luxury is ever changing. If you’re talking opulent luxury, with big marble bathrooms and top hat chauffeurs, perhaps that model has gone, or changed into something more under-stated. It was changing already before the recession. The experiences that people were looking for in the market was already moving towards being more unique, more local, which is what we do. Now with the financial crisis even more, people have lost a lot of their wealth. Even those that still have a lot don’t like to show it as much as they used to. My belief is that now real luxury is a special, unique and local experience, which is what we try to offer.
How is the general mood in Italy at the moment?
There’s the story that you see on television, the story you hear from politicians and truly what’s happening. Truly, it’s not a great time. From a business point the hotels are doing very well this year, much better than last year and the previous year. And the rest of the summer season is looking great. Borgo Egnazia is brand new, so it’s hard to compare. The hotel market is going ok, but the overall economy is not doing so well. On the construction side, it’s been very challenging.
In addition, the banks are very strict about their lending policy, and everybody is struggling with cash. It’s a tough time for that. But the luxury end is doing very well. There’s a comeback everywhere. I don’t think the economy will change very quickly. People have adjusted to the fact that it is a different world, but they still want to travel for business and for leisure. I personally would give up many things before I give up my travel.
Do you see teleconferencing as a threat to business travel?
It will never replace travel. There’s no alternative for a face-to-face meeting. At conferences and corporate events there are moments where you actually define your company. You get all the heads together and you come up with ideas and strategy, which just doesn’t happen over video.