Australian outward investment case study

The Toga Hospitality formula for Europe is simple: it builds chic, edgy apartment hotels in the chic, edgy districts of some of the continent’s major cities, such as Berlin, Hamburg, Frankfurt, Copenhagen and Budapest. These are avant-garde destinations where elegance must come with an edge.

For example, Toga’s newest property is located in one of Berlin’s hippest districts, Hackescher Markt, an area known for its bars, cafes, restaurants and art galleries. Another of Toga’s Berlin apartment hotels is near the iconic Checkpoint Charlie.

These Toga properties – built and managed under one of the company’s four brands, Adina Apartment Hotels – aim to attract discerning travellers who appreciate a mix of space, unique design, value for money, and home comforts. Toga emphasises space in each Adina Apartment Hotel, a rarity in European accommodation where the bed dominates a small room.

Toga Hospitality CEO, Rachel Argaman, says this style of studio, one- and two-bedroom apartment hotels have won rave reviews in the large German travel market. Argaman attributes this success to Adina’s signature brand elements – smart design, standout locations, refined interiors and premium lifestyle facilities. The hotels are also infused with an Australian flavour, such as Aboriginal art and Australian wines.

Early success with such a distinct product has encouraged Toga to expand in Germany.

A proud history of success in Australia

Toga Hospitality began operations in 1982. Today, Toga manages four brands: Medina Apartment Hotels, Adina Apartment Hotels, Vibe Hotels and Travelodge Hotels (Europe, Australia and New Zealand).

Toga operates 52 properties throughout Australia, New Zealand and Europe: more than 6,000 apartments and hotel rooms, which vary in price, location and design to meet a range of accommodation needs.

Having run apartment hotels successfully for many years in Australia, Argaman says Toga was seeking opportunities to expand – in Australia and overseas.

“Initially, our thoughts were to have one in Milan, one in Venice, one in Paris, and so on,” she says. “But when we sat down with consultants to work out what had made us prosper in Australia, we realised success had come by clustering hotels in specific locations in single countries where you had excellent market knowledge, the same language, the same legal framework, the same industrial relations laws, and the same business imperatives."

“If you put one hotel in each of six countries, you forego the ability to centralise control, to cross-sell, and to manage within the constraints of one set of commercial conditions.”

Adina Apartment Hotel, Hackescher Markt, Berlin. Image courtesy of Toga Hospitality.

The impetus for expansion to Europe

During the 2000 Olympics, the Danish Olympic team took nine levels of Medina Grand Sydney. They loved the apartment hotel concept and Toga developed a close relationship with the Danish Consul-General and the team.

The Danes told Toga the apartment hotel concept was not available in Denmark. They suggested Toga look into establishing an apartment hotel in the urban waterfront area of Copenhagen called Amerika Plads, which was being rejuvenated at the time. Toga opened its first European property in Copenhagen in December 2005.

“So we were already operating in Europe before we looked to Germany,” says Argaman. “But when we investigated conditions in countries to decide where we should expand, Germany was a standout. It had land available; the costs of building stacked up; the barriers to entry were high for others; and while some developers look for a quick profit, we knew we would stay for the long haul.”

Toga identified sites and built its apartment hotels. Today, according to Argaman, those properties – three in Berlin, and one each in Frankfurt and Hamburg – all outperform their respective markets in terms of occupancy and average daily rate.

“The market in Germany has been quick to adopt this apartment accommodation,” says Argaman. “The properties have won many awards, but perhaps the greatest measure of success, apart from financial success, is the guest experience.”

Consumer-generated media – which is so significant now that many hotel groups are moving away from formal star-ratings – has become the industry’s new benchmark. What travellers say on third-party web sites determines where people want to stay.

“Adina Apartment Hotels in Germany consistently rank highly on TripAdvisor and Expedia’s annual awards,” says Argaman.

“Our expansion has been fantastic, but the future potential is amazing. If you look at Australia with 22 million people, Germany with 88 million has scope for many more properties. The take-up and performance of our apartment hotels show there is great opportunity here and we will be exploring opportunities in other cities such as in Munich, Stuttgart, Dusseldorf, and other cities in Germany.

“It is important not to expand on too many fronts at once. Many companies lose their focus by doing that. For now, five hotels in one country are not enough to be looking for the next frontier. There is plenty of scope for us in Germany, with its significant domestic travel market. At the same time we have a strong pipeline of new hotels in Australia.”

Advice for others

Argaman says there are no shortcuts to doing business in Europe.

“Do your homework,” she says. “Understand all aspects of the operating conditions within a country before you go there. For example, you need to grasp the legal contracts and the terms and conditions you will employ people under; the rules around repatriation of profits; and many other statutory requirements. You must do your risk and due diligence really well."

“Our success is an example of what Australian companies can achieve in Europe. But we were methodical. It took many years of research, finding the right sites, the right people, and building properties from the ground up.”

Austrade provided assistance by introducing Toga executives to relevant service providers and businesses in many of the locations in Germany where the company wanted to open an apartment hotel.

“We needed current and accurate statistics and advice about hotel performance metrics, density and hotel saturation in specific areas of certain major cities,” Argaman says. “Austrade put us in touch with auditing companies and people who produce travel reports to help us with this market intelligence.”

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Source: Austrade