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Share 2016-09-27 17:29 RATOS B 39.81 SEK

Scandic Hotels

From motor lodge in Laxå to international hotel chain

During the 1950s, the first motels opened in Sweden and American Esso became the first company in the country to build up a motel chain. It all started with the opening of Esso Motorby in Laxå on May 21, 1963. The facility included 20 rooms, a self-service restaurant and an Esso service station. Arne Gustafsson stood behind the initiative together with architect Lennart Billgren.

New facilities were added throughout the country and by 1966 the chain changed its name to the more servicable Esso Motor Hotel. At the same time, the first conference room was introduced at the newly opened facility in Mölndal. Over time, business travel and conference guests became an increasingly important customer segment.

The first hotels outside of Sweden opened in 1972 in Denmark and Norway. The following year Esso Motor Hotel became the largest hotel chain in Sweden. The first hotel in a city location opened in Borlänge in 1975. Two years later, the chain had a market share of 25%.

At the beginning of the 1980s, Esso’s American group management decided that all activities outside of the energy sector should be divested.

Ratos acquired 25% of the shares in Esso Motor Hotel on April 1, 1983. Also participating in the purchase  were Barkman & Co., Skandia and Svea. The finance company Barkman & Co. was controlled by financier Carl-Erik Björkegren, while Svea was a former shipping company within the Johnson Group that became an exchange listed company in 1981. The principal owners of Svea were Hufvudstaden, Johnsongruppen and JS SABA.

In 1983, the hotel chain consisted of 50-some hotels, a few of which were in Denmark and Norway. In addition, there were a hundred or so restaurants that were primarily operated under contract. Esso Motor Hotel changed its name in 1984 to Scandic Hotels. Ratos acquired an additional 25% of shares in 1985 and became the sole owner of Scandic the following year. There was a battle between Barkmans and Ratos over the other partners’ shares, a battle that Ratos won.

The hotel industry was an expansive branch with fierce competition and demands for continuous renewal. It was relatively easy to get established abroad. It was therefore a clear competitive advantage to have a capital-strong owner who could drive expansion and development of the hotels. Ratos was a capital-strong owner on the hunt for suitable investment objects. With Ratos as owner, Scandic experienced rapid growth.

By 1986, Scandic was the largest hotel chain in the Nordic countries, with over 70 hotels and 16,000 total beds, 13,000 of those in Sweden. That same year, the chain’s first hotel outside Scandinavia opened, in the German city of Koblenz. Two years later, 15 new hotels opened. There were now Scandic hotels in Belgium, the Netherlands, the United Kingdom and Austria. In addition, test operations were being conducted in Switzerland with senior housing in the form of service flats. The catering operation was sold in 1988. Following that, Scandic had approximately 40 Scandic Vägkrog roadside restaurants along the major traffic routes in Sweden, as well as four freestanding profile restaurants in Stockholm.

By operating a large-scale chain operation, Scandic experienced significant cost-efficiencies for marketing, administration and purchasing. Scandic’s principle was to always offer prices that were 15-20% lower than freestanding hotels of corresponding quality. Three-star Scandic Hotels were situated in auto-friendly locations adjacent to arterial roads or interesting business locations. Four-star Scandic Crown Hotels were centrally located in large cities and expansive business areas.

In 1990, Scandic had 116 hotels in nine countries. The company was one of the largest three- and four-star hotel chains in western Europe, with 6,700 full-time employees. The most important target group was business travellers and conference guests.

Naturally, Scandic’s facilities were used for Ratos conferences and parties, especially Scandic Crown at Slussen in Stockholm. Barbro Montgomery, who was a successful national team manager for the women’s national golf team, was always encouraged to choose Scandic for national team events. She, herself, thought it was somewhat unusual that Ratos had purchased a hotel operation. But she realised that a new era had arrived following the steel crisis.

Roland Nilsson was CEO of Scandic Hotels from 1992-2003. On his initiative, Scandic began an extensive environmental campaign in 1994 to make the hotel chain a pioneer in its field. Several of the measures that Scandic implemented subsequently became industry standards, such as only replacing towels that guests had placed on the floor, which Scandic implemented in 1994.

Scandic initiated a collaboration with Holiday Inn in 1995, where Scandic would represent the American hotel chain in Scandinavia, while Holiday Inn was allowed to represent Scandic in the rest of the world. That same year Scandic sold its Route 66 roadside restaurants.

It was not only Scandic Hotels that had expanded significantly in Sweden and abroad during the 1980s. Two other rapidly expanding hotel chains were Reso and Sara Hotels. Reso was founded in 1937, the same year that Parliament enacted legislation giving all workers the right to two weeks of vacation. ABF and Kooperativa Förbundet (KF) were behind the company. By the end of the 1970s, KF became the sole owner of Reso. Sara had its origins in the publically owned folk restaurants that were part of the alcohol policies that Ivan Bratt drew up in 1915. Sara subsequently became part of Statsföretag/Procordia.

Both Reso and Sara Hotels were hard hit by the crises in the 1990s. The companies combined in 1992 to form Sara Travel & Hotel Group, with KF and Procordia as the principle owners. The company declared bankruptcy the following year, upon which various portions of the Group were sold to different parties. In 1995, Ratos acquired 14 Reso hotels located in central city locations, including Anglais, Continental, Malmen and Park in Stockholm, Frimurarhotellet in Linköping and Portalen in Jönköping.

Scandic Hotels was sold in 2001 to Hilton Group for SEK 2.2 billion, which resulted in an exit gain of SEK 1.7 billion (IRR 20%). One-fourth of the purchase amount was received in the formof Hilton shares, which were sold in 2002.