El Senador trades ice for water
Former Habs great getting rave reviews for Cuban hotel complex investment

One day during the mid-1990s the phone rang in former Montreal Canadien's hockey great Serge Savard's office at Thibeau, Messier, Savard and Associates, the real estate development firm where he hangs his hat.

"A Cuban government official heard we were looking for investment opportunities and suggested I visit Cuba," said Savard. Little did Savard know how much the trip would change his life.

Today TMS operates the El Senador, one of Cuba's most successful hotels, a 690-room tourism complex, located on the remote island of Cayo Coco, in central Cuba, which bears the nickname Savard carried as a hockey player.

The hotel, which will be celebrating its first anniversary next week, is a 50-50 joint venture between a group of Canadian investors including TMS, National Bank of Canada, the Fonds de Solidarité FTQ, and the Cuban government.

Although Savard had been to Cuba before, it was as a tourist not as a businessman.
"Cuba is a communist country and I had never looked at it as an investment opportunity," said Savard. "But after I toured the island I changed my mind. I became especially interested with the potential of the undeveloped beaches on Cayo Coco."

At the time, Cuba was in the throes of a major economic crisis resulting from the cut-off in Soviet aid that came after the end of the Cold War. To provide desperately needed foreign currency, the Cuban government took serious steps to boost its tourism industry, including the liberalization of foreign investment restrictions and the legalization of the U.S. dollar.

The upside potential of an investment in Cuba is enormous. The country has an irresistible combination of some of the most beautiful beaches and national parks on the planet, coupled with a highly educated and friendly population.

Although pre-Castro era tourism amounted to only 350,000 visitors a year, a number that had jumped to 1.8 million by 2001, estimates put post U.S.-embargo potential at more than 10 million.

According to Raymond Rossignol, El Senador's interim general manager, a key part of TMS's strategy was to attract a big chunk of the 350,000 Canadians visited the island last year, many of them from Quebec. And it seems to have worked.

"Most of the employees and investors in our group are Quebecers," Rossignol said. "So we decided to use Serge (Savard)'s high profile and focus on the market we know best."

And it seems to have worked. According to TMS officials, the El Senador generated U.S. $6 million in sales during the first quarter of 2002, making the hotel first in terms of revenues among all the Canada/ Cuba joint-venture hotels.

This despite the massive crunch that hit the Cuban tourism industry last fall in the wake of September 11th, coupled the fallout from a local hurricane. These events were compounded by bad publicity when a plane flying from Cienfuegos to Cayo Coco killed 16 people in March of this year, including six Canadians.

But none of these things have stopped the El Senador. According to Rossignol the hotel's initial success can be boiled down to three things: food, French and fun.

"Cuba has the reputation of being an excellent value destination. But its weakness has always been local food quality," said Rossignol. "We knew that Quebecers, particularly francophones, are very demanding when it comes to their cuisine, and if we were going to attract them, we were going to need a top notch menu."

Cuba's food distribution problems system are legendary. The island is one big monopoly, and since its almost impossible to give anyone a raise or to fire them, there is no incentive to produce quality products, a problem that plagues all Cuban hotels. Worse, shortages abound in almost all product categories.

To solve the problem, TMS took drastic steps, including getting special permission to import its own food in sealed containers directly from Canada. The company also set up its own bakery to produce the bread, toast and deserts.

TMS also decided to capitalize on Cayo Coco's relative remoteness, by setting the hotel complex as a self containing facility. Everything including food, accommodation and entertainment is available on-site.

The response has been good. All of the half dozen visitors that we spoke to during a one-day-visit to the facility last month were happy with the site, service and food.

According to one tour operator their responses are typical. "We have had very positive feedback, and many people have already singed up for a second visit," said Yvon Michel, president of Tours Mont-Royal, an agency whose bookings alone filled almost 200 rooms each day last summer. "The El Senador is the only hotel in the Caribbean that is specifically designed to Quebecers' tastes, and they really appreciate it."

"One of Cuba's big strength is that its tourist season runs much longer than other islands," Michel said. "Most other destinations generate almost all of their business during six peak months. But in Cuba, that total is only 60 per cent, so bookings are much more consistent year round."

Michel estimates that about half of the El Senador's customers come from Quebec, and the balance from the rest of Canada.

But that's about to change. During the year, El Senador's marketing staff have been signing up European tour operators, and the benefits should begin to show next season.

In fact, as a long-term investment the El Senador pretty well just has to break even and wait for an end to the U.S. travel ban. At that point demand will be high that hotel operators will be able to raise their prices dramatically.

"They should come now," said Rossignol. "When the Americans start coming in great numbers, the best Cuban hotels may no longer be affordable to the average Canadian."

 

Sidebar: Getting ahead

o Thibeau Messier Savard managers identified Cuba's huge tourism potential early and thus got access to prime beachfront real estate.
o Marketing efforts, backed by the "food, French and fun," product strategy, focused first on Quebec consumers. Subsequent efforts targeted Canadian, then international clients.
o The long-term bet includes a revocation of the U.S. travel ban to Cuba, which could triple or quadruple the hotel's value almost overnight.

 

Photo captions:

(1) According to Raymond Rossignol, El Senador's general manager, when the U.S. lifts its travel ban to Cuba, the demand for hotel rooms will explode, and ordinary Canadians may no longer be able to afford to travel there.

(2) The El Senador is a vast 690 room complex spread out over acres of hotel buildings, individual cabins, swimming pools and natural lagoons.

(3) The El Senador hotel is set back form the waterfront, which preserves Cayo Coco's virgin beaches, one of the island's most distinguishing features.

 

 

Peter@peterdiekmeyer.com

 

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