Club Mediterranée S.A.

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Club Mediterranée S.A.

11, rue de Cambrai
75957 Paris Cedex 19
France
01 53 35 35 53
Fax: 01 53 35 36 16
Web site: http://www.clubmed.com

Public Company
Incorporated: 1957
Employees: 8,008
Sales: FFr8 billion (US$1.5 billion) (1996)
Stock Exchanges: Paris Brussels Luxembourg New York
SICs: 7011 Hotels & Motels; 7999 Membership Sports & Recreation Clubs

Since the organization’s early days as a vacation village concept pioneer, Club Mediterranée S.A. has grown into the world’s largest creator and operator of holiday resorts, with more than 90,000 beds in 140 vacation villages scattered throughout 35 countries. Club Mediterranée resorts operate under several brand names, including the company’s flagship Club Med resorts, the business traveler-oriented Club Med Affaires, Valtur, and the value-packaged Club Aquarius. The Club has also pursued a consistent diversification strategy into other sectors of the tourism industry. In addition to the flagship vacation villages, which represent the majority of the company’s sales, Club Mediterranée manages upscale hotels under the Les Villas trade name; operates the Club Med 1 and Club Med 2 cruise ships; runs tours at more than 70 locations worldwide; and lets vacation apartments through the 45 percent-owned Maeva Group. Nonetheless, these diversification efforts have proven less than stimulating for a company clearly undergoing a midlife crisis.

Years of losses in the 1990s have at last taken their toll on the company. After posting a fresh loss of some FFr743 million, amidst stagnating revenues, for the 1996 fiscal year, the Trigano family, long the guiding force behind the Club Med concept, was ousted by the company’s principal shareholders—led by the Agnelli family, which holds some 19 percent of Club Med’s stock. Since February 1997, Philippe Bourguignon, credited with turning around the struggling Disneyland Paris in the mid-1990s, has served as Club Mediterranée’s CEO.

Postwar Vacation Idealism

Club Mediterranée was the brainchild of a Belgian diamond cutter named Gerard Blitz, who in 1950 brought the 2,300 charter members of the club together in Alcudia, a village on the Spanish Balearic island of Majorca. Blitz conceived of the vacation as a stimulating escape from the daily grind of life in postwar Europe. Accommodations were basic: Blitz’s old friend Gilbert Trigano provided U.S. Army surplus tents to accommodate the first guests. Food was simple and visitors were asked to help out with cooking and cleaning. Nevertheless, the emphasis on all-inclusive egalitarian fun and a lively community spirit made the first summer a notable success. Club Mediterranée grew rapidly over the years as locations and amenities became more exotic, but the company’s core philosophy never strayed far from the original Alcudia model.

As Blitz had foreseen, the relatively low price and high entertainment value of the vacation village concept quickly caught fire. In response to increased demand, a new site was developed in Italy. In 1954 Gilbert Trigano left his family business and joined Club Mediterranée in a permanent capacity as managing director. Trigano’s vision and drive were relentless; he is credited with most of the strategic decision-making in the company to date. Trigano’s contribution to Club Med’s success culminated in an appointment as chairman and chief executive officer in 1963.

The year that Trigano joined the Club, Polynesian-style huts superseded tent accommodations at the company’s newest location in Greece—the era of the permanent village getaway had arrived. Two years later, in 1956, the company’s first ski resort opened in Leysin, Switzerland, enabling the enterprise to cater to a year-round clientele. Buoyed by continuing success, Club Mediterranée was incorporated in 1957, although shares did not start trading on the Paris Stock Exchange for nine years.

As Trigano and Blitz became more ambitious, so did their capital requirements. Unable to finance further expansion out of Club revenues, they turned to the financial markets for help. As a result the Rothschild Group, under Edmond de Rothschild, became the entity’s largest single shareholder in 1961, and remained so until late 1988, when the Caisse des Depots group increased its holdings to 10 percent. Rothschild also had a controlling interest in a number of international hotel properties, a situation that the Club was later to exploit.

In 1965, with 14 summer villages and 11 winter resorts on the books, Trigano was ready to take the familiar formula out to sea. In order to keep costs and prices as low as possible, Trigano leased the Soviet ship Ivan-Franko, and in the course of the 1966 season, took over 2,000 guests for a cruise. In 1967 the French Government agreed to subsidize two otherwise uncom-petitive French shipping companies and Club Mediterranée dropped the Soviets in favor of the domestic concerns. Unfortunately the French ships that he ultimately leased had substantial cargo business, which they did not interrupt while Club Mediterranée passengers were on board. Unaccommodating crews, used to a less cosseted clientele, contributed to an occupancy rate of less than 50 percent during the cruise season. Prospects looked even worse after the Arab-Israeli Six Day War in June, which rendered an already lukewarm public even more unpredictable. Trigano decided to suspend cruise operations temporarily, admitting to one of the first setbacks in an otherwise stellar program of expansion. He was to refloat the idea in 1990, with the successful launching of the world’s largest sailing ship, the company’s own luxury “floating village,” christened the Club Med 1.

In 1968 Club Mediterranee attacked the U.S. market with the opening of a village in Guadeloupe in the French Antilles and the signing of a preferential agreement with American Express Company. The first U.S. office had opened in New York City the previous November and quickly attracted 10,000 members willing to pay an initiation fee of $1 and annual membership of $5 for the privilege of taking all-inclusive vacations at scenic locations. Nicknamed Club Med by its English-speaking clients, the company began scouting for a hotel site for the first lodging on U.S. soil. Eventually Bear Valley in northern California was found to fit the bill. Club Mediterranée would not build a full-scale village in the United States, however, until 1980, when Copper Mountain in Colorado opened for business.

In the 1970s a series of mergers and acquisitions propelled Club Mediterranée to a position as one of the biggest leisure operations in France. In 1970 the company absorbed a rival travel club, the financially embarrassed Club Européen du Tour-isme (CET). Several banks and insurance groups became major stockholders in Club Mediterranée and added their financial backing to the asset-rich company in 1972. The next year an office opened in Japan, and although sales in the first months barely covered administrative costs and office rent, Trigano had astutely gained a foothold in the undeveloped Southeast Asian market, which by the 1980s would be one of the few dynamic sectors in a generally depressed industry. Acquisitions in the late 1970s included a 45 percent option in the Italian travel specialist Valtur, and the buyout of Clubhótel, the largest purveyor of time-sharing properties in France.

During the same period, the unique Club culture that had been developing over almost two decades received finishing touches. By now, guests, called GMs (for “Gentils Membres,” a play on the French for ‘gentlemen’) were looked after by GOs (“Gentils Organisateurs”), the senior-most of whom was dubbed the “chef du village” or village chief. The GOs, usually in their mid- to late-20s, were the lifeblood of each village. They attended to every aspect of members’ comfort, from cooking their food and cleaning their rooms to teaching them how to play tennis. In the evening GOs would play games and perform sketches to encourage even the most reticent guests to participate. The prevailing atmosphere was one of supervised abandon; GMs were constantly reminded that they had escaped from civilization. Random room assignments were handled by the company, although couples could be accommodated together if necessary. The pricing structure was simple, based solely on the number of beds in a room. In every other respect the service was identical and even tipping was discouraged. The meal of choice was a sumptuous buffet; the alcohol flowed freely; and liaisons, though numerous, were rarely dangerous. The Club experience was all-inclusive except for bar service, which was paid for using beads instead of cash. Such sybaritic touches seemed somewhat at odds with the Club’s down-to-earth beginnings, but Gilbert Trigano declared in a 1980 Le Monde interview that his company’s strength remained an ability to “offer the city dweller an old fashioned village experience … neither too grand, nor too small.”

One decade later, the Club Mediterranée cliché of sundrenched swinging singles was no longer quite so accurate; the fun-loving baby boomers of the 70s became the cost-conscious parents of the 80s. Earnings growth at Club Mediterranée in the mid-1980s slowed significantly to less than 5 percent annually.

A new conservatism was allied with a general upmarket trend. In response, Club Mediterranée began to target different age groups in its advertising and promotional materials. In order to attract families with young children, the company introduced the concept of the Mini Club—a village within a village where children of all ages could swim, finger-paint, and play under constant supervision while their parents enjoyed time alone at the beach. Parts of some sites were dedicated to seniors; others to special interest groups such as Alcoholics Anonymous. Facilities were constantly upgraded and conference capabilities were enhanced as the Club sought more corporate business. Doors that had previously remained unlocked during a guest’s stay were soon equipped with magnetic-stripe card readers, which also served as credit cards. Sites that had once housed a single public telephone now boasted minicomputers in every room.

Gilbert Trigano was congratulated for his ability to stay ahead of the competition by anticipating new trends and responding to them immediately. Club Med’s image was now so strong that smaller countries in lesser developed parts of the world were openly competing to obtain new villages. Building a new village entailed short-term work for the local construction industry and in many cases, long-term opportunities for service workers, would-be GOs, and the host country’s national airline.

With the 1984 introduction of subsidiary Club Med, Inc. in New York, worldwide operations were split into two main groups. The new company took over businesses in North America, Central America, Asia, and the Pacific and Indian Oceans. Although Trigano was still chairman, Club Med, Inc. enjoyed a modicum of autonomy in the English-speaking world. In 1987 the Club announced the opening of Sandpiper, a luxury resort in Florida, which set new standards for the vacation village concept. That same year the first full-fledged Club village opened in Japan. The winter resort, located in the northern city of Sapporo, was completed in partnership with the Japanese real estate and retail giant Seibu Saison, which had first approached Club Mediterranée in 1984.

Club Mediterranée extended its worldwide agreement with American Express Company in 1990, a relationship that was consolidated by the financial service company’s purchase of a 1.6 percent stake in the Club in March 1991. Under the terms of the agreement, Club Mediterranée would honor American Express cards at all its facilities in exchange for preferential booking treatment at American Express travel outlets. The financial holding company’s decision to purchase a small stake in Club Mediterranée maintained the pattern established by other influential corporate friends of Trigano, who viewed stock purchase as a demonstration of commitment to Club Med.

This pattern of rapid expansion into new markets with new partners came to an end abruptly in 1991, when Club Mediterranée posted an end-of-year loss of FFr17.33 million (US$3.64 million) its first deficit as a public company. However, the loss proved only the beginning of a long period of difficulty for the company.

The End of the Idyll in the 1990s

Several factors had been building toward Club Mediterranée’s reversal of fortune, not the least of which was the Gulf Crisis of August 1990, which had developed into a full-scale war by January of the following year. Hot on its heels came civil unrest in newly independent Yugoslavia—the most popular destination for the company’s large German clientele. The ensuing civil war forced the company to close its popular Sveti Marko and Pakostane villages in what would soon become known as the former Yugoslavia. The company faced a similar fate in Senegal, in the wake of the renewed civil unrest. In the wake of political and economic upheaval, bookings dropped off sharply as skittish tourists elected to stay at home. To make matters worse, the recession of the early 1990s delayed construction on some of Club Med’s most ambitious projects, most notably in Mexico, where millions of dollars in advance bookings had to be refunded to customers.

Bad timing—unusual for Trigano—had also taken the glow off the company. In the late 1980s, Trigano had attempted to diversify Club Mediterranée into the air transportation business with the acquisition of a 50 percent stake in the Minerve airline and an indirect stake in a second airline, Air Liberté. Since the early days in Europe, Club Mediterranée members had been transported to vacation sites by chartered aircraft. The lack of control that the company exercised over these subcontracted operations had at times led to scheduling problems and delays. For a number of years, therefore, Trigano had been considering backward integration into the transportation business. Unfortunately his timing could not have been worse. In 1991 the airline industry suffered its worst season in many years; Club Mediterranée was forced to cut losses by sharply reducing its stake in the airlines. In his message to shareholders in the 1990-91 annual report, Gilbert Trigano admitted that he had just come through the worst year in the company’s history, but refused to be daunted by the loss. Rather, he praised the “obstinacy and flexibility, the determination and open-mindedness” that he felt would enable Club Mediterranée to weather the storm. He pointed to the success of the luxury sailboat Club Med 1, which had been cruising the Mediterranean and Caribbean since February 1990, and outlined plans to launch her sister ship, the Pacific-going Club Med 2, late in 1992.

The storm had only just begun for Club Mediterranée, however. Trigano did not give up on his dream of a company-run airline, attempting to create a new charter company, Air Outre-Mer, in which Club Mediterranée took a 39 percent stake. That venture proved even more quickly a failure than the first, and within months after its formation, the company cut its stake in half, then withdrew entirely. Meanwhile, the company had been alarmed by the growing strength of rival Club Aquarius—applying a similar concept, at lower prices. In order to head off the inevitable battle, Club Mediterranée acquired Club Aquarius in 1991—and promptly found itself saddled with that company’s FFr90 million losses.

In 1992, the company squeaked out a profit of FFr162 million. Yet this gain was attributed almost entirely to sales of several of the most troubled Club Med villages. The following year, the company could no longer blame its technical difficulties for its overall status. With a loss of FFr293 million in 1993, it became clear that the company’s problems were coming as much from its core operations. To be sure, the company continued to suffer the effects of the lingering economic crisis in Europe—where the company generated some 60 percent of its clientele and nearly 50 percent of its sales. Occupancy rates, which had been shrinking for years, had slumped to less than 63 percent by 1993. But Club Mediterranée was also suffering from its own internal crisis. While the company continued to charge top-of-the-line prices for its vacation packages, its resorts were aging rapidly, and had long since retreated from the cutting edge. Meanwhile, Club Med’s reputation for its paradise playgrounds had become a burden to the company in the more conservative—and individualistic—1990s, to the extent that, for many of its crucial French customers, a Club Med vacation became something of an embarrassment. A new advertising campaign, introduced in 1993, failed to inspire new bookings.

Even more ominous for the company—or at least the Trigano family—was the loss of confidence of its major shareholders. Seibu elected not to participate in a new round of financing, while other shareholders looked to exit their holding in the company entirely. The precipitous drop in the company’s share value—from FFr760 per share at the start of the 1990s to FFr360 per share—opened the possibility of a hostile takeover. By 1996, in fact, the Agnelli family, a principal shareholder in the Accor hotel group, had increased its control of the company to 19 percent of the company’s stock. Beset with problems, Gilbert Trigano, then 72 years old, stepped down from the company’s leadership, naming son Serge Trigano in his stead.

Serge Trigano attempted valiantly to turn the company’s fortunes around, launching an aggressive investment drive to upgrade the company’s properties, renegotiating the company’s leases (nearly half of the company’s resorts were on leased land), and instituting stricter cost controls. Yet, many of his initiatives seemed nearly heretical to the Club Med spirit, including the licensing of the Club Med brand name and the opening of a new resort linked to a popular French casino. Other initiatives simply failed, such as the attempt to bring the Club Med experience to the urban environment, with the opening of a City Club in Vienna.

While the company’s revenues stagnated at around FFr8 billion, its losses continued to mount, reaching a staggering FFr743 million in 1996. The Trigano family’s days at Club Mediterranée were numbered. At the insistence of the Agnelli family, led by Gian Lui Gabetti, and with the assistance of Caisse des Depots, the company was restructured to bring in new leadership: in the person of Philippe Bourgignon, flushed with the credit for saving the failing Disneyland Paris. Bourgignon was named CEO in February 1997, while Serge Trigano was named president of a newly created supervisory council. Gilbert Trigano, meanwhile, remained on the company’s board of directors.

By April 1997, the clash between Bourgignon and Trigano seemed inevitable: the former’s reputation for an unwillingness to share power quickly relegated the latter to a largely ceremonial position. Marginalized, Trigano held on for three more months. Finally, in July 1997, however, Trigano stepped down from his position, leaving the company. Joining him were the rest of the Trigano family, including Gilbert, his wife, and their two daughters.

Bourgignon’s leadership seemed to restore the company to confidence, with forecasts of profits being made for the 1997 fiscal year. Certain, however, was that Club Mediterranée had reached an end of an era: its future growth would depend on the company’s ability to redefine its concept—and convince the world’s vacationers to come. As for the Triganos, tourism remained very much in the family blood. Upon his departure from Club Mediterranée, Serge Trigano already began to hint at his intention to pursue new projects in the travel industry.

Principal Subsidiaries

Club Mediterranée GmbH (Austria); Club Mediterranee Reise GmbH (Austria); Club Mediterranée SA Belgique; Grand Hotel Parisién; Hoteltour; Trident Conseils; C.M. Croisiéres et Tourisme; Société Immobiliére de Villages de Vacances; Société Calédonienne des Villages de Vacances; Société Polynesienne des Villages de Vacances; Société des Villages Hotels de l’Océan Indien; Club Med Deutschland; Club Mediterranée Hellas (Greece); SA. de Coordination Hoteliére et Touristique (Greece); Club Mediterranée Ireland; Kerry Village Ltd. (Ireland); Club Mediterranée Israel Ltd; Gestione Espansione Turística Otranto Sri. (Italy); Société Immobiliére de la Mer (Morocco); Club Mediterranée Holland BV; Sociedade Hoteleira Da Balaia (Portugal); Société de Gestión Hoteliére et Touristique du Sénéegal; Club Mediterranée SA Espagne; Hoteles y Campamentos SA (Spain); Club Mediterranée Scanda-navia AB; Club Mediterranée Suisse; Nouvelle Société Victoria (Switzerland); Immobilien AG Dieschen (Switzerland); Akdeniz Turistik Tesisler AS (Turkey); Club Mediterranée UK Ltd; Club Mediterranée Services Europe Ltd (U.K.); Club Mediterranée Argentina Sri; Medsul (Brazil); Club Med, Inc (Grand Cayman Island); Club Mediterranée Bahamas Ltd; Village Hotel of Bermuda Ltd; Club Mediterranée Holding NV (Dutch Antilles); Société d’Investissement Touristique des lies SA (French Antilles); Caribbean Trident Holding, Ltd (Grand Cayman Island); Club Med Haiti SA; Operadora de Aldeas (Dominican Republic); Holiday Villages (St Lucia) Ltd; Club Mediterranée Sales, Inc. (USA); Club Mediterranée of Colorado, Inc. (U.S.A.); Village Hotel of Sandpiper, Inc. (U.S.A.); Club Med Management Services, Inc. (U.S.A.); Village Properties of Sandpiper, Inc. (U.S.A.); Club Mediterranée Investments, Ltd. (U.S.A.); Club Med Australia (Pty.) Ltd; Holiday Villages (Hong Kong) Ltd; Club Mediterranée Management Asia; Club Mediterranée (Club Med) Hong Kong Ltd; Club Mediterranée Association Japan Co. Ltd.; Club Mediterranée KK (Japan); Holiday Villages of Malaysia Sdn. Bhd.; Holiday Villages Management Services (Mauritius) Ltd; Club Mediterranée NZ Ltd (New Zealand); Club Med Services (Singapore) Pte Ltd; Vacances Siam (Club Med) Ltd (Thailand).