Beach Blanket Brazil:

Global hotel chains see tourism on the rise in Brazil and are spending big bucks now
Latin Trade, March, 2005 by Michael Kepp

Why pick Brazil over the Caribbean for a resort vacation? Some resort developers feel they have the answers, judging by the money they're spending. That's especially true in and around Bahia state, in the northeast, where investors have recently pumped almost half a billion U.S. dollars into new projects.

Previ, a pension fund for employees at state-owned Banco do Brasil, the country's largest bank, got involved early in the sector. In 2000, Previ and partner Odebrecht, a Brazilian construction giant, spent US$200 million to build five resort hotels, six smaller inns, convention and sports centers, restaurants, stores, swimming pools, tennis courts and an 18-hole golf course on the Sauipe coast in Bahia state.

Previ later bought out Odebrecht's stake and leased out the five resort hotels, two to U.S. chain Marriott, two to France's Accor and one to Jamaica's SuperClubs. France's Club Med, the oldest foreign resort owner in Brazil (here since 1979), opened its third beach resort--and its second in Bahia state--in 2003, a $23 million bungalow-type village. A fourth is on the way. "We got the green light for the fourth village because Club Med believes in Brazil and in the growth of foreign tourism here," said Sylvia Leimann, the marketing director for Club Med in South America.

Just down the Sauipe coast, Spain's Ibero Star group is building the first of four 380-room resort hotels, at the Praia do Forte beach, which will open in early 2006. The $200 million investment--which includes the four hotels, a 27-hole golf course and a convention and shopping center--will be completed when the fourth hotel opens in 2009. Vila Gale, Portugal's second-largest resort operator, will complete in May 2006 a $24 million, 450-room resort hotel, at the Guarajuba beach, in Bahia State.
 

"We chose to build our complex in Bahia, not far from Salvador, in part because that city is six-and-a-half hours away from Europe and is the center of Afro-Brazilian culture and musicj' says Orlando Giglio, the commercial director of Ibero Star in Brazil.

Grup Sehrs, a Spanish resort-hotel operator, is also planning to open its first operation abroad in Brazil in September 2005, a 425-room, $25 million trapezoid-shaped resort on the outskirts of the northeastern city of Natal, in Pernambuco state, just north of Bahia. Grup Sehrs also came to Brazil for its proximity to Europe and its white sandy beaches, but also to take advantage of favorable exchange rates. "Brazil is also a new and relatively cheap tourist destination, and cheaper than the Caribbean, where we could have also built," says Alvaro Darpon, commercial director for Grup Sehrs in Brazil.

At Sauipe, for example, the average price of a hotel room runs between $250 and $350 per day for a couple, depending on the season. SuperClubs charges a similar price and includes meals as part of a package deal.

"We came to Brazil because we've been all over the Caribbean and wanted a different, warm-weather, not-too-expensive beach destination," says Virginia Mecneck, a Dutch tourist who spent $4,200 for a two-week stay at a Superclubs resort on the Sauipe coast. "We've also heard so many positive things about the warmth of the Brazilian people and wanted to get to know these lovely people in their own country."

Prices at Brazilian resorts do tend to be lower compared to their Caribbean counterparts, excluding airfare. A couple visiting a SuperClubs or Club Med resort can expect to pay between 8% to nearly 50% less for a Brazil trip compared with a Caribbean vacation. During the South American summer, however, prices in Brazil can match Caribbean rates. Drawbacks. A number of foreign resort-hotel operators say that doing business in Brazil has some drawbacks--high labor costs, which include taxes, transportation, insurance and medical plans. "In Portugal, an employee costs twice his salary, whereas in Brazil an employee costs three times his salary" says JosE Wahnon, general director of Vila Gald in Brazil.

If it weren't for labor costs, Brazil would be a near-perfect place to build a resort hotel, says Xavier Veciana, general director of SuperClubs in Brazil. SuperClubs, however, sees money to be made by tapping a new and growing market. "We came to Brazil because the Caribbean is a known destination, especially for European tour operators, whereas Brazil is a completely new destination, doesn't get hurricane-type bad weather and has a northeastern coastline, like that in Bahia state, which gets year-round sun," Veciana says. Labor costs aside, SuperClubs and local partners are spending $17 million building a 250-room resort in Bahia state by 2005 and $22 million on a 300-room resort in Ceara state by 2006. While those go up, the company will consider developing two more in Bahia and one in Rio de Janeiro.

The Brazilian government has worked to improve the tourism sector. It has borrowed $800 million from the Inter-American Development Bank to improve infrastructure in the northeast, and in 2003, it created a Ministry of Tourism, where directors say investments in Brazil are well timed. "European hotel developers, especially from Spain and Portugal, are faced with saturated local markets," says Frederico Costa, the ministry's director of financing and investment.