The future of small hotels in France looks bleak, as their numbers decline, and they cede market share in the tourist market to camping sites, chambres d'hôtes and hostels.

According to a recent study by Insee, French national statistical institute, the number of hotels reduced by 10% between 1997 and 2006, from 30,000 to 27,000.

Above all, it was the smaller hotels where the decline was greatest, with hotels employing fewer than three staff down by 4000, whilst those with more than 10 staff actually grew by over a 1000 in the period.

At the same time, the market share held by smaller hotels employing less than 10 staff reduced from 53% to 42%.

Camping sites seem to be fairing better, with the number of sites in France increasing from 2944 to 4620 over the decade to 2006.

However, the tendency seen in the hotel sector for smaller players to give way to the bigger operators has been evident. Whilst the number employed has doubled since 1993, the growth has been propelled mainly by the bigger players in the market. Camping sites employing less than three staff held 40% of the market in 2006, which was 16 percentage points lower than in 1993.

The latter include such big names as Club Méditerranée and Pierre et Vacances, who between them dominate this market in France.

Whilst Insee do not provide precise figures on the number of chambres d'hôtes in France, there are around 40,000 actually registered with the authorities, although it may be double this number if unregistered businesses are added to the pool.

In total, these alternative forms of tourist accommodation employed 9543 people in 1996, whilst the figure grew to nearly 35,000 in 2006. If non-salaried persons working in these establishments are added then Insee estimate that they now account for 24% of total employment in the sector, up from 10% in 1993.

In the past decade there has been a significant drop in the profitability of hotels that may account, in part, for why around 20% of smaller hotels close each year.

The French camping sites had the best return, with a gross operating margin of nearly 50%, a figure that stayed broadly flat over the last decade. Hotels had an average gross margin of around 30%, whilst it had dropped from around 25% to 15% for chambres d'hôtes and holiday camps.

Hotel Grading System to be Changed

The decline in the size and profitability of the hotel sector in France has attracted the attention of French government, who last year set up a commission to come up with plan for reviving the sector.

The commission concluded that up to one third of the hotels in the country were in need a major investment, although just where the funding was to come from for this investment was left unclear.

There are a large number of schemes of assistance available through the county and regional councils, but the eligibility criteria and application process are so complex as to almost be inaccessible!

The major recommendation of the commission was to abandon the unique and historic four-star hotel grading system, which they considered was now based on obsolete criteria, in favour of the internationally recognised five-star system. The commission proposed a long list of obligatory criteria for each star classification, together with other discretionary criteria.

The commission made a large number of recommendations, giving the impression of major change, but the general feeling is that new obligatory criteria are simply not precise enough to bring about a big improvement in the quality of the offer.

This is notably the case at the bottom end of the market. Thus, the minimum size of the bedrooms in the proposed two and three star hotels remains unchanged, whilst that for a double room in a one star hotel actually goes down, from minimum of 9m2 to 8m2.

Whilst no-one is saying so very loudly, many consider the commission was hijacked by hotel groups such as Accor (owners of the low-cost 'Formula 1' hotel chain), who made sure that the recommendations did not damage their own market position.

The government has indicated that it will be making an announcement on the proposal of the commission within the next few weeks, when it is envisaged the new criteria will be introduced from 2010.