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The story has to change

Richard Hartman was appointed as Chief Executive of Millennium and Copthorne Hotels with the remit of bringing stability and strategic direction to the business. Is he achieving his objective, and what has been his experience to date?

Heather Gibson reports

If you are completely brand-focused then the story is one of growth, that’s all it can be: new brands and new destinations. However, out of the top five hotel companies, four have almost 4,000 hotels. The story has got to change sooner or later; it is not possible to keep adding and adding.”

Millennium and Copthorne Hotels (M&C) operates 102 hotels in five major markets: Asia, New Zealand the US, Europe and theMiddle East, with 16 hotels in the pipeline. The company’s Chairman is Singapore billionaire Kwek Leng Beng, whose has a controlling stake of 53% in the business. Prior to Richard’s arrival in April last year, themost recent CEO had had a tenure of six months, and some were surprised by Richard’s appointment, assuming that he had retired after leaving Intercontinental Hotels Group (IHG) in 2007.With more than 40 years’ experience, he is regarded as an industry veteran and M&C has perhaps been fortunate to have Richard’s foresight at the helmjust at themoment the worst economic crisis in living memory began.

“The questions I am most often asked are: have you ever seen this before? And how long will it last? The answer is: No, and I don’t know.When you are confronted by a crisis it is very difficult to understand whether it is structural or cyclical, and it is very possible to make the wrong decision. If it is cyclical then it will work through, if it is structural then a whole new world will emerge, and there will be change.”

Richard has a wealth of knowledge and as we talk inmore dept, it is clear that he is someone who takes nothing for granted and does not shy away from difficult situations. He questions and challenges assumptions regularly throughout our interview. It is evident that his motivation to join M&C was partly a desire to get back into the kind of hotel business that he prefers, namely one that owns property. Unlike the ‘big five’ hotel companies - Accor,Marriott, Starwood, IHG and Hilton –M&C is positioned as a destination-led business, not a fee-based business that is part of a franchise or management contract. In Richard’s view a hotel business, at its heart, should be an integrated one - some owned, some managed and some leased.

“M&C will never compete by ubiquity. Our success will not be measured by the size of our pipeline. The difference is that we own 80 of our hotels, rather than just booking amanagement fee or franchise fee, so we book the whole profit and loss of those properties we own. The big five are distribution driven and it is possible to put hotels inmarginal locations.M&C has to be in the right place, in the right town and the right city.

“I amnot against disposing of properties or strategic acquisitions; we came fairly close to selling Korea last year and in 2004 we sold the Plaza Hotel, which at that time was probably the biggest transaction in NewYork.We will buy and sell opportunistically when the price is right, and would like to overlay our portfolio with some key locations such as Tokyo, San Francisco or Sydney, but we will not sacrifice yield.”

I ask Richard what he sees as M&C’s competitive differentials.

“There are very few differentials in this business when you think about it. Anything that is different becomes a qualifier in a matter of months if it is successful. There are some differentiated brands - W, for example, has a small distribution but punches way above its weight in terms of its reputation. Four Seasons is another, as are Malmaison & Hotel du Vin here in the UK. These chains are limited by their differentiation; you cannot put a HDV anywhere.”

Noting that he has retired several times, and would possibly do so again in the future, Richard explains that he had also known Kwek for more than 20 years, having lived and worked in Singapore prior to taking up theM&C role.More importantly he states that he felt comfortable he knew what he was getting into.With the business having recently announced a 50% drop in first-quarter profit, M&C has suffered during what it has called a “predictably challenging” trading environment, and Richard is under no illusions.

“We are paying particular attention to market share and pay very close attention to recovery rates. If we are going to drop a pound of revenue, we are looking at how much can be saved at the profit line. The reality is that it is about learning to do business at a lower price. There is still business out there, but the pricing has been recalibrated.

“There is less company spending and more discretionary spending, which is one of the reasons that pricing has changed. That is true of almost everymarket. Take a simple statistic like double occupancy; traditionally that is 1.3 guests per occupied room, and recently it has gone up to 1.6 in our business. This indicates that there is a different kind of person travelling.

“A lot of fixed costs have been built into a hotel because business has been good for so long.What would have been variable costs, such as labour, have slowly become fixed costs because business got predictable and, in general, fixed costs on an hourly basis are cheaper than variable costs. So, if a hotel is always 90% occupied the argument is that you are better off with fixed costs – and the whole world got like that.”

Leveraging the most potential from M&C’s existing properties is central to Richard’s strategy for the business, partly driven by looking at existing fixed costs but also, as he put it, just looking at what we do in business. He confirms that in NewYork and London, two of M&C’s keymarkets, he has taken the decision to remove the hotel restaurant fromday-to-day operations, and use it for functions.

“In these cities the hotel restaurant is most often full when it is raining or snowing. Unless it is a real destination restaurant, and the hotel is willing to put quite a considerable effort in for relatively little return, you are better off not trying to compete. I have had no complaints since we started doing this last year.”

For the moment Richard is focused on leading his business through the current market challenges. Having retired for the first time at 52 and found that he was not satisfied with just doing Sudokus, it’s clear that he sees himself working in the industry in one form or another for some time to come and is philosophical about what the future holds.

“It is possible to get stuck in a modus operandi and think it’s the right thing to do, just because it has been done that way for 20 years. But things change.”

A lot of fixed costs have been built into a hotel because business been good for so long. What would have been variable costs, such as labour, have slowly become fixed costs because business got predictable and, in general, fixed costs on an hourly basis are cheaper than variable costs

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