EP Magazine

In this market, it is important to show courage but also caution

THERE HAS BEEN GREAT CONCERN OVER THE STRENGTH OF THE ECONOMY AND HOW THIS HAS IMPACTED ON THE REGIONAL HOTEL GROUPS. WE HAVE ALL READ THE STORIES OF FAILURE. BUT HOW ARE THE LARGE, REGIONAL INDEPENDENTS FINDING THE MARKET? CHRIS SHEPPARDSON MET WITH DONALD MACDONALD AND TWO OF HIS LEADERSHIP TEAM TO DISCUSS HOW MACDONALD HOTELS & RESORTS IS FINDING THE MARKET, HOW THEY ARE CHANGING AND WHAT ARE THEIR CORE AREAS OF FOCUS?

The story of Macdonald Hotels & Resorts is already very well known. Founded in 1990 by Donald Macdonald – alongside Sandy Orr and Donald Macdonald (no relation) – with two hotels in Scotland, the company has built a strong portfolio of more than 40 hotels and 10 resorts across the UK and Spain. The road has not always been smooth. Back in 1996, the company was taken public and then, in 2003, brought back into private ownership at a cost of around £600 million.

The hotel group has had its moments of controversy and yet during this period of recession, the group appears to be seeing a change in perception and greater recognition of its achievements. We have all read about failures in this market but it is also important to ask why Macdonald Hotels & Resorts has been able to show this improvement. We wanted to look behind this change in perception and discover how the Group was operating in a market that has been described as “a slow death of a thousand cuts for regional hotel groups”.

We met with Donald Macdonald at one of his properties – Macdonald Inchyra Hotel & Spa – with David Guile (chief executive) and Alan Swinson (catering director). All three are very different characters. David Guile is thoughtful and reserved with a clear business outlook. Alan is a genuine caterer with an obvious passion for developing the Group’s food agenda. Donald listens, observes and then gradually opens up as the discussion unfolds. There was no doubting their passion for the business – “We are true hoteliers,” observed Donald – and all three were clear as to the challenges they face.

I asked whether they believed there were any signs of optimism for recovery in the foreseeable future?

Donald: I do not believe that the market will improve in the immediate future. There is little reason for it to get better in 2012. The world is in a very difficult place and we are not immune. We can only talk about what we are in control of and what we have the courage to do. We are well positioned and we have to focus on what we are able to do. We have the potential to evolve our hotels and have the ability to acquire if we wish to, but not for the sake of doing so. In this market, it is important to show courage but also caution.

David: Business has become more challenging over the last few years. It is very inconsistent and there is little clarity. The city centre hotels appear to be trading well. The leisure market is too, but the conference segment is challenging. One of the biggest challenges we face is to work through how we absorb increasing costs and not passing them on to a customer that cannot afford any rises.

Alan: This is especially true with food. Food pricing has become a real focus area. We all know the cost of food has significantly increased this year. We have had to work far closer with suppliers to find solutions. I know it is sometimes easy to say this but this market has made us forge stronger partnerships with suppliers and to find new solutions. We made a conscious decision not to compromise on the product as part of our strategy and, in fact, to raise the bar so that our restaurants become known in their own right. We believe that the customer wants and expects a quality food product.

David: Absolutely right. We believe that our product is key to our success and food is central to this as it will bring in the local customer as well as those who naturally come to stay at the hotels.

Alan: Of course, the customer is more knowledgeable, so we need to be more creative in how we meet rising demands. We need to establish clear credibility for our food being of an excellent standard. We were recently the first hotel group to be awarded the Freedom Foods Badge for our pork.

David: The three-star market is very well served and very competitive. The budget hotel groups serve this market very well indeed. We therefore decided to position ourselves to target the four and five-star markets. It is a process of evolution and to achieve our goal, we cannot compromise on the guest experience. We are working very hard behind the scenes to ensure that we constantly move forward.

Donald: Yes, this is a difficult market but we are real hoteliers. The leadership team are true hotel professionals who have grown up in this business. History will show us that a ‘bull’ market attracts many from outside the industry who do not really understand the business. It was no different in the ’80s. Of course, as the market turns, they struggle. We have been here before. We should not be surprised and we have a team that knows what needs to be done. The product is the key. We have really focused on our food as it will attract the best chefs and the top talent to our hotels.

I noted that Macdonald Hotels & Resorts are renowned for having strong relationships with the banks, which had been their platform for growth in the ’90s. I wondered whether this had changed during recent times?

Donald: Yes we have had very strong relationships because we delivered. We have always delivered shareholder value even during the difficult times. We can talk about the difficulties of this market and it is very difficult but one third of our hotels have had record years. We are driven to deliver quality – to our customer and to our business. The quality of our earnings is strong. The quality of our product has never been better and we are not afraid to invest. This hotel, Macdonald Inchyra Hotel & Spa, is a testament to this. We have invested £3 million as we believe in its potential. Another is the Macdonald Marine Hotel & Spa in North Berwick, which we have redeveloped successfully because we are hoteliers and understand the business.

The Macdonald Marine Hotel & Spa was a rundown operation. We have reinvested £1million, as well as taking one of our top chefs, giving him the opportunity to run the restaurant under his own name – ‘John Paul at the Marine’ – and build his own story. We have built apartments which have been so successful that it has almost repaid our investment. The penthouse apartment was sold for close to £1million. It shows we understand what is required and how to deliver sensibly.”

David: The other key area that is growing is spas. This is a growth market. There is real interest in this area.

Donald: The great opportunity that exists for us is that many of our properties have potential for development. We cannot stand still and we are not standing still. I hope we are showing courage in the right areas but at the same time, being cautious.