ABTN speaks to Herve Humler, president and COO of Ritz-Carlton, about its journey through the recession and future plans, including expansion of the Bulgari brand and the launch of Ritz-Carlton Reserve...
How bad was the recession, and how far have you come back?
It was something we had not expected. In any economic downturn you drop and then you bounce back, but this has been a very challenging two years. In 2008 revenue per available room (RevPAR) dropped about 11% and in 2009 around 14%, so all in all 25% down. One of the sectors we always did very well in was the financial sector, and that business almost completely disappeared in 2008 and 2009.
At the same time, you have to celebrate what happened in 2010. I always like to be optimistic, and business is coming back. We budgeted about 1% RevPAR growth in 2010 and we finished up the year with a 10.5% growth, a combination of rate and occupancy - though much more the latter.
Overseas, if I look at Asia, we have over 20 hotels there. We did quite well in 2008, up 11%, but in 2009 we dropped 16%. In 2010 we are up 21%. The Middle East was the last continent to drop in early 2009, and they were the last ones to recover. There are still problems there, of course. The Bahrain Formula 1 was cancelled. We only have one hotel open in Egypt, the other is being rebuilt - it used to be the Hilton.
So you think that compression in the market will come back?
We don’t want to compromise on the product or the service, but we did have to make adjustments because we had less customers in the hotel. We had to reduce the hours of some restaurants where we had four or five restaurants. Now everything is back in full swing.
Yet you seem to have moved closer to Marriott, including the launch of Ritz-Carlton Rewards.
We have a new president and COO at Marriott, and he totally understands the value of Ritz-Carlton. He says if something does not enhance the value of the brand and the customer service, don’t do it. But I also have to be smart in that Marriott, with 3000 hotels around the world, will have more experience than us in certain markets. Look at development. Marriott had a large development office in Hong Kong, the UK and the Middle East, so we met with these people and asked them how we could grow our brand. Look at Asia, we now have 20 of them. In 1996 our reservations system was totally obsolete. Look at what Marriott has and had then. A company of 75 or 100 hotels can’t compete with that, and so we can use that.
And the loyalty?
It was obvious. I wasn‘t going to give rewards. The only thing our customer wants is service. And that was what I was selling. But customers told us that everyone else has it, so I started to look into it. We did a lot of customer focus surveys in Asia, and we announced the programme on September 15 last year. By mid-March we had 75,000 members. Already, from the financial side of it, they can potentially give me 29 million dollars in new revenue.
Of that 75,000, what proportion were already Marriott Rewards Customers?
Around 15% are Marriott customers who converted over to us, and 85% are new Ritz-Carlton customers.
One of the worries was that Marriott would get your customers...
Maybe some locations where there isn’t a Ritz-Carlton, but it’s better that than losing them to some other hotel company.
How does Bulgari fit into all this?
When we go to a destination like Bali with a small boutique hotel, you can position your price as you see fit. It’s a lifestyle. During the downturn occupancy went down a little, but rates stayed the same. It’s a very thin market, around 1%. We also learned a lot from Bulgari, and we developed the Ritz-Carlton Reserve. to go into small destinations where I can’t put a full Ritz Carlton. The first one is in Krabi, 120 km north of Phuket. We compete with some very high-end boutique hotels, Aman and so on. That brand is picking up some steam.
How many Reserves and Bulgaris will there be?
For Reserve, we have seven hotels in different stages of development. Bulgari will never be a large brand, between 10 or 15. We announced London recently.
Because you can’t open a Ritz-Carlton in London because of your agreement with the Ritz in London?
Absolutely. We do have a marketing agreement with the Ritz, and also in Madrid.
Ritz-Carlton is also changing its style...
Every two years we meet and look at the brand. In 2004 we had an initiative to go for a new customer, to give more of a sense of place. And all our new hotels have that. More wow factor, redoing all our food and beverage concepts.
What is the average age of your customers?
In the early days it was 50 and above. Now we go down to 35.
If there is a criticism of Ritz-Carlton service, it might be that it is very consistent...
Too scripted, yes. When we started, what we did very well was find a process for everything. We wanted to make sure we were aligned and we developed a credo. We are in business to give service to our customers, not to see rooms. The second part of our position statement was to pledge to give the finest facilities and service. The third was to uplift the senses, to create a wow factor.
We scripted it in the early days and we are still doing it in certain markets not known for great service. Service is a three-step process: the greeting, giving the customer what he wants, then when he leaves, the staff would say, “My pleasure, my pleasure” - and maybe that was too much. Now we say, “be yourself” to the staff, but we still script in some markets.
Do you have a maximum number of Ritz-Carltons you are aiming for?
No. We could develop as many as we have good service personnel for. As many as we can develop. Prague, Vienna and Bucharest were all ready to go, and then the financing dried up. Now it is back again and they can maybe start again.
To see a previous interview with Simon Cooper, click here