Richard Solomons is chief executive of Intercontinental Hotels Group. He talks to BBT about new brands, dynamic pricing and PR stunts by his competitors.
There are a lot of new hotel brands in the market, but IHG seems to have comparatively few. Are you planning more?
We’ve had what you might describe as a rifle shot approach to brand, based very much on supply, it’s upscale, mid-scale and what that has enabled us to do is create more mass in each brand. Holiday Inn is the largest brand family in the world. But looking forward, two things are going on. Firstly, consumers are more discerning about they want. The second is that as you think more about need and occasion, people have very different needs of types of stay. So thinking of IHG as a more powerful contributor to a trust mark against brands gives us an opportunity to add more brands as the family of brands becomes a clearer construct.
What you mustn’t be is be bland to everyone because that makes you a commodity, it opens you to the online travel agency, It opens us up to intermediation, which is not helpful for the brand or the owners – our business model is to drive return on investment for our owners.
Holiday Inn went through a $1 billion relaunch, and you lost a lot of hotels in the programme doing it. That must have been tough?
Very tough, and that’s why we’re the only ones to have done it. The brand had been milked for quite a long period of time, it had been owned by different people, and at the time of the re-launch in 2005-6 it was a successful brand, and was continuing to grow, and was driving a premium in the market. But we looked ahead and said for it to stay relevant there is a lot of product that’s not going to make the journey, we are going to have to do this to continue to grow.
We had the luxury or luck of being able to build up the pipeline very aggressively because the brands are strong before we started the removals. It was the single biggest refresh of a brand in the industry. In order to be allowed to be a refreshed hotel, you had to make physical changes and put every single member of staff through the training programme that was a tough thing to do.
The cost of taking out those rooms in lost revenues and disruption was huge, but we had to do it. And it’s no coincidence we have 12 per cent of the world’s active pipeline with only five per cent of the room supply, it’s no coincidence that Holiday Inn is one of the oldest brands but it is one of the fastest growing brands. The biggest advocates of the change are the owners. The chain is only as strong as its weakest link.
But it’s the owners who are investing, who are spending the money. You only own six hotels and you’re trying to sell them, so how do you convince owners to invest?
We own 10, and we’re trying to sell a couple. It’s how the markets assign capital most efficiently. We take a share of revenues generally in a franchise agreement, and in management share of revenues is a big piece of it and we share the rewards with owners. So if you own a hotel you’re getting all the capital appreciation and getting all the profits out of the assets and you’re giving us a small part of that, and that’s the game. We wouldn’t have signed 356 hotels in 2012 if owners didn’t like it. We don’t like leases as a business model.
Crowne Plaza is going through a process at the moment. Do you think business travellers understand what the brand represents? Is it five-star?
I don’t think about it as three star or five star – it’s need and occasion and price point. Crowne Plaza has been confused in the UK and US, perhaps, but in Asia it is the fastest growing upper upscale – it is a business brand. We define the core customer is a striver where success in business defines success in life. We have fewer brands than a lot of other hotel companies, but a lot of their brands are quite confused. They segment their brands by price point, and that’ one way to do it, but I don’t think consumers think that way. There is plenty of room for brands. You need them because hotel brands aren’t like supermarket goods. They aren’t like shampoo where you can just get more shelf space, particularly in a third-party model, because I can’t have five Holiday Inns next to one another, as much product on the shelves. So there’s a limit – if I want to drive market share for IHG’s customers I need multiple brands, but if they’re not differentiated then it’s just confusing.
Starwood located its head office to Dubai for a month in March, and did it with China a year or so ago. Have you considered that?
I’m not into PR stunts. We are a global business and have been for a very long time. I have very senior and experienced executives based around the world, and this idea that your local team aren’t competent and you have to be there is a PR stunt. We run local and domestic businesses already. We have over 300 executives in our Shanghai office, most of whom are domestic Chinese, 80 per cent of our customers there are domestic travellers and I go there a lot, I was there about six times last year. It’s what you do. Relocating the head office? It makes me smile.
How do you feel about distribution, online travel agencies and the different ways that your hotels can be booked?
The best way for people to book our hotels is directly with us. Best for them, because the quality of the information is as good as it can be, it allows us to create relationships, they can gain points in the loyalty programme, and they have absolute confidence that the booking is going to be here. It’s also best for our owners because it’s much cheaper, from a return perspective. The Holiday Inn website alone is $3.4 billion, putting us in the top 10 of all retail websites in the US. Our approach with travel agents, whether online or American Express, Carlson Wagonlit – if it’s incremental business we wouldn’t otherwise have had, at a sensible price for the owner then we are happy having it and it is growing, We’ve moved out of opaque pricing, which is unhelpful for owners.
The loyalty programme is a land-grab for members at the moment, particular in Asia where free wifi being offered for travellers who sign up. What do you think about that approach?
You have to think about net return, not cost in our business. Lots of things cost. The Frequency programme costs, but is hugely value-added. We have 71 million members. It’s a cost, but look what it does to the top line. We sometimes talk about net revenue – net rev par – what does it cost to get that rev par? So yes, for some of these brands it’s been an arms race to sign people up, and we’ve got a lot. They aren’t all active, and our focus is genuine loyalty across the brand family, and one of the key tools is the loyalty programme. We make sure we target our spend on loyal customers who are going to stay more and pay more. Brands are promises, so is it a relevant promise and does it deliver value that people will pay for? It’s a simple business with multiple channels with multiple brands in multiple regions, but you want customers who are travellers, whether leisure or business, and who come back to you.
ihg.com/hotels