By Claire Ferris-Lay
Simon Cooper, president of The Ritz-Carlton Hotel Company talks to Claire Ferris-Lay about his toughest challenge yet.
Simon Cooper, president of The Ritz-Carlton Hotel Company talks to Claire Ferris-Lay about his toughest challenge yet - getting customers to check-in amid the global downturn.
Ritz-Carlton staff must cower when Simon Cooper, the luxury hotel chain's president and COO comes to visit. It's not that Cooper isn't friendly, just like his brand, he is charming and laid-back, he just doesn't allow standards to slip - ever.
One of his pet hates, he tells CEO Middle East, is scrimping on flowers, no matter how devastating the economic downturn has been on the international travel industry.
Even though travel is constrained and people are travelling less than they were last year, expectations haven’t changed.
"I was at a hotel the other day where they had cut back on flowers and we put them back very quickly," he says. "Entertainment and flowers are some things that are easy to cut and I'm certainly not a big fan of that."
Flowers weren't the only changes Cooper made when he first took over at The Ritz-Carlton Hotel Company eight years ago. In addition to almost doubling the number of hotels, he has revolutionised the way in which the hotel operates, from the contemporary, relaxed décor to its first class guest relations. But, now he is facing his biggest challenge yet; the economic downturn coupled with the backlash on luxury travel.
According to the travel research firm, STR Global, revenue per available room (revPAR), the measure of demand used by the hotel industry, dropped 20.5 percent to $56.18 in North America in March. During the same period, European revPAR dropped 14 percent and in the Middle East and Africa it dropped sixteen percent to $105.51.
The global downturn might have ensured that the average family is no longer looking to travel abroad this summer, but it is this, together with what has been dubbed the "AIG affect" that has ensured that this downturn has been one of the most devastating yet for the travel industry.
"That's damaging, no two ways about it," admits Cooper.
According to analysts' predictions corporate meetings account for more than half of the annual occupancy for many resorts in North America. In 2007, business travel was worth $240bn, according to the US Travel Association.
The ‘AIG effect'
The backlash started in September when executives at American insurance giant, AIG spent more than $443,000 at the St. Regis Resort in California, days after accepting an $85bn US federal bailout. The following month, the insurer was forced to cancel a second team building event at the Ritz-Carlton, Half Moon Bay in northern California. "America has one thing that is different from everywhere else and that is there has been a lot of focus in Congress about groups and luxury hotels. We are sort of trying to stop talking about the [AIG effect]. It really made a big hole throughout ‘09," says Cooper.
"We are going to have to wait until 2010 for a lot of those groups to come back and it wasn't just the ones that were using taxpayer's money, frankly it rippled throughout. You have the secondary effect - should I be celebrating when times are tough? Our industry has obviously done a lot to try and change that. ‘Meetings means business' is the sort of tag line that we use and I think that the media frenzy [of] trying to find somebody meeting in some hotel, I think it's over. Nevertheless, companies [are] conserving cash."
Feeling the heat
In April, Marriott International, America's largest hotel firm and owner of the Ritz-Carlton, reported net losses of $23m for the first quarter of 2009, as recession eroded spending on travel. Despite the losses, the results were better than analysts predicted and the news sent stock markets in the US rallying.
Cooper says Marriott has a strong balance sheet. "Obviously all balance sheets are being impacted and the Marriott has a very strong balance sheet. I think a lot of analysts are looking at whether [hotels] can withstand the environment that we are in and the liquidity situation and Marriott - it's very strong relative to the competition.
"The stock has actually done relatively well in the last month and then they changed their dividend so the dividend is now in stock, which is frankly a smart move when you are trying to reserve cash."
So what is Cooper doing to limit the fallout over at the Ritz-Carlton if he isn't cutting back on flowers? He's making small changes, he says; replacing flowers with potted plants, for example. The luxury hotel chain has also introduced a corporate incentive offering to donate ten percent of the cost of a conference held at Ritz-Carlton premises to charity. The incentive, say spokespeople, is expected to appeal to companies growing emphasis on corporate social responsibility.
The company has been forced to lay-off staff - around 20 percent in North America, less across the rest of the world - and for those that remain with Ritz-Carlton, Cooper has used them to remind the US Congress just how many taxpayers the firm employs.
"One of the things we've tried to use in terms of shifting Congress, especially those who actually wanted to put in more travel constraints, was [point out] the unintended consequences of the amount of unemployment in remote locations. Because a lot of luxury hotels are in remote locations on beaches and we are very often, by far the largest employer in the community, by far the largest taxpayer... and the alternatives in these remote locations are not obvious."
Cooper has also closed a number of restaurants, which during the boom period were busy both at lunchtime and in the evenings. "We have a couple of restaurants we don't open for lunch any more - some of the ones that are more suitable for dinner, but in a good economic environment you can still do good lunch with business people," he explains. Balancing act
But cutting back is a balancing act, says Cooper, who is proud of the way he has steered the brand since he made the switch from Marriott International in February 2001. "The reality is even though travel is constrained and people are travelling less than they were last year, expectations haven't changed. You have to be very careful; it's a balancing act," he says.
When Cooper joined the Ritz-Carlton he was conscious he didn't need to change the brand, which was particularly popular with men "in grey suits". "Nothing was broken - my job was not to mess it up," he says laughing. "I think the most important change we've made - right or wrong - is we've tried to make the brand more casually elegant. I always went in and said ‘I am not going to make any changes on the basis that it is operating superbly, with a terrific positioning', however after a couple of years it began to look and feel [that] our traditional positioning was not sustainable over the long term."
So out went the dark wood, the velvet curtains and the cookie-cutter interiors, and in came the contemporary, classic and luxurious interiors. Out went the automated wake-up calls and check-in desks in the lobbies, and in came the personal, discreet service, which the Ritz-Carlton is now synonymous with. One of the most important aspects of the reinvention of the brand was the switch from the dated advertising scheme to a new hugely successful marketing campaign, which focused on selling ‘the Ritz-Carlton lifestyle'.
So dramatic was the change that Joseph Michello, author of best-seller ‘The Starbucks Experience,' last year released a book about the Ritz-Carlton service culture; ‘The New Gold Standard: 5 Leadership Principles for Creating a Legendary Customer Experience Courtesy of The Ritz-Carlton Hotel Company'.
"Twenty five years ago, if a brand wanted to grow it was perceived to be a plus if the hotels resembled each other because you were trying to grow a brand. Today in our business it is absolutely the opposite - nobody wants to stay in a hotel that looks like one they have already stayed in," says Cooper.
"We are never informal but we are less formal and we are also trying to be a bit more responsive to the individual because today it's a very eclectic crowd in a hotel. Five years ago they were all grey haired guys in suits, now you never know who you are going to get [staying at the hotel]."
In addition to changing the face of the brand, Cooper has also grown the number of hotels to 73 hotels in more than 25 countries. In January, the Ritz-Carlton took over Cairo's old Nile Hilton, which it plans to spend two years refurbishing before opening in late 2011. In addition it will also open its second Dubai hotel up at the end of the year, a 340-room hotel in the heart of the financial district, Dubai International Financial Centre. There are also other hotels slated to open in the next few years in Abu Dhabi, Toronto, Los Angeles and Mexico City.
Cooper will add an additional six Ritz-Carltons to the chain's portfolio this year and four next year. Although two of the group's hotels (The Lodge at Rancho Mirage in Palm Springs and The Molasses Reef, a Ritz-Carlton Reserve in West Caicos) have been delayed as both were financially backed by the bankrupt firm, Lehman Brothers, Cooper is optimistic it won't be long before they too are open.
"Rancho is one of them and I think that will start up relatively soon," he says. "Lehman has already offset the loan... to a Scandinavian bank. Suddenly this Scandinavian bank says we own your hotel... anything is better than Lehman," he laughs.
"I think that will start up relatively soon, although there's not a rush to increase supply right now - people are trying to find the right balance between when do we start the work again and when do you want to bring it on because we'd like to bring it on when things are a little better."
Optimism for Middle East tourism
The effects of the downturn on tourism in the Middle East and North Africa regions were not felt until the later part of 2008, according to research. And while Cooper remains concerned for Dubai's tourism industry, he remains optimistic about the rest of the region.
"This region is probably one of the more resilient if it wants to be. Obviously Dubai is the most impacted in the region. Egypt is not doing badly, if you look at some of the more business focused [markets like] Qatar and Bahrain, they aren't doing too badly. You have to look at the source markets for Dubai... the UK and Germany are tough markets right now, so it's hardly surprising. I am not a big believer in bouncing back right now... if the UK is not going to bounce back, Dubai won't bounce back."
It may be quieter but that doesn't mean the staff have nothing to do.