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Thu 11 Mar 2010 04:00 AM

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How to save $50 million

The Rezidor Hotel Group's president and CEO Kurt Ritter divulges his management secrets and tells Louise Oakley how he confronted the economic crisis head-on.

How to save $50 million
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How to save $50 million
RITTER: Aims to continue growing Rezidor by 30 to 50 hotels a year, while maintaining the cost savings so far.

The Rezidor Hotel Group's president and CEO Kurt Ritter divulges his management secrets and tells Louise Oakley how he confronted the economic crisis head-on.Raised in his parents' hotel in Interlaken, Switzerland, Kurt Ritter began his career in the hotel industry when most of us were still reciting times tables and learning spellings.

He recalls his childhood fondly: "It was marvellous to grow up the way I did. It's not just the hard work but it's having a kind of duty when you come home from school - you know what you have to do. I had to do my homework but before that I had my three small duties, like to refill the bar - of course a child can do that. If the mother says there needs to be 10 Coca Cola bottles and there is seven, then you need three; it doesn't take an Einstein to do it, so I got very simple tasks but a task nonetheless and I think that's very important for a child."

Referring to himself as "like an Italian boy" in his regular references to his mother, Ritter learned a lot from her hands-on hotel management approach, even if he did not realise it at the time, he jokes. First and foremost, she taught him a love of service.

"My mother always said she brought that commercial service side to me in the way that she says if you wait and you sing to it - sing at the table - then you get a tip. And of course, if an eight year old boy comes to you with the soup shaking, probably dropping half of it, and sang a song - of course I got a tip! She said ‘don't do it for free but do it nicely'. It sounds stupid now in hindsight but that was a good lesson," says Ritter.

It is this humble work ethic instilled in Ritter at a young age that largely informs his approach to the business today. By the age of 16, he says he knew he was a hotelier - looking for any other job wasn't an option.

"I knew how to cook, how to check in, how to clean toilets, I felt it was very natural for me that I did what I was born into and the rest came by itself. I never had big ambitions."

Modesty aside, Ritter went on to graduate from the prestigious Ecole hôtelière de Lausanne and his first position took him to the Hotel Bellevue Palace in Bern as assistant manager. By the age of 29, after several years working with Ramada, he became the youngest general manager in the entire Ramada chain.

This was another learning curve, with Ritter admitting that he was probably not ready for that position. Forced to fire a senior chef more than twice his age during his first couple of weeks is something that stays with him even now.

"I thought I was very bad initially because it was the first time I did it. When you are young and you come in and you have to tell a man of 60 to go, that was a hard thing for me."

Although Ritter says he never dreamed specifically of being general manager, let alone a CEO, his progression through the ranks was steady, with him being appointed in 1989 CEO of SAS International Hotels (SIH) - which several evolutions later became The Rezidor Hotel Group we know today following the IPO lead by Ritter in 2006.

That Rezidor's growth has been driven directly by Ritter's vision is clear - the company celebrates its 50th anniversary this year but really, its development as a hotel business, as opposed to an airline company with a few hotels, has only taken place over the last 15 years.

"When I took the company over we were a handful of hotels, about 20, and now we have nearly 400. We have 396 hotels and since we open one a week more or less, we will be there rather soon," says Ritter.

Yet he is unphased by this growth, seeing it as something that has evolved out of great opportunities and the success of the company's brands, rather than something he has strived to achieve for its own sake.

Rezidor has five brands but only two, Radisson Blu and Park Inn, are active in the Middle East, with the third - the hotly anticipated Missoni brand in Kuwait - to launch this summer.

Of the remaining brands - which are held on franchise from Carlson Hotels - there are plans for luxury Regent hotels in Abu Dhabi and Doha. Country Inns and Suites, meanwhile, "remains on the shelf" admits Ritter. Managing crisis

Ritter's intuitive work philosophy was not rocked too dramatically by the economic crisis, first felt in 2008. In fact, he took a very realistic approach - the company had to save money, no question about it.

So even before the crisis really hit revPAR, he started a project called H4T - Hedging for Turbulence. "In October 2008, we said we wanted to save EUR 20 million (US $27 million) on the operational costs. And then suddenly in November or December we had a negative revPAR growth of about 5%, so before that came we already had the EUR 20 million as a plan and then in January/February 2010, we added another EUR 10 million ($13.7 million).

"We wanted on an annualised basis to reduce our costs by EUR 30 million ($41 million) and we have achieved actually EUR 36 million ($49.2 million), so after the Q4, 2009  announcement in February we had quite good feedback from analysts, banks and investors - they were very positively surprised with the result we came out with," says Ritter.So how did they achieve it? "Just by working smarter, saving," he says. "It's good, I don't want to sound like a masochist and say it is good to have a downturn, but I would go as far as to say that it is there, so you might as well do something with it and that is certainly a learning curve because when the times are good you don't turn the pennies around.

"We have saved at least 10% in the head office while we are growing. It seems a little bit in the wrong direction you might think but it works very well, nobody is over stretched."

This is reflected by Rezidor's annual ‘climate analysis' - a measure of the mood of the company's 30,000 people. Ritter says 25,000 staff  answered the last research and that they "had the best result in history".

"Of course, to save  EUR 36 million, we had to let people go, people had to work harder, be more flexible, so we asked more from the staff than we ever did and the result was almost one point higher - 85.8 out of 100.

"I think that's a remarkable result, after a year of downturn and I would say we rather successfully went through the year, did the right things and everyone was happy," says Ritter, again modestly, making the feat sound almost easy.

Proving the analysts wrong was something he relished, however.

"In the beginning the analysts said we were too ambitious, we would never get EUR 30 million - that's too much for the size of the company but we did it and that means it's here to stay - so if times get better you have more profits because we will not let go of that threshold we have established now," asserts Ritter. "If we go on by growing between 30 and 50 hotels a year we will be very happy."

With the benchmark set, as well as more than 22,000 rooms in the pipeline - 90% of which are fee-based reducing the risk to the company - perhaps Ritter is a little more ambitious than he realises.

 

Ritter on the future

On Missoni Hotel

"It's not a brand we would give up, whether there are bad times or good times, we will push through because it's really a very timely brand, people love it."

On the economy segment

"I think if we had time I would like to be in the two-star business because that's a very lucrative business, especially in areas like the Middle East. It's coming. It's not yet really implemented in the Middle East; its not as it is in Europe. They still add ballrooms and swimming pools because somehow people expect it here in a hotel but the time will come when really price will matter and guests will say I don't want to pay for that."

On being the biggest hotel chain in Europe

"I don't know. We don't really have the ambition. If it happens it happens but we don't grow just for the sake of growing, it has to be quality growth."

On catching up with Hilton

"We are the number two in Europe behind Hilton and have been for the last four years and the gap is closing. And then we have the biggest pipeline, now I sound as if I am bragging but they are facts. We have the biggest pipeline with Radisson and we have the biggest pipeline with Park Inn."

On introducing more brands

"I don't think so under my time, I want to consolidate what we have, I think we have enough on the plate. Out of the five, we really have two active brands that are Radisson and Park Inn. We have plenty."

On retirement

"Probably one day I would aspire to be a happy retired person looking after my wife and my horses. Of course I will remain in the industry somehow on a board or something. I couldn't imagine just to go and sit somewhere in the woods and look after the horses."

On running a public company

"If you do a step to the left, rightly so they ask you why you went to the left. And I think it takes much more time to run a public listed company because you have all these compliance things and reports, so it is more difficult. But on the other hand it also gives you more opportunities. Now we are core business, we have investors so if I have a good idea, which I haven't had yet, I can go to the investors and say look, I want to buy a company if I have a good story. We were listed in 2006 and since late 2007 we have had the credit crunch, so it's not exactly the time to make big jumps but I'm sure if we need money in the future we can get it more easily today than we could before."

On targeting emerging markets

We shifted almost exclusively into the emerging markets two years ago. So where we really look  at is Africa and CIS. We go into all the CIS countries and the main cities - in Russia alone there are 50 cities we have targeted with more than 400,000 inhabitants.

On the next 50 years

I'm not worrying about that! It sounds good when you say we are 50 years old but we are really 15 years old, because it's been 15 years since the growth has taken off. I do not have a single doubt that we are doing anything wrong by growing so fast, I think it's the right thing to do. These superlatives, whether we are first or this or that; we will just try to keep this position."

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