A few years ago, Jacques Chirac and Helmut Kohl met at a Kempinski in Weimar, Germany, and the hotel was completely booked. Reto Wittwer, Kempinski’s president and CEO, was there to make sure everything ran smoothly, and he “had to sleep in the presidential suite because Kohl and Chirac slept in regular rooms. Nobody wanted to sleep in the suite because Hitler used to live there for about a month.” He continues to explain that the hotel was burned down during the war and was completely renovated, but the headline would still be ‘Chirac sleeps well in Hitler’s bed.’
So go the stories of the world’s oldest hotelier. Established in 1897 in Berlin, the Hotelbetriebs Aktiengesellschaft Hotel management company was the first of its kind in the world, and immediately built and managed grand hotels in Germany’s largest cities at the turn of the century. More than 110 years later, Wittwer, who has been at the helm for 13 years, exudes deep pride in his company’s heritage “We are the oldest hotel company in the world. We must have been doing certain things right otherwise we wouldn’t be around this long.”
The magic number is 110 which is the age of our company, next year it would be 111 doors. We will cap our growth to never have more hotels than the age of our company.
Kempinski is also the only independent luxury hotel company in Europe. It had a minor flirtation with the German bourse, but de-listed five years ago, and is now owned by the Crown Property Bureau of Thailand, and the royal family in Bahrain. The company owns one hotel in Munich and leases two others in Germany; the remaining 60 hotels in the portfolio are managed by Kempinski. Contracts for the managed hotels are limited by time, so the company can always re-evaluate its existing portfolio and drop properties that are not in line with its brand identity.
This falls into the overall strategy that Wittwer devised, one of creating “a company of individualistic hotels, each one is one of a kind, rather than having a streamlined portfolio, like American companies, where you see one and you have seen them all,” he explains. Creating a collection of individuals is Wittwer’s main focus and the strategy for growth, and also fits into the defining characteristics of luxury. Dictionaries define luxury as material objects or services that provide elegance and refinement that are beyond the basics needs of living. This implies that exclusivity and the limited quantity of products or services is a major ingredient in creating luxury, and dictates the strategy of the supplier and the perspective of the customer. Kempinski’s competitors, such as Four Seasons and the Ritz Carlton, have aggressively expanded over the years and contributed to the rise of mass affluence in the hospitality sector. Wittwer sees this as antithetical to luxury. “10 years ago, I said that there would be one Ritz Carlton too many,” he says.
Limiting the number of hotels is Wittwer’s strategy of ensuring that his chain maintains its standards and prestige. He cites the high demand and caché for the extravagant Kelly bag, which has a waiting list of around three years, or certain Ferrari models that also require rich customers to wait for their prize. Controlled scarcity defines luxury and guides Kempinski’s expansion.
For any company, it is always difficult to tell the shareholders that growth will be limited. Wittwer says “in luxury hospitality, people do not want to have the same experience everywhere they go, and certainly they don’t want a home away from home, they want an experience that is completely different. We have to cap our growth, and grow from within,” he adds.
Kempinski will grow significantly over the next three years with 43 openings slated by 2010, but the company will then firmly adhere to a cap that is both manageable and an attractive marketing slogan.
“The magic number is 110, which is the age of our company. Next year it would be 111. We will cap our growth to never have more hotels than the age of our company.”
This cap has many benefits, according to Wittwer. It refines the business model, ensures scarcity and pricing supremacy, and allows it to build an elite portfolio that offers unique experiences across the world.
The three criteria that Kempinski looks at before entering any market is whether the hotel will be a market leader, a unique offering, and/or a trophy hotel. Breaking into new markets may require an initial relaxation of this criteria, but in the end the strategy is successful. Wittwer tells of the company’s foray into the UAE. “We started very modestly in Ajman. We were invited to Ajman by the rulers, and they said ‘help us to put Ajman on the map’.”
The hotel proved to be a success, and while the company was questioned for not targeting Abu Dhabi or Dubai, Kempinski won the contract to run the spectacular Emirates Palace. Wittwer cracks a grin and says, “all the big companies were standing there – Four Seasons had 10 people for three weeks waiting to sign the contract – but we got the contract.”
The Kempinski in the Mall of the Emirates in Dubai was also a significant win for the company. It can easily lay claim to be the only mall hotel overlooking a ski slope, and the hotel was taken complete advantage of the property by offering chalets on the slope, with a nightly rate of US$6000. As for further expansion in the UAE, Wittwer plans to evaluate opportunities and assess if they fall within the overall portfolio and strategy. He accepts that the opportunities for further expansion are attractive, but states he would rather “say an intelligent ‘no’ instead of a stupid ‘yes’ that you regret afterwards.”
Growing intelligently is the only way that the hotel can maintain its brand integrity, but that does not necessarily mean that the company is conservative.
One of the most difficult business decisions to say an intelligent ‘no’ instead of a stupid ‘yes’ that you regret afterwards.
The hotel chain aims to have 60% of its properties in major cities, 30% as resorts, and the rest as a mix between the two. In order to achieve this geographic blend, and to attract its existing customer base to other properties, Kempinski is managing properties in the Middle East, Europe, Asia and Africa. “Image comes from Europe, money comes from the Middle East, pioneering is in Africa, and future investment is in China.”
While China is accepted as a natural expansion, going to Africa appears to be an odd choice for a luxury hotel chain. “In Africa, people are shying away saying it is not ready yet, but if you wait to get ready to be ready, you will never be ready. We see opportunities: if you look at lodges in Botswana that sell for US$1380 to US$2760 per night. Tell me anywhere else where you can charge those rates. There is luxury in Africa; you just have to be in the right place.”
The recent headlines affirm Wittwer’s intuition. The fastest growing market for private aviation is between the Middle East and Africa, and with the imminent development of Bin Laden Group’s bridge from Yemen to Djibouti, it seems that Kempinski is ahead of the curve with its recently completed Djibouti Palace.
Wittwer does not regret his pioneering efforts. “We were the first company that went to Russia when it was still communist, and we were the first company who went into a joint venture in China. This has given us a platform for growth and it has given us a standing in these markets.”
One pioneering venture that Kempinski is soon launching in China is the Tangula luxury train. This (non-hotel) operation will give guests the choice of two distinctive routes through China, crossing wild grasslands, desert plains, and vast plateaus on a specially outfitted train.
Departing from Beijing, one train goes on a five-day/four night journey to Lhasa ventures across the Tibetan plateau, while the other explores the landscapes of Guangxi and Yunnan provinces on its way to Lijiang. Keeping with the scarcity model, each train can accommodate up to 96 passengers in 48 suites. These are not the cabins of old; each suite comes with a bathroom with shower, mini bar, entertainment system, and of course, a butler. Wittwer is truly excited about this project and says, “We can introduce our guests to a very new and exclusive travel experience in China.” The UAE, Africa and China expansion are examples of when everything goes right, but entering foreign markets is not always breezy. In 2009, Kempinski will open a hotel in Tbilisi, Georgia, but residents around the hotel are not very happy about it.
The hotel will transform the foreign ministry building in the heart of the city, creating a 200-room luxury hotel. While Georgia is a poor country, it is growing at a fast pace, and is also becoming an attractive tourist destination. According to Wittwer, the president of Georgia was eager to have a Kempinski in his country and provided a lot of support to entice the company to enter the market.
When the architects evaluated the property, they noticed that an adjacent apartment building was impeding the view. Wittwer says “The architect said what a shame that this building is in front. Georgia said we that they would take care of the building. In some countries there have different methods to solve certain problems, like in China they would raze everything – they have no second thoughts about doing what is needed.”
It was discovered that the building was built without proper permits, and the government decided to tear it down. Residents in the apartments are protesting the eviction, and Kempinski has been labeled as the culprit. While Wittwer may not agree with the tactics, and he feels empathy for the tenants, he believes that his company is unfairly targeted.
“We are operators, we are not the owners. We are the managers,” he adds.
Given that the name Kempinski is on the front of their properties, the company sometimes takes the brunt of the criticism and shields the owners who are equally responsible. “They always go after the operator; it is the ownership structure. There is this confusion.”
Populist resistance to developments in Third World countries is a common problem; a more difficult challenge for the luxury hotel operator is how to deal with the variety of guests it hosts. The historical problems that Kempinski faces because of its long heritage, such as the Hitler-occupied room in Weimar (and the property which has a balcony where Hitler and Mussolini famously met), are out of their control. But no hotelier would turn away celebrity guests, as it raises the profile of the establishment and draws in wealthy voyeurs. Wittwer sees it a little differently. “It has become a liability, it is good for the image but with certain limitations.
“At one point you had the rock bands, burning the furniture and smashing everything, afterwards for three months you have to repair the suite.”
According to the chief executive VIP guests also make the hotel a soft target for terrorist, and the management has to take expensive measures to ensure security. “We are very vulnerable. In some countries we have regular meetings with security officials. Hotels are a public place, people coming in and out with luggage.”
While there is no way to ensure everyone’s safety in a public space, enhanced measures and complete lockdowns of hotels do occur when world leaders use the facilities. The recent G8 Summit was held at a Kempinski hotel in Germany, and all the Presidents and Prime Ministers brought in their personal security details. The intrusiveness of the bodyguards varies by nation, but during such high-profile events, even Wittwer cannot move around the property.
Unsurprisingly, the Americans are the most stringent about the safety of their leaders and politicians.
“I must say that the worst are the Americans. When we build hotels we always go to the American embassy and make sure that the security checks are certified by the embassy, because if we don’t we lose out on the top businessmen and officials if the security issues are not dealt with properly.”
When VIPs and other high-profile events attend and occur at Kempinski properties, other guests, who pay large sums of money, tend to be inconvenienced by delays and extra security checks, and Witter believes that they may have lost some customers because of that. This is an unfortunate price to pay, but staying among the world’s elite will always be an attractive proposition, and also fits perfectly into the brand’s luxury criteria.
Products and services that cater to the high end of the market have been posting impressive growth rates this decade, and have been attracting the attention of private equity firms and holding companies. Barneys, the ultra chic clothing retailer is amidst a bidding war between companies in Dubai and Japan. As a private company, Kempinski is shielded from a large shareholder base and demands for its stock to perform, but it is still solicited by interested buyers. Wittwer claims that they “receive offers twice a week, asking: ‘Can we not buy?’ But our shareholders do not feel that now is the time to sell.”
The ability to develop a strategy of capped growth, expand into Africa, launch a luxury train in China, and implement it all with full support of shareholders is the type of luxury that Reto Wittwer is happy to have.
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