IHG, Whitbread leaders: Stout expectations for future
 
IHG, Whitbread leaders: Stout expectations for future
09 MARCH 2017 9:53 AM

Richard Solomons and Alison Brittain discussed growth of guest expectations, technological needs and brand footprints during a candid discussion at the 20th International Hotel Investment Forum.

BERLIN—The chief executives of two companies that trace their histories to beer served up the first round of discussion about technology, meeting guest expectations and the importance of branding during the 20th International Hotel Investment Forum.

Monday afternoon’s session featuring Alison Brittain, CEO of Whitbread PLC and Richard Solomons, CEO of London-based InterContinental Hotels Group, began the flow of those common themes that lasted throughout the three-day event. While the panel “20/20 Vision: Looking back 20 years, looking forward 20 years” did just that, most of the attention was forward looking.

“In the hotel industry, we have cycles, we have ups and downs,” Solomons said. “What’s really important is taking a long term view, investing behind the business and focusing on the long term.”

IHG, which at one time was owned by Bass PLC, has nearly 5,200 hotels comprising more than 767,000 guestrooms and nearly 1,500 more hotels in the development pipeline, according to its website.

Solomons and Brittain agreed that the best predictor of hotel revenues is gross domestic product growth.

“GDP will be a big determinant of how successful you grow, and how you will go in cycles,” Brittain said. “Things look stable from that perspective.”

Whitbread, which was founded in 1742 to brew beer, has 750 Premier Inns hotels comprising 66,333 rooms in the United Kingdom and Ireland, according to its websites. Its business includes more than 3,200 Costa Coffee Shops as well as restaurants under the Beefeater Grill, Brewers Fayre and Table Table brands.

Guests mostly rule the roost

Prodded by moderator Michael Hirst of CBRE Hotels, the duo focused largely on how guest experiences and brand identity weave their way through all aspects of decision making for hotel companies.

Consumers are more demanding, and the more they know about things, the more they demand, Solomons said.

“That requires that you have brands that are very clear,” he said. “These brands become more and more targeted so staying on top of the consumer is absolutely crucial.

“In an industry here there are those that ideally would like to commoditize our brands. … It’s really important that we continue to have brands that absolutely stand for something,” he added.

“One of the things that everybody demands is clarity of what they’re getting,” Brittain said. “We get fantastic brand scores when we deliver precisely to peoples’ expectations.”

Whitbread must rise to the challenge of meeting consumers’ expectations while remaining true to the core of being a value orientated brand, Brittain said.

The challenge for IHG is to stay on top of its portfolio of 12 brands while also looking for growth—which could include adding brands to the mix as markets reach saturation points with the existing brands, Solomons said.

“But we don’t just want another me-too brand,” Solomons said. “If we were to buy another brand, it’s got to stand something in the marketplace.”

Asked whether IHG would be open to acquiring a brand or two, Solomons said: “The right brand that fits into the portfolio, the right projects that we can grow, absolutely.”

“Adding brands is something we might do where we see gaps in the market driven by different needs, different occasion,” he added.

Solomons said size matters when it comes to hotel portfolios, but it’s not the only important metric.

“It’s not just about new brands, the reality is sometimes in business getting excited about the new trend is dangerous when your core business needs to be relevant and kept strong,” Solomons said. “It’s about having the scale you need to drive the benefits to the guests and for your owners.”

Technology on tap
That conversation crosses into any discussions about operations and technology, the leaders said.

Scale is important when it comes to investing in technology but hotel companies must realize their limitations, Solomons said. For example, IHG’s new reservation system is in partnership with a third party vendor because “we’re a hotel company, we never long to be a software business.”

“Being good at technology is a core competence that all companies will look at,” Brittain said.

Technology will play an increasingly larger role as the next 20 years unfolds, the executives said. Brittain pointed to the impact of the sharing economy technology, artificial intelligence and robotics as game changers, while Solomons said mobile technology will continue to evolve.

“The real ground up operational management is enormously important for hotels,” Brittain said, adding that managing people and finances are among the important skills she is looking for in employees. “That core is going to remain unchanged. What is changing is the need for people to understand technology.”

“The digital space, the mobile space is probably the most interesting and the fastest moving,” Solomons said, noting that revenue from IHG’s mobile business has gone from zero to £1.6 billion ($1.95 billion) in five years. “What’s really important is we protect what goes on in the hotel from intermediaries. Technology lets you do that and lets you own it.”

Making money makes sense
All of this boils down to financial success, said Solomons and Brittain, who both serve as non-executive board members of the Marks & Spencer retail chain.

“How you make money in this industry is a very important piece of the puzzle,” Solomons said. “It is focused on how you get returns.”

IHG is coming off a successful financial report—included in that was 9.5% growth in operating profit.

“It’s the strength of our business model; It comes from the growth we’ve been seeing,” Solomons said.

IHG in 2016 had the highest number of openings since 2007-2008, Solomons said.

“The fundamentals of the hospitality industry are very, very strong,” Solomons said.

Meanwhile, Whitbread will continue its current path under Brittain, who joined the company in May 2015 from Lloyd’s Banking Group’s retail division.

“We’re pretty comfortable where we are structurally (with the restaurant business and hotel business complementing each other),” Brittain said. “We’re one of the few players now that own and manage. We own it and we run it. That’s the way we manage our customer orientation and our service delivery. … We stick to the principals of that simple logic.”

She said the company invests approximately £700 million ($853 milllion) in “the freehold acquisition of the building of hotels and the managing of hotels and we have returns of 13.5% to 14.5%.”

Brittain said Whitbread is focusing on growth in Europe after exploring expansion elsewhere in the world.

“Because we operate quite a distinct model … I didn’t think when I came in and looked at operations that we were ever going to have the scale to operate in those markets,” Brittain said.

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