The Luxury Hotel Business

The Luxury Hotel BusinessSimon F. Cooper
President and Chief Operating Officer
The Ritz-Carlton Hotel Company, L.L.C.

The Ritz-Carlton Niche
To be competitive, and ultimately successful, within the hospitality industry, points of differentiation are critical. For Ritz-Carlton, there are two upon which our entire enterprise of hotels and facilities have been built. First, we have a relatively small number of hotels and operate within a relatively small segment of the hospitality industry. This enables us to have a highly defined focus – on the true luxury segment – and adhere closely to it. Second, and of equal importance, is the fact that we do not consider ourselves to be in the hotel business; we are in the business of creating outstanding memories. Of course, that starts with a physical property that has to be well located and superbly presented in terms of its features. It must truly embody luxury. But once that is established, the key differential is the manner in which our employees animate a hotel and create experiences.

Setting the Stage for Great Service To be successful in delivering service, people have to execute flawlessly because they want to, not because they have to. We only hire about 2 percent of the people who apply with us. There are a number of factors that go into finding the right people. We look for individuals who really enjoy creating a memorable experience for our guests. An outstanding attitude toward customer service and a desire to see guests leave our hotel with wonderful memories is vital.

In our business, culture is also critical. We have 28,000 employees all over the world, and there is neither enough time in the day, nor enough management supervision, to allow us to do what we do and constantly monitor each employee. Therefore, we have to select people who embrace our culture of world-class service. They have to know the parameters within which they can operate. There is no way we can detail all of the touch points and how to handle them, so we give people very broad parameters, which is essentially just the culture of how we serve our guests. We rely a great deal upon people’s judgment.

Our credo clearly states that we meet the unexpressed wishes of our guests. It is very easy to meet a customer’s wish when he or she says, “this is what I want.” However, it is more challenging to meet unexpressed wishes. As we orient staff, we spend a lot of time collectively defining those unexpressed wishes. For example, when a family arrives at the hotel, a staff member should be able to judge from the number and age of the kids what they may need. If one child is very young, the staff member may offer to put a refrigerator in the room for a bottle. It is anticipating this need and a million more of its kind that adds so much to guest experience and creates a true wow factor. “My goodness,” thinks the guest, “I didn’t even have to ask...” That type of service is something in which we take great pride. It is built into our culture and analogous to The Ritz-Carlton name.
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The Guest Experience
One of the interesting aspects of our business is that the more time a guest spends at one of our hotels, the happier they are. It is much easier for us to engage a guest if they have a meal, go to our spa and stay on the club floor than if they just come into the hotel, stay overnight and leave before breakfast.

An ideal experience at the Ritz-Carlton is when a guest takes advantage of all that a specific hotel has to offer. For an individual, that can mean amenities such as the spa and the golf course. For a group attending a wedding or a corporate meeting – a significant portion of our business – the ambience and the efficiencies surrounding the entire affair are directly proportional to the overall experience.

A conference at the Ritz-Carlton must be flawless, from the way we manage the breaks to the culinary experiences. We need to have the absolute latest facilities to ensure that our parties find the meetings to be as productive as possible, and we need to make certain that the other elements contributing to the entire experience are as flawless and seamless as possible, so that the end result is a truly outstanding event. All factors, especially the subtle details, come into play here; but most importantly, we believe that you have to keep surprising the guest.

Surprise is key, because memories occur when people experience something out of the ordinary. If you think about your memories, they are part of you because of somebody, not something. We can put in the most beautiful curtains, the most comfortable furniture and the most luxurious linens and create a wonderful physical experience, but that doesn’t create the memories that happen upon interaction with other people. Certainly, we offer our guests all that we can, and this begins with our people.
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Building a Successful Hotel
There are many critical components involved in building a successful hotel. The first is the physical location of the hotel and its specific market. For us, the first hurdle to get over is to decide whether a particular location is appropriate for a luxury hotel. Then, we must to consider whether it is the appropriate market for a luxury hotel. Great locations in poor markets exist and vice versa. Ideally, both need to work.

The second hurdle is zoning. We may find a great location in a great market, but how restrictive is it relative to how big one can build, the land use policies and other issues relative to zoning? Very often, and certainly for resorts, that includes having enough space for recreational facilities like a golf course. Another important question may be, is there enough space for a residential component? Eight of the luxury hotels we have built over the last two years, both in cities and as resorts, have had a residential component. This is extremely beneficial from a development aspect because residential units are generally sold up front, whereas it can take a number of years to realize economic returns on a hotel.

Finding this appropriate market and location isn’t always easy. Many cities would like to have a Ritz-Carlton because they feel it symbolizes municipal success, but not every city has the appropriate market. They will tell us their hotels are always full, that there aren’t enough rooms in the city. And sometimes that is true, but a luxury hotel is not necessarily the answer because that may not be what travelers are looking for. Additionally, it is growing increasingly common that there is a spending cap for corporate hotel stays. So just because a city may attract business, again, a luxury hotel might not be the answer.

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Risks & Challenges
Three years ago, I would have categorized the risks surrounding the hotel industry as purely economic; today I would say the biggest risks are a mixture of economic issues and unforeseen global incidents. SARS (severe acute respiratory syndrome), at least within the Asian market, had an extremely negative impact and one that no one could have foreseen or planned for. It is incidents of this nature that are most perilous to the global travel market.

In Europe, where hotels have traditionally relied on U.S. tour business, a French hotelier recently told me his weekend U.S. tourist business, which is high-end luxury, is down 80 percent this year. They have to replace that with French business, which doesn’t pay nearly as much. We are seeing that pretty much around the globe since September 11. There is a return to regional travel because there is still a degree of discomfort with international travel for a number of reasons.

There are two sides to the coin, though. When a hotel in France has an 80 percent drop in U.S. business, it tells me that business may be going somewhere else. And in fact, at the Ritz-Carlton, leisure travel has been up significantly this year in North America. I believe that the reason for this is that fewer North American travelers are going to Asia and Europe for that once in a lifetime vacation or annual family trip. Instead, they are trying to replicate that experience by staying in luxury hotels closer to home.

This is not just the United States. I recently saw an article on Cairo and how hot a market it is. If you walked through a Cairo hotel lobby today, I am absolutely certain that the percentage of Middle Eastern travelers you would see compared to American tourists is much higher than in previous years. The same goes for Beirut. Why is Lebanon so hot? It is not exactly a location Americans would flock to, but it is a great resort location for Middle Eastern travelers. They can speak the language, have a great vacation and cool off in the mountains.

The same goes for Asia. The travel that has rebounded in Asia has been business and regional leisure travel as opposed to international leisure. I believe this trend toward regional travel will continue for the foreseeable future.
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Changes on the Horizon
With the visa requirements for visiting the U.S. set to change in late 2004, there could be a significant impact on the international travel market for the U.S. As it stands now, citizens from 27 countries that currently do not require visas to visit North America will need passports with biometric readouts – of either the individual’s palm print or eye. Now, whether this requirement is actually enforced and whether those countries can issue passports that meet those criteria could be debated; this new resolution could have a significant – even severe – impact on foreign travel to the U.S.

Another change, and this is really an ongoing evolution, is the customer base. Today, we see luxury customers in two different demographics. There is an older generation whose kids have left home. They have wealth and want to travel. Then there is a younger generation with children at home, but who have acquired wealth, either through work or through inheritance, and are able to afford luxury vacations.

To cater to both of these groups, we are seeing a need for luxury hotels to become more casually elegant. This is true for all guests, but especially true for the younger bracket. This casual elegance translates into dress and behavior, as well as into the design elements we put into our hotels. You will find that the newer resorts are much more casually elegant than traditionally elegant.

We’re looking more carefully at each market to determine the most applicable design element for that particular market. If you take Boston, for example, there is the traditional Ritz-Carlton on Newbury Street, which has the original 1927 feel. That is a traditional, elegant hotel. Contrast that with the Ritz-Carlton, Boston Common. It has a Sports Club/LA fitness center and 17 movie theatres. It’s closer to the financial district and is a much more contemporary hotel. The same is true in New York: Central Park South is traditional; Battery Park, given its location and its market base, is a much more contemporary hotel.

We’re also seeking out markets that are going to develop and replace existing markets. Two of the growth markets we see over the next 10 years are Russia and China. China is a well-known one; Russia is less well known, but Russians are traveling extensively these days, creating more wealth and opening a viable market.

Technology is yet another area where we are seeing changes. In the luxury hotel segment, the most useful new technological capability has been the ease with which we can track guest preferences. It is critical for us to understand the preferences of every customer who comes back to Ritz- Carlton for a repeat stay. There is a reason they come once and there are reasons that they return – it is up to us to understand their preferences and see that they are met and their expectations exceeded.

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Measuring & Ensuring Success
For us, the most important element for success is that we understand and believe that our business is to create outstanding memories and execute on that mission. We have to make sure we establish a solid platform for our employees to then create memories for our guests. Our business model is rather simple: We create an outstanding platform – a hotel – in the right location with all the right facilities and then we hire the best employees we possibly can.

Equally important is for us to understand the needs and desires of our guests in coming to that platform, what they seek in terms of world-class service and what exactly it is that will create memories for them. We then work day in and day out to deliver that. That is our model for success.

Simon Cooper is president and chief operating officer of The Ritz-Carlton Hotel Company, L.L.C. In this position he oversees the operations, development and strategic positioning of one of the world’s most powerful brands. Mr. Cooper is also responsible for the development of Bulgari Hotels, a joint venture between Marriott International, Inc. and Bulgari S.P.A. The Ritz-Carlton portfolio currently includes 57 hotels in 19 countries.

Since joining the Company in February 2001, Mr. Cooper has been responsible for the successful opening of 20 hotels. This expansion continues with several more hotels and resorts slated for opening in 2004 and 2005. He has continued to grow The Ritz-Carlton brand extensions of The Residences and The Ritz-Carlton Club. Under Mr. Cooper’s leadership, the Company continues to earn the highest accolades such as the highest ranking in the luxury segment of the J.D. Power and Associates 2003 North America Hotel Guest Satisfaction Index Study, which marks the first time Ritz-Carlton has received highest honors in this study; designation of AAA Five Diamond for 21 hotels; once again being named as “One of the Top Employers in Asia” by The Asian Wall Street Journal/Far Eastern Economic Review and the ranking of The Ritz-Carlton Hotel Company as Top U.S. Deluxe Hotel Chain by Business Travel News to name just a few.

Mr. Cooper joined Ritz-Carlton from Marriott International where he served for three years as president of Marriott Lodging Canada and senior vice president of Marriott Lodging International. He also oversaw the New England region. His responsibilities included management of all existing Marriott hotel brands in Canada and for fulfilling Marriott’s goal of rapid hotel development within the Canadian region.

Previously Mr. Cooper served as president and chief operating officer of Delta Hotels & Resorts (2000 winner Canadian Awards for Excellence) based in Toronto, Canada since 1989. Before that he was with OMNI Hotels USA, as senior vice president operations and later became executive vice president for two years. He served as senior vice president of operations for Delta Hotels & Resorts from 1982-1987.

In 1999, Mr. Cooper was appointed as Chairman of the Board of Governors for the University of Guelph for a three-year term (#1 Comprehensive University in Canada, Macleans 99/02.) In 1999, he was appointed to the Conference Board of Canada’s National Council of Leadership and he is a Senior Member of The Conference Board Inc. (USA). Mr. Cooper is a fellow of the Board of Trustees for the Educational Institute of the American Hotel & Motel Association. In 1996, Simon Cooper was awarded the 1995 Commitment to People Award by the Council of Hotel and Restaurant Trainers, recognizing his loyalty to the personal professional development of employees. In 1995, he received an honorary fellowship from Ryerson Polytechnical University. Mr. Cooper is a Board Member of the Canadian Tourism Commission.

Born in Britain, Mr. Cooper began his hospitality career when he emigrated to Canada in 1972 and worked for Canadian Pacific Hotels & Resorts. Mr. Cooper was educated in England and earned an MBA from the University of Toronto.