By Paul Doyle
At their recent Asia Pacific leadership conference, which was held in China, InterContinental Hotels Group top management Andy Cosslett, the global chief executive officer, and Peter Gowers, chief executive of Asia Pacific, briefed their leadership on the current status of IHG and its future directions in the current challenging economic climate.
IHG is big in China and China is important for the group as its fastest growing market. Already, by number of rooms, China as the second largest single country or region in their portfolio has exceeded the total number of hotels in UK.
Focusing on IHG's vision of building "Great hotels guests love" Cosslett stressed the message that outstanding service was the key to success: not cutting rates. He stated that he expected hotel managers to be out at the front of house greeting every guest and not just sitting in the back office pouring over figures — although emphasis had to be put on effective cost management.
In terms of performance IHG had a successful third quarter 2008 (July to September) with RevPAR, revenue, and operating profits all up world wide. The group's portfolio was also expanding rapidly with an average of two new hotels being signed up every day across the globe. However in October 2008 global RevPAR declined by 4.5% and, although a record number of new hotels (48) were opened in the month, new hotel signings were taking longer. It is not clear whether this is a short term trend or a long term pattern.
A clear trend is the importance of the mid-scale hotels, particularly the Holiday Inn brand, to continued growth in the current economic climate. Cosslett stressed that their mid-scale properties were big in the USA. In China as companies become more budget conscious he foresaw that there would be an up-swing in the importance of properties such as the Holiday Inn. "A lot of people are still traveling," he said. "But they are cutting costs, doing more efficiently, e.g. saving 15% to 20%."
"Business prospers when people meet," Cosslett added. "But they may well move down from our high end competitors to our mid-scale properties."
Asked if there would be a change in the pattern of MICE bookings, Cosslett felt that companies would still need to hold events and meetings but they would try to avoid traveling. So a Shanghai based company would use a hotel in Shanghai rather than traveling to Sanya or Beijing and a Beijing based company would remain in Beijing. He gave as an example an internal conference that IHG had originally scheduled to be held in the Middle East but was then re-scheduled and held in London.
IHG's rate of expansion in China may slow but there is still a pressing need for skilled management. This is being approached in two ways by localization and by fast-tracking outstanding candidates. The key to this is getting owners to understand that managers do not have to be of a certain age and expatriate to have the necessary knowledge and skills to manage a hotel. Says Cosslett "It's not how old you are, it's how good you are."
Gowers spoke of developing local staff by seconding them overseas. This has benefits both ways since with the ever-increasing number of Chinese nationals traveling abroad there is a pressing need for staff that can speak Mandarin Chinese. In countries such as the UK there is a large Chinese population, however most of these speak Cantonese. Currently IHG focus on certain hotels for outbound Chinese travelers, most of whom still travel in groups. However this will change and there will be ever more FIT travelers from China and it becomes ever more important for all hotels worldwide to understand the customs and expectations of Chinese guests. He gave the example of hotels in the UK and the USA that were finding noodles in the kettles or coffee makers in rooms that had been occupied by Chinese guests. These hotels then realized that these guests liked to make instant noodles in their rooms. To cater for them the hotels now provide instant noodles in pots.
Asked if there were differences between Chinese guests and those from other parts of Asia Gowers said that Chinese guests were very focused on value, even in high end properties. Also Chinese guests expect to find high staffing levels in every class of hotels — although this is changing with the introduction of brands such as Holiday Inn Express where the emphasis is on customer self-service. Gowers stressed that there is no single typical Chinese guest and the importance of understanding their marketplace is why IHG invests highly in market research.
A lot of interest was focused on IHG's new Indigo brand, which was launched in Asia in October 2008 and is seen as offering a new option for property developers by focusing on conversion of commercial properties to hotels. Cosslett compared developing the new brand to nurturing a child: "It has to grow at the right speed." IHG rolled out 18 Indigo hotels in the first four years of the brand in the USA. And, although the group's business model is focused on franchising and management IHG invested in its own property in San Diego, USA to help gain the confidence of developers in the new brand.
The first Indigo hotel in China, in Shanghai will be a conversion of a bank building and Gowers sees this trend continuing for some years to come. With the Indigo brand IHG is looking for a new demographic of customer – according to Gowers" Guests who value style and design but not pretension. People who want a well designed room but are not concerned whether the hotel has two restaurants, who are looking for value. A five-star brand but more intimate than a traditional five-star hotel."
He added that the Indigo brand had all the benefits and feel of a boutique brand but backed up by the marketing network of IHG's Priority Club (there are a million Priority Club members in China alone). IHG's website with 13 languages means that Indigo hotels in China can be marketed to a new and very wide customer base.