HOTELS Interview: IHG CEO talks Crowne Plaza, China, recession

Since Richard Solomons took over as CEO of Denham, U.K.-based IHG in July, the company has undergone a series of management changes, not to mention ongoing global economic challenges that must be balanced with continuing demands for expansion.

HOTELS sat down with Solomons at the IHG Americas Investors & Leadership Conference earlier this week in Las Vegas to talk about his new position within the company, his thoughts about important changes to IHG’s family of brands and the state of the industry overall.

HOTELS: How has the transition to your role as CEO gone?

Richard Solomons: I know the business pretty well. I’ve done some operations roles, come up a bit through the ranks, so I haven’t had to learn the business. I have a lot of good relationships, and people are very open with me and tell me what they really think, so that’s good.

I think the challenge now is how do you manage your time, because a lot of people — internal and external, owners, other stakeholders — want your time. So I’m getting used to that. I had a pretty broad CFO role; I had the usual stuff, but I was also in strategy and commercial developments and so on, so I think I’ve got a good breadth, but you’ve got to look at everything. And the buck stops here, so you feel quite a weight of accountability on your shoulders to make sure you’re doing the right thing and making the right calls.

HOTELS: The repositioning of the Crowne Plaza brand is obviously big news for IHG. What are you most excited about, and where do you feel the biggest opportunities are?

Solomons: Anything that isn’t as good as you want it to be is an opportunity — that’s not meant to sound trite.

Crowne Plaza is a very exciting brand. Upscale is an important place to be. We have grown it to the fourth-largest upscale brand in the world. It’s the fastest-growing upscale brand in Asia. We know when we get it right, it really performs well — for owners, for us, for guests. In the U.S. it has a history and a legacy of having been the Holiday Inn derivative — we converted some Holiday Inn hotels to Crowne Plaza. We did not do what we did in other parts of the world and say, from scratch, it’s an upscale product, we’re going to present it right and manage it, promote it that way. So if I had the same issues we have in the U.S. of some substandard product, performance not where I want it to be, I’d be more worried as opposed to optimistic that I know the brand works. We just have to make sure we’ve got the product, the service, the owners that we need in North America, and that’s the journey we’ve talked about.

And we will take out those hotels that aren’t going to make it. We are into this next phase of high-quality growth. No company is going to say we’re going for low-quality growth, but some companies are going for scale, some companies are going for market position, some companies are going for short-term benefit. We’re not into that game. If we were, we wouldn’t have removed 1,200 Holiday Inns over seven years. Just think about that — that’s more hotels than most hotel companies have or are ever going to have.

HOTELS: What kind of attrition are you expecting for Crowne Plaza?

Solomons: We don’t know yet, because we haven’t done all the work, but we estimate right now about 10% of the system, which would be about 40 hotels likely to go. And you know what? That’s how it’s going to be. We’re not going to compromise. If you’re here for the long term, and you’re talking about long-term brand value creation, you have to make those calls, and they’re tough calls.

HOTELS: How do you quantify the resurgence of Holiday Inn? How pleased are you with the progress the brand has made?

Solomons: Very pleased. If you had said to our owners before we started this that we’re going to have the worst downturn in the history of the industry post-Lehman, that we’re going to take this brand, add this number of new hotels, remove this number of poor hotels and take it from number six to number one in the J.D. Power survey, they probably would have said it’s not going to happen. But it happened because we were very clear about what we were doing. We’ve done some great work on the brand. We were very clear about what guests wanted and how we were going to deliver it, so we had a good proposition. We worked very closely with the IHG Owners Association, who are no pushover — they’re actually a great challenge for us. We were very clear, and we did it. I’m very proud about it.

HOTELS: What can you tell me about IHG’s plans in China, particularly the 12 letters of intent signed for a new China-branded hotel line?

Solomons: We’ll talk more about it in the course of the next year. Hotel brands take a long time. It takes time for them to get built and open — it’s just a long-term business.

For some companies China’s become a bit like dot-com. Talk is cheap. Actually doing the work and delivering the outcome is what gets me up in the morning and is what is very important to us. We’ve been in China longer than anybody. Other companies claim that; it’s not true. We were there in 1984. We’re the largest global hotel company in China by a mile, with 150 open. I think the reason we’re successful is we are not an American business with an international arm, as some of our competition effectively are. We’re a global company. We have 300 people in Shanghai now, most of them Chinese nationals, and we have great relationships with local companies that we’ve built up since 1984. And we have brands that are relevant and tailored, to some extent, to that market.

The reason that we’re talking about launching a new brand in China is because of our customer insight. Insight told us there are people in China — a big group of people — who want a product that is more suited to the way they use a hotel — the social space, the meeting space, entertainment, type of service, the recognition for top customers, things like that. So we are developing a brand for China, in China, by our Chinese people that will be for Chinese guests, and ultimately other Asian guests and, probably, I would like to think it will become a global brand. I think the fact that we’ve already signed 12 letters of intent demonstrates the respect IHG has in that market.

HOTELS: Among all the hot markets for expansion right now, for you, what’s top of mind?

Solomons: It comes back to two things, really. One is, where are the guests for our brands? The second is, how are we able to make money for our owners and ourselves in these markets?

It’s easy to sign hotels. One of our competitors just signed three hotels in a market in Africa that we just do not believe will generate the demand that can make money for that owner. We would not do that. We’re about high-quality growth. There’s no point signing a deal that two years down the road you can’t deliver revenue, the owner isn’t happy and you end up separating from the owner, usually acrimoniously.

We think about the scale markets like the U.S. or China where we have big systems, big power, we can almost launch any brand in any market. Anywhere in the U.S. we can make money for our owners and, therefore, for ourselves. China would be the same. There are other markets, either because they’re undeveloped or they’re smaller or their GDP per head is not there or their infrastructure is not there — like India, you could argue Brazil — where it’s about much more of a targeted city strategy because we know in certain parts we can make it work. We’re very targeted.

HOTELS: There’s been buzz about IHG launching a new midscale U.S. brand. Can you offer any more details about that?

Solomons: There’s some brilliant work —I spent some time two days ago here with the team — which identified a demand from customers for a product that is not currently out there, and we think we can deliver it in a pretty exciting way, and we’ll do that. We’ll talk more about it next year. We’ll let you know more when we’re ready.

HOTELS: What are your thoughts about the current state of the industry overall?

Solomons: I’m very optimistic about the long-term prospects for the industry and particularly for this company because of the dynamics of growth in the industry. The world’s not coming to an end. Our GDP is going to continue to grow and is growing — world GDP is growing. We will see growth in our business, so I’m optimistic about that.

If there is recession in Europe, in America, then we’ll get impacted by it. Of course we will. But post-Lehman, our brands withstood it better than most and our company definitely withstood it better than most. We were one of very few hotel companies that continued to pay a dividend. If there is a downturn, we have very powerful systems to maximize revenue opportunity. We saw in 2009, immediately post-Lehman, leisure travel for us went up — room nights, not rates. It’s not that people stop traveling. Things don’t grind to a halt. I’m not stupidly optimistic. We’re not complacent about the risks in the world economy, but I do think we’re best placed. In a storm, you want to be in a big boat, and we’re the biggest boat out there right now.

Richard Solomons
Richard Solomons