Raymond Bickson, MD & CEO, The Indian Hotels Co, tells BrandLine why the Taj group needed to restructure now..
The entire staff of the Taj Coromandel hotel in Chennai is at its attentive best, milling around earnestly. The valet leaps to your car to whisk it away, the usher is quick to hold the door open, banquet staff sport wide smiles as they welcome you – an everyday occurrence at the Taj, you would say, but today there's an extra zing to it. And, why not? It isn't every day that the entire top brass of The Indian Hotels Co is in Chennai; they are in the city to attend the annual general meeting of Oriental Hotels, a long-time partner of the Taj. A press conference and later Raymond Bickson, the American Managing Director and CEO of Indian Hotels, who has been at the helm for well nigh eight years, is ensconced in the Royal suite along with N. Prakash, GM of the hotel, ready for an interview with BrandLine. Bickson is informal and friendly and chats about the city, which he says has transformed remarkably over the eight years he has been visiting.
An experienced hotel professional, Bickson's career in hospitality spans 30 years and four continents. Assuming the role of MD & CEO in July 2003, Bickson has played a key role in the global expansion and development of Taj hotels around the world. Bickson talks enthusiastically about the Taj group's new brand architecture and its expansions around the world. He's looking forward too to the opening of the heritage wing of the Taj Mahal Hotel in Mumbai which was ravaged by terrorists in the 26/11 attack. The resurrected Presidential suite in the hotel for heads of state will be the ultimate in luxury, he says. Excerpts:
How is the new brand architecture evolving? What is your rationale for doing so at this stage in Taj's history?
If you have some visitors coming in from London or New York and you need to take care of them, in Delhi you would put them up at the Taj Mansingh or Taj Palace. Next day they take the train to Agra, and check into the Taj View, Agra. They wonder about it, that it doesn't seem to fit in the Taj. Then they drive to Jaipur and stay in this palace where you pay $1,000 a day, which is also the Taj, and then they go to Varanasi, and stay at the Taj View Ganges and it's yet another Taj hotel (shrugs).
In the past 30-40 years that the company has grown, it has done so organically and has had fantastic locations and everything was the Taj. But, as global hotel companies started coming in, Marriot, Starwood, Hyatt – these hotel groups have 18-20 brands. Hyatt, for example, has eight brands — it comes into an area and carpets the area with its brands. It will look at areas where the Taj is not present and is not afraid to franchise its brand. For example, if you're a serious businessman and looking to do business in Japan, where would you stay? You could stay at the New Mandarin Orient hotel, the Peninsula or the Four Seasons, so the older hotels now have to contend with the new brands that have come in.
So, looking at that scenario and knowing how the country is morphing today, how or what do we as Taj do to make sure that in the next generation of the company we can protect our market share? Because the brands coming in are trying to eat away at our different markets, we had to do a brand architecture. So you have two-star economy in Ginger, you have upscale in The Gateway, four-star is Vivanta by Taj, and all the five-stars are Taj hotels. So we cover all segments. But, those hotels, they come in with huge loyalty programmes and with those programmes, draw in traffic and that puts us in a precarious position. To a certain extent the growth of Taj outside of India has been forced by this — to protect our market share, we identified 25 source markets of where our business comes from and that has been the main reason why we needed to go outside our boundaries today to protect our market; if you have all your eggs in one market you are more susceptible to things such as a tsunami or chikungunya, but this way at least one-third of our revenues is protected. So if our market tanks, whether Asia is up or Europe is down, this portfolio is protected as you reduce your risk for that period of time, and it happens as hotels are in a cyclical market. This is the eighth year for me in India and the fourth cycle I think I am seeing. But, the CAGR growth for the past five years has been 15 per cent and the market is quite strong.
How many hotels do you have and where is the growth coming from?
The biggest growth is in the mid-market where The Gateway is present. Luxury is the hardest because it's relative to location and that becomes expensive. The Taj is only luxury and outside of India we will grow only with Taj; if it's a resort we say it's a Taj Exotica, where you pay $1,000 a night, or if it's in the city, like the new Cape Town hotel we did recently, it will be the Taj. We will have all four brands only in the country; we are not interested in doing a Ginger outside of India. Or, maybe only the existing properties (will take a non-Taj brand) – say, a Bentota in Sri Lanka will become a Vivanta by Taj.
You have 16 properties overseas; how many more do you plan?
We have a pretty heavy pipeline. We will have a Taj Exotica in Doha, and one in The Palms. We will have a property in Ras al Khaimah; then we have Marrakesh and Tangiers, three projects in Egypt, all greenfield, one in the British Virgin Islands, across from Sir Richard Branson's islands, Necker Island and Mosquito Island. Then, we have signed two in Mexico. All are management contracts, except Cape Town, which is ours with investment from Tata International and an Irish developer, but 80 per cent are management contracts. We acquired a hotel in Sydney, then one in Boston and San Francisco. The New York one is on lease (The Pierre) but we put in $105 million for a 55-year lease and we compete against Four Seasons, Mandarin, St Regis, Pennisula, so we are up there with the big boys.
Do you want to expand management contracts, owned hotels or partnerships?
It depends. If it was in a strategic location, say, for example, Singapore, the Indian market is huge there while London is the second biggest after the US. We have the key gateway cities that we would invest in but depends on what the hotel is and the location, otherwise, we would grow through management contracts. You can't rubber-stamp it, depends on what the project is, but we have identified cities such as Los Angeles, Washington, Miami, Chicago – those are the only ones we would be interested in. We just came from Phuket which is a joint venture with Taj, in which Oriental Hotels too has a stake. It's a Taj Exotica there and we are selling villas as well, luxury residential villas at $5 million a villa; because the market was tanking in Phuket we held off for the last two years. Now the tourists are coming back. We invested $172 million in Boston. Overall we have invested $600 million, $110 million in the Pierre, $60 million in San Francisco, $40 million in Sydney… over a half-a-billion in just these projects!
How does Taj compete with its global counterparts? Are customers and the group buying into your new architecture?
We need to get the right terms here. Five-star luxury is called luxury, four-star is called upper upscale. So in five-star luxury, our competitive set is Four Seasons, Mandarin Orient hotels, Peninsula. The four-star brand, Vivanta by Taj, is like Hyatt, a JWT Marriot or a Westin. We have 30 hotels in the Ginger category already.
I make a comparison to the Tata cars when I make presentations. A Ginger would be a Nano, when you look at a Gateway, it would be the Indica, a Vivanta would be a Sumo and if you go to luxury, it would be Jaguar Land Rover. So, they all have cars, they all drive, but they are all different, some have leather seats, some plastic, some no radial, so it's very similar. Then they begin to understand (what we are doing).
How many rooms does the Taj group have in all now?
When I came (eight years ago) we had 61 hotels and 8,000 rooms; today we have 110 hotels and we are nearing 14,000 rooms, the idea was to double the inventory and de-risk the model by having one-third (of revenues) from overseas. It was as simple as that.
So, how much more would you be scaling up from this? Some reports say 20,000 rooms soon?
Easy, we already have the projects under way. The story is how do we make sure that for the next 20-30 years we protect the brand from the new companies coming in. Maybe for the first 30-40 years, the challenge was what is Mr Oberoi doing next or what is ITC doing next but now it's not them but what are these international brands doing to come into India.
Look at Starwood; they already have a 100 hotels in China. Shangri La has 60-70 hotels in China, Intercontinental has 200-300 hotels in China. So, in the next five years we will have 200 hotels and 24,000 to 25,000 rooms. At least that's about the farthest that I can see!
What is your share of the Indian market?
We have a 25 per cent share. We are the largest player and how do we stay the largest player, that's the point! In every brand, in that market segment that we compete in, we need to be number one, two or three, otherwise we don't do it.
If we are in The Gateway in a city, whatever the competitive set is in that city, there's Lemon Tree or Aloft; our product, if we are doing our job well, should be number one, two or three in that segment. That is the benchmark. That's how we know we are doing our job.
This restructuring is done in keeping with international trends?
We had to because the market is growing and remember, what has helped us to this is the domestic travelling market, 540 million domestic travellers a year, that's huge. That traveller, as they are doing better, the brands are aspirational; when you're just out of college and your first job, maybe you are staying in a Ginger and five years down the line, it could be The Gateway and after 15 years you are staying at the Taj; it's a life cycle and that is the way we look at our brands.
Are you looking at organic or inorganic growth in overseas markets?
It has been both. Ideally, if we acquire a chain, that would be the fastest way for us to grow. We have interests in Orient Express, but that's pretty much status quo (an 11 per cent stake but the markets tanked and we can't do anything about it).
In Europe you are not present?
Europe is expensive, entry levels are very high.
What about the St. James Court in London? What are you doing about it?
The contract was coming up and we looked at it and thought should we take it back. We said we need to renovate it, but since we had bought all this land in the US and put in a lot of money into The Pierre, we said we don't have the bandwidth to sink in £100 million pounds to make it a luxury hotel, so let's just extend the thing to after the Olympics, which is what the Crowne Plaza guys wanted and that gives us time to recoup and when that comes up we have a master plan to make the St. James Court hotel a luxury one like we did with The Pierre _ rip it apart, reduce the keys, have residences like we have in 51 Buckingham Gate (service apartments), and make the rooms match the façade and make it a luxury hotel.
You said you are planning to have a single holding company to hold all your foreign assets? Is that ready?
We are still working on it. A lot of the assets, like the London hotel, have been with us for a while, it's pretty complicated but we are moving to that. We will put all the land in one and do a PropCo and an OpCo, like a lot of companies do. So the management company will be in one and the land in one. So you can bring in investors and they can exit when they want. We are not a real estate company, but a hotel management company.
In your annual report you said you will be looking at the domestic traveller as the market has been more buoyant here. So, what are you doing for them?
Well, we launched Ginger, we rolled out The Gateway, and this year we will roll out Vivanta and that clearly is something we talked about but we needed to do, so from my perspective we have to execute the brand architecture, execute the construction and put our money where our mouth is. That is what we said we will do so let's do it for the market, the investors, for the company, that's the challenge — it's more important to show them what we can do. But, we've done pretty well, we've opened one hotel every six weeks for the last seven years, so if you look at 61 hotels to today, to over 100 now.
Will the pace continue?
Pretty much, it should be faster. I had expected to open two Gingers a month, but we are opening a new Ginger every two months. We still have a long way to go; it's more problematic because of the land issue.
When do you think the hotel rates will go back up?
This season or by next year same time for sure. Before the 26/11 attacks we were ahead of budget, but despite all this we will go back to 2008 levels by the end of this year.Related Stories:
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