The hospitality industry started centuries ago, when travelers discovered they needed a place to stay while away from home. The early incarnations of the industry, simple inns and highway houses, eventually evolved into the modern business of hotels, motels, and inns of various sizes that we know today. These businesses changed over the years into a variety of forms, sizes, and quality levels because they began providing for the specific needs of their different guests – traveling for business or pleasure.

Fundamentally, this industry is a combination of the real estate and retail businesses. First, you must purchase a plot of land and oversee the construction of your establishment, such as a hotel, motel, or inn. Then, once your property is completed, you have to transact on a daily basis with customers making buying decisions. Furthermore, these customers have to come to you; the transaction takes place on your property, unlike other commercial endeavors, where you ship your goods to a store and the customer buys the goods at that location.

The unique aspect of the hotel business is the customers’ personal involvement in the experience. The customers are actually spending considerable time in the physical place where the business is being transacted. That experience is becoming increasingly rare in the age of the Internet, where consumers can go online and do almost anything. Yes, you can go online to book a room; however to truly experience the room, you need to go there and sleep in it.

The experience in a certain hotel is what distinguishes it from the different players in the industry. For travelers who want a basic experience that is very low-cost, there is an offering. For those who want elegant surroundings for extraordinary value, that opportunity exists as well. Each customer gets to choose his options, depending on the specifics of his needs. I’m a business traveler; sometimes I stay in low-cost offerings, and sometimes I stay in expensive offerings. You can run the gamut of quality, style, and price. But the word “experience” is the most important aspect of the business, and we in the industry want to provide a memorable experience for every overnight accommodation.

Giving Customers an Excellent Experience

The first and the last impressions are always the most memorable. When you arrive at a hotel, and the doorman is warm, outgoing, and friendly, you will have a favorable first impression. If, upon your departure, he puts you in your car and says, “Thank you, can’t wait to have you back” – and if everything else during your visit went well – you will have an excellent impression of the hotel. Even if something went wrong during your stay, you’re left with a satisfied feeling when the first and last impressions are positive.

It is hard to measure customer satisfaction, but we do try to ensure two crucial elements: first, that a customer feels connected to the hotel or restaurant; second, that they have been recognized as an individual. We operate mostly small hotels, so our staff has the opportunity to get to know our customers and interact with them on a truly personal level. Employees can help the customer discover new destinations or make recommendations about where to go and what to see. This interaction creates an emotional relationship with the customer that will make them remember us and, we hope, choose us the next time around. Customers tell us that they see our employees as empowered with the ability to tend to their needs. That empowerment of employees is difficult to describe, but the idea is that even the bellman has the ability to solve problems and make decisions.

We have a guest loyalty program that recognizes repeat customers, those who influence our exceptionally high rate of return: Recent research indicates 35 percent of our guests are return guests. We think that rate is on the high side. A critical question we ask is, “Will you return?” When the answer is yes, it is a very powerful answer from a business standpoint; it means you don’t have to find a new customer after every transaction. Your costs go down as loyalty goes up: Loyal customers create even more business by recommending Kimpton Hotels to their friends. Our most loyal customers are in the “Inner Circle,” a list of about 2,000 customers who stay with us frequently. They have my direct line–they hear from me, I hear from them—and get certain rewards throughout the year. We interact on an ongoing basis.

I personally visit our facilities as often as I can. Walking around a property is important to me, because I’m able to observe the happenings directly. For example, we have five hotels in Washington, D.C., so I spend time in every one of those hotels, talking with employees and customers and getting a feel for that hotel’s experience. Then, I will give my input to the staff so we can either tweak and adjust policies, or confirm that we are doing the right thing: ensuring customers are satisfied.

Building an Employee Culture

If you research the general attitude of the employees in any organization, you’ll find that it always starts with the person at the top. If the person at the top is very sensitive about certain issues, it will permeate the enterprise. Bill Kimpton, the founder, and I genuinely enjoy entertaining and making sure our guests are having a good time. We are consummate hosts–we love entertaining in our homes, our restaurants, and our hotels. Personally, I am in this business because it is my passion to provide superior service in a large industry. We’ve created an exciting and profitable niche and provided stiff competition to other major players, but for the most part we get enormous personal satisfaction from making people happy. This generous spirit can indeed be found throughout our organization. Truly, our employees do not need to be told what to do; they act on their instinct to provide excellent service–a reflection of the instincts of the people at the top.

We have very high scores on our employee surveys, a result of providing opportunities for growth and recognition for a job well done. When asked what the driving force of the Kimpton Group is, the answer all employees should give is growth. On a personal level, we encourage employees to be committed to self-improvement; on an economic level, employees should always be looking for the next professional opportunity or promotion.

When training employees, I try to keep in mind that people really don’t remember a series of dry facts that you provide them; they will probably forget about 60 percent of what they’ve just heard. But if you tell them an entertaining story – such as how Bill and Tom started their hotel business, or how Tom gave his own shoes to a guest who forgot to pack them for an important interview – they’ll remember. The stories and legends that circulate within a company are important when fostering a certain attitude. Being a great storyteller is my next major accomplishment.

Distinguishing Ourselves from the Competition

The ultimate brand tagline for our company is, “Every hotel tells a story.” This story can come from a variety of sources. In many cases, we have renovated historic hotels or put hotels into historic buildings (those that are on the National Historic Register). The history of the building may tell the story, or the story may be specific to the location. In San Francisco, for example, the Sir Francis Drake’s location is essential to its story. We also have seven Monacos, and the story is, in addition to great architectural buildings, that they are designed for savvy world travelers and aim to indulge the guest’s senses. The promise we make to our customers is that they will have a different experience every time, but the experience is always inspired by our four benchmarks.

These four benchmarks are followed by every one of our hotels and distinguish us from other properties. The first is a distinctive character, which is high style, inclusive, and inviting. Second, we offer service in the true sense of the word, with employees that actually enjoy providing to customers. Third, we provide a comfortable environment. And finally, we offer unique restaurants. These restaurants – very different from those offered by other hotels – may be chef-driven, stylish or fashion-forward. Whatever the reason may be, they too are interesting and desirable destinations.

Building One Brand Out of Many

The main problem I face in my business is this: In a brand-of-one environment, where most of my hotels have different names and different experiences, how do I bring them all together and give them one name? As I said, Kimpton Hotels promise that you will have a great experience, but the experience will be different in each one. To have an overall city- to-city brand recognition, you have to have a minimum geographic distribution in all the important gateway cities and in several secondary cities. Our ambition is that once we are in a city, Kimpton will be the overarching quality brand, with a high-quality, unique experience in every location.

General Motors promises you a high-quality Chevrolet, Pontiac, Chrysler, Buick, and Oldsmobile. Proctor & Gamble promises you quality in detergents, toothpaste, and cleaning supplies. Kimpton Hotels is a national company promising great experiences in overnight accommodations. Even though the hotel may have a different name on the front door, it will communicate our brand effectively.

Historically, our most effective marketing effort has been through public relations. On any Sunday in the United States, a newspaper’s travel section will have a feature on a city with write-ups on the highest quality hotels in that city. Since we are in fourteen cities, on any given Sunday we could have several features about us. We spend a lot of time with travel writers for travel magazines, as well. Recently we had a cocktail reception for writers who specialize in meetings and conventions publications. Lifestyle magazines such as Gourmet and Food & Wine will cover our establishments, while fashion and style magazines feature our restaurants and our hotels in their travel sections. Additionally, trade magazines such as Design, Architecture, and even Plumbers Magazine, will highlight our hotels – and even our showerheads.

Other successful methods of marketing include direct sales—where salespeople call commercial travelers about different properties—and travel agents. About a third of our business comes through travel agents, due in large part to their efficiency. They can be contacted easily because of the consolidation in their industry, and they can communicate quickly our offerings to all of their agents. We also do simple things, like paying commissions quickly, to ensure we maintain their business. Our list is up to 70,000 travel agents. This means that with email or snail mail we can communicate a new offering – such as a new hotel, a seasonal opportunity, or a value-added idea like coupons for neighboring restaurants – to several thousand people at once. Travel agents are also very effective at spreading news by word-of-mouth.

Changes in the Industry

One of the biggest changes we’ve seen in the industry has been segmentation. At every price level, and even at micro-price-levels, you can find an offering, and these offerings are consolidated under one name. One perfect example is the Intercontinental which has both the Intercontinental and Holiday Inn. We will continue to see even more consolidation as hotel companies strive to grow.

On the consumer side, the most important change in recent times has been the Internet, which allows potential buyers to pinpoint a city and look at a variety of hotel sites instantly. This system has changed the way people shop for hotel rooms, and it will continue to evolve and affect the way people make decisions.

Although it is easier to book a hotel room now, the competition is fierce. Guests can find cheaper hotels more easily. The demand for hotels may increase even more because it’s cheaper to travel, but at the same time, it may decrease the economic opportunities for hotel providers. Just as importantly, it decreases brand value, because if what you are buying is price, you don’t care about where you are staying – it’s just a price-buy. That is a problem for people like us who have spent a lot of money trying to create brand differential and loyalty. If it’s strictly a price-buy, brand loyalty is not a factor for the consumer.

We have responded to some of these changes by providing competitive and highly differentiated products. As the general wisdom goes, once the paradigm shifts, you have to begin again. The first time a hotel decided to put a bottle of shampoo in the bathroom, it made everyone else obsolete. Then when the next competitor put in conditioner, and the next one put in lotion, the paradigm shifted again. As the paradigm shifts, eventually everyone has to follow.

The latest example of a shift is high-speed Internet access. Currently, only 5 to 6 percent of hotel customers use high-speed Internet access at a hotel. Nonetheless, you have to stay ahead of the curve by offering these technologies. It goes from simple things like the quality of beds (for example, at one point all hotels thought they provided suitable beds, but then one introduced the “Heavenly Bed,” and everyone had to upgrade) to a variety of other options. Stylistically, we were residential, but now we are moving into a unique, sophisticated style to better capture the imagination of our customers and provide a unique experience for them.

Currently, the buzz in the industry is providing high-tech gadgets to customers. We have recently opened a hotel that has the newest Sony flat screen televisions with DVD players in every room. We are reasonably certain we will be the only hotel in San Francisco with DVD players in each room. We like to take advantage of this new technology, but since it always runs down a cost-curve we try to pinpoint a partner like Sony, an industry leader. We find out if we can afford the newest technology at their price point, knowing that in a year it will probably be cut in half. Those trade-offs are continually made, but technology is here to stay and will continue to affect us in many ways, mostly positive.

Another example of a shift in the industry relates to dealing with society in a post-9/11 world, where there is a level of fear, uncertainty, distrust, and skepticism. People have access to news 24 hours a day, and that news is often negative. We have realized that people are looking for comforting environments to provide a brief respite from that harsh reality. You might be surprised to learn that we have a pet-friendly policy in all of our hotels. In a time of fear and uncertainty, pets are very comforting – the sale of pets and pet products has skyrocketed since 9/11. And so, we have created a goldfish program at the Monaco. When you are on the road, what you miss the most is probably your significant other, but we can’t recreate that. What we can do is provide a pet: a goldfish that you can name and which keeps you company while you are traveling and lonely. In these times, if your business can provide antidotes to the fear and uncertainty in American culture, you will create a long-term emotional connection with your customer, and they will become very loyal and tell others about you.

Balancing Risks with Growth

The words I use most frequently these days are balance, survival, and growth. Though we’ve had challenges with the difficult market in San Francisco, we have just opened the Argonaut Hotel at Fisherman’s Wharf. We have also opened the Hotel Marlowe in Cambridge, Massachusetts and are preparing for the opening of the Onyx Hotel in Boston. Like San Francisco, the Boston market has been difficult. The balancing act lies in making sure you have the capabilities to withstand some of these challenging environments.

Balancing the needs of the guests, the employees, and the investors consumes my day. That balance keeps me going. You need a true inner compass to keep going in these times. It comes from experience and understanding that if you keep all three of those groups happy you are doing a good job. Typical of most executives, I get four newspapers every morning. I also have four e-news services that are hotel-specific, as well as real estate and restaurant e-services. They all provide daily updates on the latest news in the industry. In addition, the consulting companies that service the industry—such as Price Waterhouse Cooper, Jones Lang, and Lehman Brothers—produce reports on historic and forecasting activity. As executives, we assimilate all this information and try to make the best decision at the moment.

To survive as a business, you must set aside a certain level of your income to continue to upgrade your product. For example, the vice president of design and the vice president of construction are constantly assessing the marketplace for new innovations and determining how to incorporate them into the budget. This process involves a series of trade-offs matched to the cycle of the industry. Recently, the industry has been in a three- year downward cycle. In a decreasing-profit environment, it’s even more difficult to assess, evaluate, and continue to invest in your assets. We walk a tightrope right now, but as the cycle improves, we’ll have more flexibility.

It will be good news when the economy revives in San Francisco, due to our high percentage of rooms in that city. On the other hand, Chicago has had a vibrant summer this year, and we are exceeding our expectations in that market. As a business, you must assess developments market by market and respond accordingly. From a finance standpoint, interest rates have never been better. With leverages, low interest rates are very attractive, and they are what support many hotels in these times.

The economy is at the top of the hierarchy of risk factors. Hotel occupancy parallels the Gross National Product almost perfectly; there is a very strong correlation. As the economy goes up, demand goes up, and risk goes down. The second most important factor is supply. If a business is doing well in a particular market, a lot of competitors will come into that market as a result and increase the number of offerings.

Geopolitical issues of terrorism are also important factors to consider about your business survival in today’s world. People must travel to hotels, so one of the biggest influences on the industry is airline health. There are some destinations where there are not enough airline seats coming in to fill all of the hotels (called a “list problem”). We follow the airline industry closely to predict the profitability of our business. For example, markets easily accessible by driving are doing quite well this year because travelers are hesitant to get on airplanes and deal with the hassle, fear, and prices. This is the current trend in San Diego. The entire LA basin can drive there in two hours, and it has the highest-occupancy hotel market in the country.

Continuing to Grow

Industry-wide, the biggest challenge to achieving real growth is developing new hotels in cities with competitive markets, such as Boston and New York. The difficulty lies in obtaining capital to deploy in these sectors, which are currently out of favor with lenders and investors. Urban gateways and destination cities are our primary targets, mainly to avoid the concerns that develop at traditional “getaway” locations. For example, if you have a ski resort and it doesn’t snow, you have a problem. You also have a problem if you have a resort in the Caribbean and a hurricane comes by. Therefore, we focus exclusively on urban, multi- demand locations. If you are in this industry, you ought to have properties in the major gateway cities. There are also first-tier cities, second-tier cities, and tertiary cities. When investigating these cities, you can access national and local statistics to consider the health of their economy (the equilibrium between supply and demand).

Currently, New York is healthy; it has maintained its occupancy, though hotel room rates are lower. This is contrasted with San Francisco, which has been particularly hard-hit due to the collapse of the technology industry and resulting decline of business travelers. Additionally, international leisure travelers held off their travel to America due to fear of terrorism. However, convention travelers who took a year or two off are starting to come back. In the end, New York in 2003 is off about 5 percent year-over-year, while San Francisco is off 25 percent year-over-year. Therefore, at the moment, you shouldn’t spend a lot of time finding hotels to acquire in San Francisco; New York is the place to focus on right now. We are very excited about our first entry into New York City. We have acquired a hotel on Park Avenue and 38th Street that will undergo a $19 million renovation. We will reopen the property as the first Kimpton Hotel in New York City in the summer of 2004.

As you can probably see, based on the list of hotels we operate, we like to cluster our hotels in one area. We have this ability because the hotels are small and are individual brands. There are 15 in San Francisco, three in Chicago, three in Seattle, and five in Washington, D.C. We would like to have several more in New York to take advantage of its geographic micro-markets: Lincoln Center, Times Square, and SoHo could be distinct and unique locations for our Manhattan hotels.

It’s not a problem if our products in geographic micro-markets are competing with one another. As long as the products are somewhat similar, you can actually move demand around. If the Monaco in San Francisco is sold out, you can refer that customer to the Prescott Hotel or the Serrano, and vice versa. This is actually appreciated by the customer. The problem with the hotel business is that once you’ve sold out your rooms for a particular evening, the opportunity is gone; you can’t make more rooms at a moment’s notice. On the other hand, if you are a soap maker and see the demand rising, you can run the machine an additional eight hours to solve the supply deficiency. Once you sell all of your rooms, you have no more opportunity. You can charge a little more if you see that demand pattern building early, but that’s not always possible.

Tom LaTour, Chairman & CEO of Kimpton Hotel & Restaurant Group, LLC, is responsible for creating the strategy, structure and systems to operate and maintain the growing family of hotels and restaurants managed by the Kimpton Group. As Chairman & CEO, he manages and administers all aspects of the hotel and restaurant development process and the operation of these assets.

Prior to joining the Kimpton Group in December 1983, Mr. LaTour was employed by Amfac Hotels for ten years. He joined Amfac in 1973 as Regional Manager for this diversified hotel chain which operated 17 hotels across the country. At the time of his departure from Amfac, he was Senior Vice President of Administration. Prior to his employment with Amfac, Mr. LaTour was a General Manager for Sky Chef.

Mr. LaTour received his degree in Hotel and Restaurant Management from Michigan State University in 1966 and completed the Program for Management Development in 1980 at Harvard Business School. He resides in San Francisco and St. Helena, California with his wife Barbara.

Thomas W. LaTour
Chairman and CEO
Kimpton Hotel & Restaurant Group