Ownership, Customer Changes Reshape Hospitality

Curt Strand was “one of the first two-and-a-half employees of Hilton International” when the company opened its first property overseas in 1949. When Strand retired in 1987 as Hilton International’s chairman and CEO, the company employed 35,000 people and encompassed 100 hotels in 60 countries.

Strand has seen myriad changes reshape the hospitality industry, including a shift to financial-sector ownership and philosophy, the rise of the global middle class, and the obsolescence of the long-standing success mantra, “location, location, location.” In this second installment, as told to Travel Weekly PLUS editor in chief Diane Merlino, Strand shares his unique, long-view perspective on the changes and challenges facing today’s hospitality industry.

“We have seen a definitive shift in the leadership of hotel companies. My own peers used to be professional hoteliers. This is changing to financially oriented executives. It's entirely logical, because as companies grow ever bigger the need for financial savvy becomes paramount.

“I know from my own experience that it was difficult to turn a professional hotelier into a corporate executive because it requires different backgrounds. That was always one of my own challenges. But this is an overall industry-wide challenge, and now you see more and more hotel companies, with few exceptions left, being led by financial people.

“That bears out the fact that big money is made in this business from buying and selling hotels. Big money is not made from operating hotels: it's made from changes in ownership. And when a company is bought by a financial conglomerate the importance of the hoteliers in the leadership lessens, and they have to adjust to that.

“These days, if there is a hotel company that is family-owned, that usually only lasts through a couple of generations. As the company grows, its financial clout grows, its financial responsibility grows, and it's likely to be acquired by, or in some other form led by, financial types. That is just a fact of life that hoteliers have to accept.

“This affects the character of hotels, because hotels have historically been run by people who, like me, love that business or were trained for that business. I was both: I loved it and was trained for it. And as you are trained for it, you love it more. And you eventually lose your clout to the extent that you are now answering to people who are not all that interested in what you're interested in. They are interested in the financial applications and the buying and selling of hotels or of parts of companies. That's where the money is, and that is now a fact of life. And I think it's perfectly appropriate that financially savvy people govern companies that are as large as hotel companies are today.

The rise of the global middle-class traveler
“Another challenge is that the profile of the customers has changed in the last 20, 30 years. We used to cater to the famous 1%. Now it's the middle class that travels, that became our customers.

“And it's not only our middle class; if you look at the Chinese middle class, they are traveling as well. I remember when the Chinese didn't travel. I remember a time when the Japanese were not allowed to travel, because they didn't have foreign currency to travel with. I remember when the Koreans weren't allowed to travel. But today our customers come from all of these places, so the character of our customers has changed, and it is an exponential change.

“As a consequence there is also an exponential change in the supply of hotel rooms. It has grown geometrically in the last 20, 30 years, and it isn't going to stop; it's going to grow geometrically from here on out, because the middle class — particularly the worldwide middle class — is immeasurable.

Location, location, location
“I want to talk about another new challenge. You know the old mantra about 'location, location, location'? Well, that is changing immensely, and it is no longer a mantra. I can illustrate that with a story that is a little personal.

“Let's go back to the '40s. In the '40s the idea of a development in downtown New York was not in the cards, but by the '70s there was the Port Authority of New York and New Jersey, and they asked us to run all of their restaurant and hotel operations in the World Trade Center. Everybody in New York wanted to run that place, and they came to us, despite the fact that we didn't have a single operation in the United States. My company was doing the Hilton hotels outside of the United States. The closest place we came to New York was Montreal.

“So the Port Authority asked us to manage all of their 25 restaurants. Everybody remembers Windows on the World, but Windows was only one of 25. Part of the site included a 650-room hotel, which they wanted us to finish. They had built the foundations and up to the first floor, and that was it. Somebody had to take it over, and I could not find anybody in New York who would develop it. The idea of a hotel in downtown New York went against every conviction anybody had about location.

“So I went to a guy in Chicago with whom we had developed the Drake in Chicago, and I brought him to New York. We started out in our office, which at that time was in the Waldorf on Park Avenue, and we took a cab down to Wall Street. When we got out of the cab I said to him, 'Jerry, look around. What do you see?' And he said, 'Well, I see dozens and dozens of office buildings.' I said, 'Exactly. Now where else in the United States do you have dozens and dozens of office buildings but the only way you can get to them if you are from out of town is to take a cab in Midtown, pay a lot of money, and spend half an hour in the cab getting to where you want to go? So what's wrong with building a hotel right here?'

“Well, he could see it. So we started to build on the fringes of the Trade Center, where there was a Hudson River view. And people would say to me, 'Oh, about your location — you have a Hudson River view, but do you know that you're going to lose that view? They're going to build. They're going to fill-in all the land, and they're going to build countless office buildings.' And I said, 'You know, I don't expect to get much business out of the Hudson River, but I do expect to get a lot of business out of all these office buildings they're going to build. Port Authority and the city of New York are going to build all these office buildings, and they're going to take away our view of the Hudson, and I'm going to love looking at those office buildings that are all going to produce business for us.'

“To make a long story short, this is not unique anymore. I was down there six months ago, and there was a big map on the fringes of Ground Zero, and on that map there were 16 hotels. Sixteen. Not that many years ago you couldn't find anybody who would build one. So “location, location” is changing. Thirty years ago who would have thought of building a new hotel in the Meat Packing District in New York, or in Brooklyn? The whole idea of 'location, location' has to be reexamined, and that is another one of the big issues that we have in the hotel industry today. 

“These are the top three challenges that come to my mind. I'm sure there are others, but these three sort of color the waterfront — changes in ownership and the philosophy of ownership, changes in the profile of the customers, and where the hotel is going to be build.

“I think these changes will take the industry on a pretty happy course. These are natural developments; they're not imposed by anyone. I don't have a crystal ball, but all of these changes will go on and on and on. There's no way to stop that, and there's no reason to stop it.”

ALSO SEE: Curt Strand: The Hospitality Industry’s Genteel Pioneer

 

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