Hotelier of the Week: Peter Borer (May 31)

Peter Borer is chief operating officer at The Peninsula Hotels which operates eight luxury hotels with 2,781 rooms in key gateway cities of Asia and the USA.  This year it opens a hotel in Shanghai with a further property opening in Paris in 2012

Peter Borer

How are the current economic conditions affecting Peninsula?

Since the inception of this company we've always taken a long term view. We are prepared for the fact that sometimes life is up and sometimes life is down. The Peninsula Hong Kong is a good example. In the 80 years since it has existed, we've seen it all at that hotel. In good times you have to prepare for not such good times. If you look at our balance sheet today we have very little gearing. We have had fantastic results in the last few years and we have just announced the results of 2008 which were described as good in the media and so we are well positioned to face this crisis.

So will you be spending money on renovations?

We are continuing full speed ahead with our projects, including opening Shanghai at the end of this year and Paris in 2012 as well. We have made some substantial upgrades to some of our other hotels - the Pensinsula in New York is getting a face lift, we have upgraded the in-room technology in Chicago, we are looking at a possible renovation in Los Angeles, we have completed Manila and the hotel in Beijing which was renovated prior to the Olympic Games. We continue to invest in luxury and provide good value. So when people are still prepared to pay for a luxury hotel or a meal or spa experience they feel they are getting genuine quality and I believe that is something that will enable us to go through this crisis at a certain level.

So would you discount to bring in business?

No one likes to use the word "discounting". On certain occasions you might do it, but you add value, you make it very attractive for people to buy into the luxury experience. Having very comprehensive hotels such as we do that offer everything from helicopters to spas to gyms to Peninsula retail to restaurants to very comfortable rooms there is a great opportunity for our marketing people to package it in different ways.  So we can be very focussed in our marketing to appeal to different segments and we can say ‘How are we going to get more of these guests into a particular hotel during a particular period?' We are too small to have a broadband approach.

Luxury has a high cost base. You can't apply economies of scale, so how do keep control of costs at times like these?

We operate in different countries and different time zones, so I don't think economies of scale would apply even if we had 100 hotels. Having been through various crises before: 9/11, SARS and others, we have a certain level of experience and we have a list we can refer to. You make certain savings, defer certain investments, try and keep a bottom line, because being a CSR employer, we want to retain the payroll. We have a long term commitment to the staff. Training the staff to the level they are at now is very expensive and sending them home would be incurring a cost in the future. The most important thing we are giving our guests is the staff and their knowledge of our guest's needs and wants and expectations and desires. You can buy luxury furnishings, but the service is different.

So how did you hold onto your staff in the good times when everyone was hiring?

Because they know we are loyal to them. When SARS happened we had no guests. The chairman [Sir Michael Kadoorie] called me and said, ‘Peter, everyone will stay employed'  and when I told them, they knew this was an amazing commitment, so then, when times get good, they also remember that. In January of this year, because 2008 was a good year they all got a bonus and an increase, where any other companies let people go. So then if you then say ‘Ladies and gentlemen, times are tough, we expect you to turn off the lights' they do it, because they value the business and it's more than a job. It's something the Kadouri family has instilled in us and the chairman's commitment to it is still there.

The Peninsula Shanghai

What makes Peninsula special?

The chairman. We work for a person, a family, a face that we know. We don't work for some anonymous institutional investor who sells you off the next five minutes to some other institutional investor. And we buy into the values of that person, his likes and dislikes.

The family idea seems to be reflected in the persona and the advertising

Advertising allows you to stand out. The pictures taken by Annie Leibovitz are honest. If you look at some of the advertising I find questionable, I don't see a message and it is quite poor in terms of creativity. Usually it's a lady on her back having a massage, but when you get to the hotel she won't be there. So it's very important to stand out and dare to be different. We are too small to be mainstream.

What is the mix of leisure and business guests in your hotels?

It depends on each hotel. Some are more leisure, such as Bangkok where we are a city resort, others such as Chicago are corporate.

Which has been more affected?

What's really been affected is the conference business. Chicago is a big convention city and that's been badly hit and comments made by the US government have not helped either. And Las Vegas has stood up and said ‘Stop making these comments because it's killing our business'.

A Peninsula deluxe room

How important is your customer recognition programme?

Very important. We don't have a card programme or a mileage based programme, but we do have a very sophisticated system behind the scenes. We have a wonderful database which is very rich in information about our customers and they will all be made aware of new hotels such as the Shanghai property. We have large percentage of repeat business, For instance the Peninsula Beverley Hills has an amazing repeat factor and we are dealing with a market which feeds from the east coast and from within California. There is a high following from the entertainment industry and once they feel comfortable in a certain place, they will come back to you. We also see cross-fertilisation between Hong Kong, Tokyo, New York and Los Angeles.

How important is location?

 Very very important. Our new hotel in Shanghai is on the Bund. The chairman always said if we had a hotel in Shanghai it had to be on the Bund so we waited for more than 10 years to find this site. The whole area is UNESCO protected, so we bought the Shanghai Friendship Store built in the 1950s, pulled it down, and had to jump through a lot of hoops to get this building built. I think that's quite an achievement. If you look at our new development in Paris [on Avenue Kleber]  it demonstrates this as well. Location is paramount

How many properties would you ideally run?

Twelve or fifteen at the maximum. We are very interested in London, India one day, Sydney, maybe one or two cities in the US and in the long term Sao Paolo, a very important city and clearly the city in South America where all the trade is being made. The Middle East clearly has an important future ahead but currently has an over-supply and one needs to see where that leads.

In most of your properties you have a majority stake

We will certainly always have a stake because it's important to stay in charge of quality and our brand. If you have to give away too much because of ownership you damage the brand by compromising too much. It defeats the purpose. So we want a controlling or significant interest.

Will the current conditions make it easier for you to expand?

Already in the last few months there have been some very interesting opportunities come to our attention. We are not in a hurry. We weigh the pros and cons of these opportunities very carefully. We'll see what the future holds, but we will not rush in and buy five hotels. We would be giving up on what makes us unique. Our brand recognition is fairly high when compared with our size, so we will continue with this prudent approach. We are a publicly listed company and if you look at our company results it makes for happy reading.