How major emerging markets are redefining luxury hospitality (Part 2)

In a series of exclusive interviews to CPP-LUXURY.COM debating how development is redefined by several major international emerging markets, Mr Reto Wittwer, President & CEO, Kempinski Hotels & Resorts shares his insights.

Kempinski is one of the pioneers of luxury hospitality in Russia. What are the biggest challenges in entering Russia for a luxury hotel management company? Is there potential for Kempinski Hotels in second tier cities?

That is definitely true. We opened the Hotel Baltschug Kempinski in Moscow twenty years ago and it was the first international five-star luxury hotel in the city. The biggest challenge for Kempinski to enter Russia, as with most markets, is to find the right partner.

There certainly is a potential for Kempinski to grow into second tier cities in Russia, as our brand is well established in the country. However, we would only move onto second tier cities once our presence has been fully established in first tier cities; our group is already present in Moscow, with the Hotel Baltschug Kempinski and the newly opened Hotel Nikolskaya Kempinski, and in St Petersburg, with the Kempinski Hotel Moika 22, but we would also welcome development opportunities in other Russian destinations.

You have an extensive presence throughout MEA. With the new strategy of the Dubai Government to double number of visitors, could this be more of a mass strategy which could eventually put pressure on rates for the luxury hotels?

When we consider that Dubai received 10 million visitors last year, an increase from 6 million in 2006, doubling that number over the next seven years seems realistic. However, it’s estimated that in order to accommodate 20 million visitors, Dubai might need an additional 80,000 hotel rooms.

Dubai has set ambitious targets to increase the number of visitors before and fell short mostly because of a shortage of hotel rooms. Assuming that the amount of hotel rooms won’t rise as quickly as the number of visitors, Dubai will continue to produce some of the highest global figures for hotel occupancy, rates and revenues.

How has the development process of a new property become more challenging nowadays? Also, are any of your announced future openings larger than 200 keys?

The development process for luxury properties hasn’t changed dramatically over time – it has always been challenging, and it will always be challenging. Luxury properties are usually extremely expensive to manage and to upkeep, and while owning a luxury hotel provides the investor with stable returns, it is a long-term investment – any investor willing to convert a property into a luxury hotel and contract an operator must be aware of this.

We have five openings planned for the next few months with more than 200 keys: Kempinski Hotel Gold Coats City Accra in Ghana (269 keys); Grand Kempinski Hotel Shanghai (678 keys) and Kempinski Hotel Taiyuan (416 keys), both in China; and Kempinski Al Othman Hotel Al Khobar (218 keys and an additional 20 serviced apartments) and Burj Rafal Hotel Kempinski Riyadh (300 keys and an additional 50 serviced apartments), both in Saudi Arabia.

Have you ever considered launching a second brand, with a more premium positioning so that you are able to offer consistency throughout your chain internationally, especially in the case of properties where owners are reticent or long delay much needed renovations?

Kempinski Hotels only manages five star luxury properties, which are either unique in their destination or a market leader. That is what we are known for. In order not to dilute the brand, Kempinski wouldn’t create a new brand under its name. In order to benefit from hotels in other segments, such as boutique or four star hotels, it became a founding member of the Global Hotel Alliance, the world’s largest alliance of independent hotel brands in the upscale segment.

Kempinski also pursues additional growth opportunities to ensure long-term value enhancement. Based on the belief that luxury cannot be multiplied endlessly and, therefore, growth of value under the Kempinski core brand will be mainly through increasingly invested in new business ventures, particularly since 2006. The two main categories of Kempinski’s investments into associated businesses are to further penetrate markets and reach new guest segments without diluting the core Kempinski brand, as is the case with the Global Hotel Alliance; NUO, a high-end, art-lifestyle concept for what will be China’s first domestic five-star luxury brand (the first opening, in Beijing, is planned for early 2015); and Shaza Hotels, the first international five-star hotel chain to draw its inspiration from and character entirely from the cultures of the Silk Route.

How important is the awareness of the brand prior to entering a new market?

Brand awareness is extremely important before entering a new market. As a luxury brand, this ensures that the group has an advantage when it comes to creating a network and gaining access to premium properties, as its standards and philosophy will already be known and appreciated by owners and owning companies.

SPAs and fine dining seem to have become an important differentiator for developers, many of which would scale down on the SPA investment and the fine dining (i.e. Michelin starred Chef)? In the case of Kempinski, in the properties which you consider best performing, what should be the optimal balance percentage revenue between rooms and non-rooms revenues, especially SPA and F&B?

When making a proposal to investors, Kempinski highlights what is unique about its brand promise and the services it provides, especially when it comes to spa and F&B.

The F&B offering plays an increasingly important role in the hotel industry – not only in providing guests with wonderful experiences, but also as a profitable source of revenue. A passion for gastronomy is part of Kempinski’s heritage, and this is what the group aims to build on. Our vision is to become the uncontested leader in the hotel and restaurant industry. In this context, we don’t focus as much on attracting Michelin starred Chefs as it does on creating the brand’s own signature restaurant concepts, such as Sra Bua, an innovative concept which first opened at Siam Kempinski Hotel Bangkok, and which now has sister restaurants at Kempinski Grand Hotel des Bains St Moritz, Kempinski Hotel Das Tirol in Kitzbühel and Hotel Adlon Kempinski Berlin, with one more planned to open in December 2013 at Kempinski Hotel Gravenbruch near Frankfurt.

Sra Bua (Thai for Lotus Pond) was created as a platform to open a dialogue between two continents: Asia, with its diverse cuisine and surprising flavours, and Europe, known for its technique, flair, tradition and style. Culinary discoveries provide guests with fresh new tastes and unforgettable experiences and Sra Bua is the interpretation of Asian cuisines by a European Chef.

Sra Bua Bar, Adlon Kempinski, Berlin

For our spas, Kempinski founded Resense Spa, a joint venture with the leading spa consultancy Raison d’Etre. Resense Spa fills Kempinski’s know-how gap in spa management, yet allows for a structure focused on delivering consistent services in the spas throughout Kempinski’s portfolio. Resense Spa manages two spa brands: Kempinski The Spa -exclusively for Kempinski hotels – and Resense, which enhance the group’s value proposition.

The revenue percentage between rooms and non-rooms revenue varies greatly depending on the number of rooms, the destination and the competition. Therefore, it isn’t possible to provide an optimal break-down. Whether the hotel is favoured for banqueting and large events, as is the case with the Çirağan Palace Kempinski in Istanbul, the Emirates Palace in Abu Dhabi and several of our hotels in China, for instance, also plays a role in the hotel’s non-rooms revenue.

Kempinski Ambience Hotel, Delhi – Spa

Why is your company absent from the US and what are your plans for South America?

Kempinski’s luxury hospitality philosophy is based on individuality, uniqueness and personalised service, which is mostly not compatible with the US hospitality philosophy of standardisation and uniformity. Additionally, as an European brand, it would be challenging to enter a market which is already saturated with local luxury hotel brands. The only city in the US in which we would consider development opportunities is New York, because of European travellers’ attraction to the city.

When entering a new market, in line with its de-centralised structure, it’s crucial that Kempinski sets up an overseeing regional office with local expertise in order to ensure the hotels in that region are being managed correctly and performing to their full potential. South America has become a strategic target for us, but it is a market we will only enter if we have a cluster of hotels under management in key cities, such as Rio de Janeiro and São Paulo in Brazil, Buenos Aires in Argentina, Lima in Peru, and others. Otherwise, with the amount of resources that must be allocated in order to manage hotels in that market, it wouldn’t be worthwhile.

What do you think has been making Kempinski one of the most attractive luxury hotel brands for developers and owners in China? What are your competitive advantages over other luxury chains which have none or very few properties.

Kempinski was among the first international luxury hotel brands to enter the Chinese market, in line with the company’s pioneering spirit, which contributed greatly to the group’s competitive advantage. As a result, Kempinski is an established, highly recognisable brand in China. The group was also fortunate to enter a joint-venture with the Beijing Tourism Group (BTG), one of China’s largest tourism groups, with a core business which covers restaurants, hotels transport services and travel agencies, to name a few. This joint-venture allowed Kempinski to expand its brand influence in Asia, specifically in China, relying on BTG’s outstanding hotel resources and market strengths.