Big Brand Hotels: Striving to be Guests’ Everything with Julienne Smith, Chief Development Officer, Americas of IHG Hotels & Resorts

The “You Can Be Anything” Barbie slogan could apply just as easily to the ever-expanding brand choices of major hotel groups such as IHG Hotels & Resorts which now has 6,200 hotels in more than 100 countries.  In a similar fashion, over the decades, the Barbie portfolio has grown to encompass 250+ careers, countless outfits, and multiple dreamhouses. Plus, Barbie has gone far, having traveled throughout the world (and to outer space)!

In the hotel world, striving to be the guests’ “everything” for work and play (or the blending of the two) is the dream. Julienne Smith, Chief Development Officer, Americas of IHG Hotels & Resorts, illuminates the qualitative values and practices that deliver on the brand promise of exceeding quality expectations.

Bringing Barbie and hotel brand worlds together, we might just want to add “Bleisure Barbie” to the collection! 

The “Distinguished” podcast is produced by Boston University School of Hospitality Administration.

Host: Arun Upneja, Dean
Producer: Mara Littman, Director of Corporate and Public Relations
Sound Engineer and Editor: Andrew Hallock
Graphic Design: Rachel Hamlin, Marketing Manager

Music: “Airport Lounge" Kevin MacLeod (incompetech.com)
Licensed under Creative Commons: By Attribution 4.0 License
http://creativecommons.org/licenses/by/4.0

Transcript

Arun: Welcome to the Distinguished Podcast, produced by the Boston University School of Hospitality Administration. I am Arun Upneja, Dean of the school. Today, we venture into the world of hospitality to explore the intricate workings behind the places we stay when away from home. I am delighted to be joined by Julienne Smith, Chief Development Officer for the Americas at IHG Hotels. Julienne brings a wealth of experience from her tenure at Marriott and Hyatt and now lends her expertise to IHG. She is also a proud alumna of Boston University and serves on the school's advisory board. With a career as distinguished as hers, we have a wealth of topics to delve into. Julienne, it's a pleasure to have you on the Distinguished podcast.

Julienne: Thank you, Arun. I really appreciate you inviting me and I'm honored to be here.

Arun: Julienne, in the hotel world, we are seeing a plethora of new brands popping up left and right. For instance, Marriott's got over 30, Hilton has 18, and even the newer players like Sinesta are quickly racking up their count. From your perspective, why is there such a race to create more brands? Is it more about what guests want to satisfy consumer needs or does it boil down to a business strategy?

Julienne: Well, honestly, I think it's both, right? First, the business side, we are mostly in that category publicly traded companies. And in that, our responsibility is to continue to grow. And when we look at certain markets, if we have certain brands already represented, then growing with another brand might make sense. Now, we don't want to create an oversaturation in a market and have our hotels suffer, right? We want our existing hotels to enjoy appropriate occupancy and rate potential. But we also want to make sure that we satisfy the guest need for all of their travel requirements. So whether it's extended stay with, you know, a contract, a traveling nurse, as an example, or it's a trip with a spouse to celebrate something, those are different types of hotel needs, maybe the same guest, but a different kind of need. So where we really have gotten to in the industry is a focus on master brand. So when you think about IHG1 rewards, we want our consumers to experience the span of our offering and be able to earn and burn their points. Now we might have a Kimpton Loyalist or a Kendall Wood Loyalist, certainly, but what we're seeing among the competitors as well is it's about the master brand and it's about collecting the points and cashing in the points. So having the appropriate distribution across the chain scale of brand offerings and also market opportunity because an intercontinental is going to be primarily in an urban or primary market and express can be in a tertiary market, right, not the other way around typically. So to be able to have that guest stay with us on road trips, have that guest stay with us during sales meetings, so forth, really allows us to be the most relevant card in their wallet, so to speak.

Arun: But the question is with so many different brands, are the consumers able to differentiate between the brands? Are the differences so minor that it's sort of counterproductive to have so many different brands because then you have to establish each brand as associated with IHG?

Julienne: It's an interesting question because 20 years ago, brands were very distinctive. We had select service, full service, luxury, extend to stay, right? Kind of four categories, generally speaking. Now we have upper upscale, upscale, midscale, upper midscale. I mean, you look at Smith Travel Research and there's a lot of different categories. So does the average consumer really know the difference? I don't know the answer to that, but I do know that there's a different service expectation at each of those experiences. So if I'm at a Kimpton Hotel, I'm going to expect that there's going to be a full-service restaurant and a bar, an experience that I'm going to remember, right? If I'm at a Candlewood, I'm going to know that there's a marketplace where I can grab and go some items to take with me in the morning. That's really where the difference is, is the experience within the hotel, the service culture and the offering. Now we create prototypes for the developer and owner to be able to have the best value in order to build those hotels, right? So Candlewood has a prototype. The developer knows what he or she is going to be able to build, what the cost model is going to be, what the return is going to be. On the Kimpton side, it's much more custom. You'll be tailoring it to the market that you're in. So I do think that branding remains important because we have that sort of brand promise that we're able to offer. But if you stop the average traveler on the street who stays at hotels and ask them the difference between brands, I don't know that they'd be able to really articulate each and every one. But today, it's master brand, and that's really the focus, I think, among all the hotel companies is to make sure that's the most significant.

Arun: So let's talk about the development. Right now, the cost of building has gone up dramatically, with interest rates have gone up, and the hotel world, the lodging world is feeling the tightening of the breast strings. So how is this affecting new hotel development? Do you feel the market's getting cramped, or is there still runway for growth?

Julienne: There is runway for growth because supply is constrained, and product is getting older. So there's always opportunity for new development. In some cycles, we've had a plethora of new development, and then the markets need to catch up. Today, we've got high occupancy, high rates, and supply constraints. So there is definitely room for new supply, particularly as we look forward to the next couple of years. The challenge we have is we're at an all-time high market, meaning the interest rates are at an all-time high, not since the 90s were higher, but in the last 20, 30 years, highest. Construction cost is high. Labor is high. So all of those together create an environment that is not very development-friendly. Lenders are being conservative again. New brands are tough to finance no matter what parent company you're with. Lenders are favoring relationships versus new relationships or new developers in the space, so it's really constrained. The developers we see moving forward are those who just have it in their blood. They've got to move forward. That's what they do. They're going to continue on during downtimes. They did during the mortgage crisis. They did during 9-11. They just moved forward. Where we see real constraint is those who are thinking about putting their cash someplace else. We've seen some developers go towards industrial. That's now becoming saturated. We've seen developers go towards multifamily. That's also slowed a bit.

And the cash that each of the developers have allocated towards new development isn't going to accrue in value over time. We've got inflation. So exercising that cash towards a development that will ultimately open up in a supplied constraint environment is my push to the development community. Now what we're doing is creating programs where we're incentivizing groups to move forward, break ground, whether it's through key money or fee relief. We're also talking to a number of lenders about a program that maybe we could subsidize and take that interest rate down a little bit. Not to the 5% and 6% that we were enjoying at the end of the last cycle, but something more reasonable than the 15% that is most common today.

Arun: So what is interesting, you say that the occupancy rates are up, and if the lenders are tightening up, then isn't it a missed opportunity for lenders? Because at the end of the day, you want wherever you're lending to that business to succeed. So you can get not just your interest, but capital back as well.

Julienne: I do think it's a missed opportunity. I often hear lenders say hotels are risky because you're at zero occupancy every day. Well, hotels are secure because you can reset your rates every day too. So that's the flip side. I think part of the challenge is the flow through is not strong. So that's a piece I didn't mention in the last comment is yes, rates are high, occupancy is high, but cost of labor is expensive, cost of goods is expensive. If there's a variable rate, obviously the debt is going up. So the flow through to NOI is constraint. So the NOI returns are not as strong. So that's really, and that's what the lender looks at, right? They look at the bottom line. And that's really where the P&L has suffered the most.

Arun: So let's talk about the labor market. And you mentioned that labor market has been pretty tight. Although it seems to be easing up a little bit right now. But the long-term prognosis for the availability of labor is not good in the United States. So how is this playing into how you're designing the new hotels? Is the aim to make them more efficient with increasing automation, or is it business as usual?

Julienne: I would say two things. One is we're in that business of hospitality, and you have to have people in the hotels offering that type of hospitality. People cannot be replaced with robots. You need that touch point. You need that human connection. That's what hospitality has been about since the dawn of time. The POS systems that we have and what's behind the front desk are very difficult to learn. And when you have a new associate, it takes weeks to months to ramp them up and teach them these systems where, let's say, quick service restaurants, as an example, they're very cloud-based, app-based. It takes days to train a new associate on how to operate their systems. So that is a key piece to attract, especially young labor, hourly employees, as an example. That ability to train and use our systems behind the front desk needs to evolve. And that's an issue we've been talking about for a few years now. I know all the major brand companies, including IHG, are focused on that and will soon make some material changes in that regard. That's important. 

The other piece is we are a service culture industry, and that includes how you take care of your employees. So the best-in-class franchisees we have, and us as managers as well, we take care of our employees, right? We do things to want to keep them, show them the career pathing. There's so many stories. I mean, most of the CEOs of the major companies today started as real entry-level positions and are now running companies. That is a fantastic story that only exists in the hotel and restaurant world, really. So AH&LA has done a tremendous job talking about that, advertising that, because I think that's little known as well. There's a real career path for individuals who have the desire to do so.

Arun: But let's be honest here. The number of people who start at line level, waiters and housekeeping attendants, to reach up to CEO or even the C-suite or even regional management is kind of very limited. But you're going to see more college educated young people who are starting off in management training programs. They are the ones who are hopefully most likely to reach up to those spots. And you have right now a shortage of college educated hospitality graduates. And this AHLA initiative that you talked about, I think they're focused much more on the line level employees. So you are going to have a shortage despite all the AHLA efforts being made. And increasing automation is obviously the answer, but the industry seems to be just dragging their feet on. You know, let's take housekeeping, labor, for example, vacuuming of rooms. I mean, you know, a whole lot of us use autonomous vacuum cleaners at home, but you go to hotels, and you don't see them being used. So I think we are just dragging our feet, and I just don't understand why.

Julienne: Yeah, it's interesting. And I think you're right. I think we've not been known to be pioneers in this space and there is so many robotic types of solutions. And I will say on the management program side, that is significant in terms of being able to grow a career, especially on the real estate side. You know, 30 years ago, from my view, hotel degrees were really focused on the management piece of it, which continues to be important, obviously. Now, there's a real shift to the real estate side of it, the valuing of markets, really understanding how hotels trade. So, having that foundation is highly sought after by employers more so today than it was a number of years ago.

Arun: That's great. Thank you. We have been focused on our school as well, so that's good to hear. Since you are in development, the hotels have to keep up with the times with the changing tastes and preferences of the population and people who are really traveling. The pandemic, something really highlighted this trend. So, how have you seen the hotel design evolve in response to these new trends? And obviously, is it easier to incorporate these changes in new builds rather than updating the older properties? So, how do you think that playing out?

Julienne: I would say that the significant focus these days, which was there before the pandemic, it was exacerbated by the pandemic, is the value of square footage. Every square foot in a hotel has to serve a purpose. If there's a lobby space that serves breakfast in the morning, it needs to be meeting space in the evening or breakfast in the morning, bar in the evening, whatever it might be empty, unusable space at any point during the day at a hotel is just wasted revenue, basically. So, that race to square footage is even more of a focus today. I would say in the guest room, same thing. If there's a corner of the room that isn't serving a purpose, then why is that corner there, right? We need to make sure that it's efficient and that it has a cost to build that is attractive to owners and developers. I would say on the F&B side, it's interesting because we've gone back to buffets in a number of brands, and I thought the pandemic would absolutely kill the buffet and it's not. Consumers still want it. They want to be able to kind of build their own breakfast, as an example. It's cost efficient for the hotels because you don't necessarily have to have a server. You have more of an attendee, so that keeps the number of employees down. The experience of the F&B continues to be an increase. People celebrating, people using time for personal enjoyment. This bleasure, I said it, we're 15 minutes into the podcast, I said the bleasure word. It's still a big thing, right? People are, instead of going two days to their business meeting, they're adding on a day or two. They're doing sightseeing, they're enjoying. So having that F&B component that speaks to them, that's relevant to the community that they're in, that continues to increase at all levels and all segments of the hospitality.

Arun: That has been a very surprising trend, particularly since hotel F&B has never been profitable for most property. They're just a small group of properties that can make F&B work, but now we have this increasing trend. Is this profitable now or is this seen as a necessary evil that I have to have this to be able to attract people to the hotel, but I'm willing to live with it not being profitable or even costing a little bit?

Julienne: Well, that's where the brands are most valuable and effective, is making sure that whatever ingredients we have for breakfast, we can repurpose them for the evening offering if there is one, and keeping those skews down. Instead of having 45 items, you have 25, and you figure out a creative way of making multiple things out of those items. That's really the value of the brand and on the brand to make sure that we have that. There still is a consumer expectation to have free breakfast in some segments. How to Express as an example, Staybridge as an example, and Staybridge also has an evening reception on some days during the week. There is a consumer expectation and a choice the customer is making by staying there. In-room coffee as an example. That's also a big deal. That's an expense to the hotel, but most consumers in the Express world as an example will wake up and want to have a cup of coffee in their room. If you make too many changes, then you're not satisfying the customer and what they want. We're constantly balancing what makes sense for the owner and their NOI and what's attractive to consumer.

Arun: We've been talking so much about development. The one question is about diversity in hotel ownership. This is a topic that is very important to the society. What do you think the industry and perhaps IHG specifically can do to support underrepresented groups to get a foothold in hotel ownership?

Julienne: It's interesting because we do have diversity among our ownership base. If you think about the definition of diversity in the United States, 65% of the rooms in the US are owned by Asian Americans, Indians in particular. That's considered a diverse class in the US, but they're the majority, so that's not diverse when you're thinking about hotel ownership. What's happened over the last 30, 40 years at franchising is really immobilized, or immobilized, excuse me, is it's a lot of friends and family, right? So in the Asian American community, absolutely friends and family has grown that way. When you think about other types of developers and owners, it's a broker who I know, it's a lender who I know, I'm getting introduced to this because of relationships. So we've gotten to a place unintentionally in my view, right? It's just relationships and that's how it's happened. But what's happened is we have a class of people who are not part of our ownership base, but they're part of our consumers and they're also high net worth individuals and they're investing in a lot of other types of businesses. And they have a point of view to bring to the overall ownership community. So what we've done at IHG is we've created a program called IHG Lift and it's some incentives and some support. So it's financial incentives to do deals and it's also internal support and networking among our leaders and some commercial support for hotels to ramp up.

We think that's a start. The next major hurdle though is finding funds that are interested in growing their portfolio of owners from a diverse point of view. Many funds aren't thinking about that. They're just thinking about the returns of that actual investment and aren't analyzing who the investor is for the most part. So finding that fund who is thinking about that and realizing that over the long term, that's important. The more diversity we have, the more investor pool we have, I mean it's rising tides lift all boats. So most of the major companies have some sort of program to help incentivize it. Where we see the biggest hurdle though, again, is on that lending debt side and finding that fund that will specifically focus on the growth of underrepresented owners. 

Arun: So I think we need to shine more light on the lending companies to say, give us your scorecard, give us what percentage of lending you're doing to minority owners. I know that sustainability is obviously, it's very big in the lodging industry. And I know that IHG is taking some very serious steps towards building and operating more eco-friendly hotels and is very high on sustainability. So can you talk about sustainability in the lodging industry in general and particularly what IHG is doing?

Julienne: So we launched our ten-year journey a couple of years ago where we talked about wanting to be employers of choice. So people are a company who are hiring people within communities from the community. Being mindful of water consumption, plastic usage. We went to the single use, or we went away from single use plastic and went towards bulk amenities. We were sort of first to do that. So that's been done. We have a green engage program that owners can kind of log their consumption. We're also incentivizing individuals to build sustainable hotels. We actually have one, a VOCO Hotel coming in England, which will be a zero-carbon footprint hotel, the first of its kind. So that will open, and we'll be excited to have that. When we launched Vignette as an example, which is one of our newer brands, that has a sustainability piece to it as well. VOCO does also where we have low water usage, shower heads, and things like that.

We are doing that because we think it's the right thing to do. We're also doing that because many municipalities and cities are requiring it anyway. So that's probably going to increase. I know I was touring the AC in Portsmouth with Colwyn yesterday. They own that hotel. It's beautiful. It's not an IHG brand. It's still a beautiful hotel. And they had to build it LEED certified. I believe it's gold. But that is just what's expected in Portsmouth. I don't think that's going to be the outlier for very long. They have been. They're pioneers. But I think many municipalities in a lot of countries are going to require that type of development. So it's a business. It's getting ahead of that. It's a business decision to get ahead of it. It's also the right thing to do. Our planet is suffering. I mean, it's just we've got to participate in that solution.

Arun: Any sort of analysis on solar power? I don't see that on a lot of hotels. They have big roofs and potentially a lot of ability to put solar cells.

Julienne: Yeah, we don't have very many hotels with solar panels. That's been developer driven. We do have some partnerships with local municipalities to create rebate programs if those types of developments or pieces are included in the development. We've looked at that. We've looked at modular construction, which can have a sustainability piece to it. We've looked at the use of heat pumps as an example. So there's many aspects to the prototypes that we can adjust based on what's out there. 

Arun: You know, for decades, every time I go to Europe, when I leave the room, when I enter the room, I have to put my key card in that small space right next to the door. So everything comes to life in the hotel, in my room. I have almost never seen that in the United States. So here we can leave our AC full blast and go out for 10 hours, and AC has been running. Hotel has been paying the cost, but more importantly, it's a waste in the society.

Julienne: I would say in most new prototypes, that is a requirement. It's not a big cost, so it's not something that is adding cost to the owner. It's actually saving the money over time. I think if you go into many hotels that have been built in the last few years, especially upscale hotels, that piece is there now. The downfall, though, is people will just leave their card in during the duration of their stay. Now it's better when they're not there, right, then obviously everything's going off. But I think there's some tricks there that overrides the benefit. But that is increasing in popularity here in the States, for sure.

Arun: Maybe have some sort of sensors which detect if there's nobody in the room, it will automatically make some minute adjustments.

Julienne: And they have those systems as well, and those work fairly well. Where they don't is if you're sleeping for a long time and the system malfunctions and thinks you're not there, then the AC goes off and you wake up hot. So it's coming. I think the technology is getting better, but we're not quite there yet.

Arun: I saw this technology in the 1960s in the Stratrex. So I'm sure we will reach that age soon. Here's another interesting question for you, which is, you know, when I used to travel 30 years ago, there was no online reviews. So guarantee of quality was a flag. So it's a Marriott, it's a Hilton, it's an IHG. So I know exactly what I'm getting into. And if it's an independent hotel, it's very difficult to know what it is like. Is it good enough quality even though it's more convenient for me? I don't want to take a chance unless I call up a local or I have a friend who has stayed there. So when the internet became so popular and online reviews, to some extent I thought that would level the playing field. You wouldn't need the brands anymore, but the hotel industry is going towards bigger and bigger conglomerates. More and more independents are putting up flags. So I'm just curious as to why this is happening despite online reviews, which will tell us how the hotel is.

Julienne: TripAdvisor and those types of Yelp and everything have really allowed the consumer to understand a hotel before they get there. And maybe even trust the review more than what's on the brand.com, because it's peer review and I research restaurants before I go, I see what customers are saying. So it's become significant. The challenge is independent hotels don't necessarily have consistent offerings, right? Am I going to have a flat screen TV with cable and is it going to work? And so that brand promise still means something. From the owner value proposition, we have the leverage in terms of economies of scale, right? We negotiate the lowest OTA rates and OTAs are here to stay, it seems, and they are our customers, if you look at it as a key account, but we have the ability to leverage our scale and reduce those fees where independent hotels don't necessarily. We also drive business through our websites, which is sort of the least cost of business going to hotels.

You can minimize your sales staff because you've got that revenue automatically coming in. So if there's a market, which most are, that's diversified, you've got Boston University filling the hotel, but you also have Fenway, you also have the major corporate users, you also have all the other different universities. It's not just one demand generator. You're going to want to have a brand that can sell and has master relationships with the corporate users as an example. Where an independent makes sense is where you have a captive audience. You're on an island, on the beach, and you have a name for yourself, celebrities go there, it's exclusive. Okay, maybe that is its own thing, right? There are some of those types of properties. Or you're in the middle of a campus of a college that's in the middle of a state with nothing else around it, and that is the primary driver. There's no selling to any other corporate users. It's that university, and that's it. Well, maybe you don't need a brand. So there are places where maybe the brand doesn't add value, but if there's shoulder seasons, if there's a mix of business, if there's a group sales opportunity, it's really where the strength of the brand comes in. And then I would say that that overall quality expectation still is more significant or better, I would say, at brands, broadly speaking, than independents in general.

Arun: Julienne, very well said. Strong defense of the brands. We've covered a lot of ground today, but I now would like to hand the mic over to you for the final say. Why should hotel developers be excited about partnering with IHG? What makes it the brand to build with?

Julienne: Well, we've built a tremendous foundation off of our, what we call, mainstream portfolio. So that's our mid-scale, upper-mid-scale, extended-stay base. Eighty-five percent of our portfolio in the Americas represents these brands, right? So we've got about 4,700 hotels across this region, and 85% of them are Holiday Express or Candlewood or Staybridge Suites as an example. Fifteen percent is luxury lifestyle and premium. What we've done in the last few years is we've acquired some brands, Regents Extenses, we've launched some brands like Vignette to help grow that base. And we now have 30% of our pipeline in that space. And what that allows us to do is to attract some more of the key accounts so that we have the earn and burn opportunities as an example. We've got a great hotel in Grand Cayman, the Kimpton Sea Fire. We've got more of those coming in our pipeline to help kind of satisfy that need to have that kind of experience. So when we go into any given market, we really have an open territory to build our hotels and choose the right locations. We're not trying to shoehorn the 35th hotel in the marketplace yet. Maybe 20, 30 years, that might be a challenge. Today it's not. So the ability to have the appropriate distribution and satisfy our owner returns while attracting a new customer base is pretty significant. We have tremendous amount of potential backed by a pretty large engine. We've got over 6,000 hotels worldwide. So the opportunity to grow and build is tremendous.

Arun: I hope everyone is listening. Just a couple of fun questions before we end. You travel so much and stay in so many interesting hotels and clearly you stay in non-IHG hotels as well. Can you talk about one very interesting non-IHG property that you stayed at and you like? I know I'm putting you on the spot here.

Julienne: Okay, I will have to give a nod to my former Hyatt family, many of whom I'm still close with, great people work there. The Andaz Papagayo in Costa Rica is fantastic. It's built into a hillside right on the side of the bay. I went there with my family a few years ago and we went deep sea fishing, we went hiking, really enjoyable experience, great F&B, great service culture. We felt so taken care of. So because you said non-IHG, I will give Hyatt a nod, but that is a fantastic property. And hopefully we'll have something in Costa Rica like that soon too.

Arun: Amazing. When you said you vacationed and you did all of these interesting things, are you able to keep your professional self out of the hotel or are you constantly scanning, okay, where does that mess up happening? Are he or she didn't do something properly or this design is wrong? Are you able to enjoy your vacation?

Julienne: I am able to enjoy, but I do feel obligated to talk to the management staff and say hello, even if it's a non-IHG hotel, just to recognize the work that they do. So much effort goes into creating what looks like a seamless experience for guests, especially at resorts. So I like to say hello. So I do feel a little bit like I'm at work. So I will say that about 25% of my travel is at VRBO. We do like to rent houses. And some of that is because we have six or seven people with us, right? We want a big kitchen and all of that. But I do balance my personal time with some non-hotel stays.

Arun: That's amazing. Julienne, thank you so much. It was a pleasure to talk with you today.