Part of the process for becoming a member of The Leading Hotels of the World is an interview that delves into expectations from the relationship.
When Ted Teng, president and CEO of Leading, asked one hotel owner why he wanted to join the organization, he answered, “Because I don’t want to lose my identity.”
“That’s powerful because it tells us what our mission is,” Teng tells Luxury Travel Advisor. “It tells us that the execution of what we do should never encroach on a hotel’s identity. That’s why hotels join us. It’s critical for us to help them preserve their identity.”
The hotel world has seen some dramatic mega-mergers of late, from Marriott International, Inc. with Starwood Hotels & Resorts to AccorHotels and Fairmont Raffles Hotels International (FRHI). The jury is out on how the individual hotels within these companies change, or not, but it’s clear that individuality will stand out in this new environment.
The Leading Hotels of the World is well poised to handle this scenario. It has more than 380 hotels in its mix, all with unique histories and styles of architecture; 88 percent are family-owned and nearly 95 percent are independently managed. Hotel owners take pride in their proprietorship and that’s a trait that goes way back for Leading, which will be 90 years old in 2018. Founded in 1928 by a group of luxury hoteliers who felt there was strength in joining forces rather than going it alone, The Leading Hotels of the World provides a high level of sales and marketing, and reservations services to its member hotels, which tend to be grande dame properties or newer establishments that have opted to enter the market as unique entities, rather than tying up with an established brand with standards that must be followed to a T. Member hotels, whose personalities typically reflect their destinations, also get to wear the prestigious “Leading” imprimatur, which communicates that the hotel has a commitment to quality service. To join, hotels must meet a certain high criteria and maintain it during regular quality-inspection checks.
Another competitive benefit to these independents is the Leaders Club, a two-tiered customer loyalty program that provides perks to frequent guests. That program was expanded in 2005 so that members and their travel advisors could update their travel preferences on a regular basis. This enabled hotels across the system to know more about their guests, even if they hadn’t stayed with them before.
Fast forward to 2017. Teng, who joined the company in 2008, is focusing on being even more customer-centric.
For Teng, and Leading’s portfolio of independent luxury hotels, it’s not as much about an individual trip reservation as a lifetime of reservations. It’s about moving from a customer-friendly mode to a mode that is sharply focused on that one client’s wants and desires.
“Our business by nature is customer-friendly. That’s the luxury business. We smile. We’re always anticipating,” says Teng.
“Customer centricity is about choosing a narrow customer segment that you’re going to serve, and then starting to gain insights into individual customers, not the entire segment. Customer centricity is about creating experiences for one, and it’s very different than where we’ve been,” he tells Luxury Travel Advisor.
In today’s space, the entire industry, including independent hoteliers, tends to be very product-centric, he adds.
“They’re very proud of their hotels. They’re proud of their service. They’re proud of all the experiences that they create. At the end of the day, that’s the product. To move from the product to individual experiences is not going to be easy, but I would say our hoteliers are probably best equipped to do it. They love to take care of customers. If you give them some insights about a customer, what they like, what they don’t like, they are thrilled.”
All this varies from the mindset of the more structured brand environment, he says. “What’s great about a lot of chain brands is that they’re highly efficient, highly consistent, but if you’re trying to do things individually, it takes it away from that efficiency and consistency. That’s hard for them to execute on, whereas our artistic hoteliers love to do it. They like to create original works of art, and one at a time.
“Is that efficient? No, it’s terribly inefficient, but is it wonderful when you experience it just for you? Yes. Is it easy to execute on? No, it’s not. Is it rewarding? Very much so,” he adds.
These are more than just insights on luxury. Teng and Leading are about to power up their budget, which will allow them to invest $30 million in technology over the next five years. Part of that funding comes from the very recent sale of Leading Quality Assurance (LQA), a joint venture program that carries out inspections for hundreds of hotels worldwide.
“We sold it for $24 million, and our 55 percent came out to be a little over $13 million,” Teng tells Luxury Travel Advisor. “That was a milestone in the sense that now we’re completely out of joint venture investments and other businesses. It was a big payday in terms of the money we generated.”
That funding will be coupled with revenue from Leading’s new business model, which requires a down payment from members. “Even though we run [Leading] as a break-even business, this will generate $2 million a year in free cash flow,” notes Teng, reiterating, “We’re going to have $30 million to invest in technology in the next five years. We have never had that kind of resource. It’s a huge milestone.”
Hotel Cafe Royal in London is an example of a Leading hotel with a contemporary view of luxury. Living room of the Dome Suite is shown here.
Expanding on the company’s structure, Teng explains: “Leading is 100 percent owned by 65 of its members. They elect the governance of the company, and that makes us unique because we are not a for-profit company. We operate at a break-even and reinvest everything back to the company, which means I have zero cost of capital, and we’re very aligned with our owners and customers. It is a two-edged sword to have your customers as your owner because you don’t have a lot of pricing power. They don’t want you to be so successful in generating revenue from them. But overall, it’s a real blessing.”
Leading’s landscape has changed dramatically since Teng took the reins in 2008. Teng says his first milestone was the acceptance of the five-year business plan he presented to Leading’s board of directors on the 99th day of his tenure.
“It was a business plan around fixing the company from a quality standpoint, from a revenue-generation standpoint and from the standpoint of our relationships with our hotel members. It was also about fixing the joint venture distractions,” he says, referring to the brand extensions past management had launched, which created entities such as Leading Group Sales for meeting planners, Leading Marketing Services, Leading Financial Services and Leading Quality Assurance.
The next milestone came in 2013 when the five-year plan wrapped up. The results? “We drove revenue growth at twice the rate of market growth for that period of time. One reason we were able to achieve this was that we were underperforming; we were be able to recover in a fairly difficult period of time, during the recession.”
Leading’s quality scores went up from 78 percent in 2009 to 85 percent in 2013, based on LQA inspections. Over that time, all of the joint ventures except for LQA were eliminated or incorporated into Leading’s core business. “We reinvested in everything, from the directory to the brand logo and we reinvented the Leaders Club,” says Teng.
Over Teng’s tenure, Leading’s membership changed quite a bit. When he joined, there were about 480 hotel members; two-thirds of those hotels are no longer part of the portfolio.
“The composition has changed a lot,” asserts Teng. “The quality of the portfolio is significantly better than what it was.”
He says insights as to what makes a hotel a successful “Leading Hotel” were also put in to effect.
“We found that the business model of The Leading Hotels of the World really fits well with true individually branded hotels. We also found that it works really well with family ownership versus institutional ownership and also hotels with other chain affiliations.”
He points to the fact that 88 percent of Leading Hotels are family-owned and have been so for generations.
“Our chairman, Andrea Kracht, is the sixth generation proprietor of Hotel Baur au Lac in Zurich,” he notes. “The Baur au Lac has been in his family for 160 years. That’s a long time.”
Teng says Leading’s portfolio tends to skew half resort versus city hotel and that the average number of hotel rooms has gotten smaller (down to an average of 145), although rooms are getting larger in the newer hotels and color palettes are getting lighter for hotels that are renovating.
“Guests are very understanding of historic properties because they realize you can’t really change things, but more and more customers have homes that are very spacious and when they travel, they like to have a similar experience,” he says.
“We’re down to about 145 rooms per hotel on average and most hotels only have a single affiliation with us now,” says Teng, noting ownership is still predominately in Europe although inroads are being made in Asia.
Who owns the hotel you’re staying in makes a difference, says Teng, particularly as it relates to customer experience.
“The chain brands are great but in the sense of global consistency, they tend to move their managers around. These managers know the brand system very well, but they don’t know much about the local market, the destination market. Our hotels are mostly family-owned and the family tends to hire managers that know something about the local market. There’s affinity for that, an ‘I know your family’ kind of thing,” he says, adding that local managers relate better with local employees and so those employees feel more at home delivering that experience.
The result? “Customers get that authentic local experience,” says Teng.
While grande dames and iconic properties might immediately come to mind when you think of The Leading Hotels of the World, new-builds are most certainly welcomed into the system.
“We have made a conscious effort to look for hotels that represent a newer, younger view toward luxury,” says Teng. “The Greenwich Hotel [in New York] is a great example of that. It’s not the traditional grand European hotel. What we find is that the definition of luxury is now much broader. There’s a desire for a certain casualness; there are a lot of people who do not like a formal setting. Café Royal in London is a good example of a more contemporary interpretation of luxury. It’s reflected in the design. It’s reflected in their services. It’s reflected in their staff. For us, it’s also a way to reach the younger generation in terms of customers.”
Badrutt’s Palace in St. Moritz is a grand dame, an icon and a fixture in its community.
At the same time, Teng is careful not to classify the younger Millennial generation as all wanting the same things.
“We don’t just look at age groups, we look at the frame of mind, how people see the world. We see more and more that people are interested in a casual lifestyle, but are still very elegant,” notes Teng.
As a result, Leading is broadening its portfolio to include hotels that present themselves with a more modern twist.
Some could argue this makes the standards that Leading requires of its hotels even more important and Teng says that today, 80 percent of the company’s standards are based on service rather than the facilities. Those standards will continue to evolve to include the emotional intelligence employees use to assess their customers’ needs.
Emotional intelligence could mean that before hotel staff answers a guest’s question in a standard manner, they’ll consider first who is asking the question, says Teng. “That is an individualized approach. One can argue, ‘Well, that’s a standard.’ Well, no. A standard approach would be to respond to that question the same way every time. That’s called consistency. The service strategy of not answering the question until you know who is in front of you is a very individualized approach and it calls for a certain amount of discretion and a discernment that the standard approach doesn’t take.”
And while some might simply call that empowering the employee, Teng argues that it’s really about individualizing the experience for each customer. “That’s going to be a lot harder to deliver on than delivering on the standards,” Teng says.
It’s also important to note the context in which the question is being asked. “Someone asking a question who seems to be in a rush is very different from somebody who seems to have all the time in the world,” he notes. “We’re in the process of developing a certain theme as to what our service strategy is and then developing the execution of that at our hotels as well as at our corporate office. It’s an exciting time. I think it will help us continue to differentiate and execute all these individualized experience spaces, but it’s not easy.”
Along these same lines, Teng feels that too much attention has been paid to the consumer’s booking channel than to the consumer themselves.
“It’s important to get back to where they’re coming from, why they are traveling and where they want to go. Probably more importantly, what’s the experience they’re looking for? That’s the critical part that in the world of booking channels we start to lose sight of,” says Teng. “We’re trying to help our hotels refocus on their long-term success in terms of what experience people are looking for and how we can deliver that to them individually. That’s a critical part of what we need to do. It’s not that we don’t need to compete in terms of the booking channels, but there’s just too much noise dominating all the conversation.”
A very important distribution channel to Leading is the luxury travel advisor market because in the five-star market it’s all about expertise selling, says Teng.
“Luxury travel advisors know their customers. If you think about it, a travel agent is not part of our sales force, they are an agent for their principals. A travel agent is acting on behalf of their clients’ best interests. They know their likes and dislikes and they are trying to match them up with what’s best for them. We should never forget that. We serve these agents by presenting them with our offerings so that they can choose what’s best for their principals.”
An Unlikely Candidate
When Ted Teng got a phone call from a headhunter 10 years ago who said they were looking for a CEO for The Leading Hotels of the World, his reply was a tad sarcastic. “Well, I’m not sure I’m the right hotelier for The Leading Hotels of the World,” was his reply. “To tell you the truth, I don’t own a Brioni suit. I probably couldn’t order wines in your restaurants and wouldn’t know the silk content of your wallpaper.”
Teng says the headhunter had a similar sense of humor and replied, “Don’t worry, Ted. We have plenty of people like that.” He told Teng Leading was looking for someone to lead from the business perspective, to bring the company into the future.
That intrigued Teng, who had gone to Cornell Hotel School and worked for Sheraton for 14 years in North America, Hawaii and Hong Kong. He left to join Westin when it was still an independent company, and ran its Asia-Pacific division for two years. When Westin merged with Starwood he ran Starwood’s Asia-Pacific region and then returned to the United States to run Wyndham International out of Dallas when Wyndham was still a real estate company. When Wyndham was sold to Blackstone, Teng took a few years off and was contemplating starting his own business when he got the call about Leading.
Villa D’Este on Lake Como is a gem in the crown of The Leading Hotels of the World.
From the beginning, Teng knew where he could contribute and where he would need to learn. He had a global perspective, knew plenty about chain brand strategies and sales and marketing and distribution.
“What I didn’t know very well was the luxury segment and about independent hotels and the European business,” he says.
In the end it all worked because he came in without a playbook; rather he took time to study the company and ask a lot of questions.
“What I got was the benefit of very generous hotel members and staff who shared with me the things that they were proud of, things that made them happy and also things that they were puzzled about; that they didn’t understand and concerned them. I got very good feedback very early on and that very rich feedback allowed me to develop the five-year business plan pretty quickly.”
The timing was interesting. Teng joined Leading on September 1, 2008, and two weeks later, Lehman Brothers went bankrupt and the U.S. economy began sinking fast.
Ever the optimist, Teng decided, “Well, there’s nowhere but up now.”
Coming up on 10 years later, Teng says Leading has been a remarkable experience. “The hotels are amazing,” he says. “When you’re sitting on the veranda of the Villa d’Este, looking at Lake Como and thinking about the Romans who used to vacation there…we have many, many places [like that].”
And while the facilities are incredibly enjoyable, Teng says the experience that’s been the most enriching is spending time with Leading’s hoteliers.
“There’s no question in my mind that these are true artists,” he tells Luxury Travel Advisor. “They’re creators. They’re inventors and passionate, committed to the business and totally focused on delivering the customer experience. They’re different.”
As someone who has spent a lot of time with chain brands, Teng is the first to say they’re very efficient, and deliver on their set standards, but at the end of the day, there is nothing like the independent hoteliers in the Leading portfolio.
“They are beautiful human beings. They are hundreds of different personalities. Sometimes it is like herding cats, but it’s okay. That’s what makes them great at what they do. They’re noncompliant. They’re not about being the same. They want to be different. That’s the beauty of it.
“Our job is not to rein them in and control them,” says Teng. “Our job is to let them loose, but build a framework around them to support them.”
Bottom line? “[The experience of being with The Leading Hotels of the World] has been way beyond what I thought was possible,” says Teng.