NEW YORK—With a new brand on board and a new—but known—CEO at its helm, the British battleship that is IHG sees nothing but smooth seas ahead as it sails toward 2018.
Leaving behind the rainy weather engulfing the mega-chain’s global headquarters in Denham, England, recently elevated Global CEO Keith Barr was here in Manhattan earlier this month enjoying some late-summer warmth and eager to discuss his plans for steering IHG in the years ahead.
Most recently the company’s chief commercial officer, Barr is no stranger to its ethos. A 17-year veteran at IHG and a member of its executive committee, he has held senior executive positions across IHG’s Americas, Asia, Middle East, Africa and Greater China regions, serving for four years as the latter’s CEO. Barr was named chief executive in May following Richard Solomons’ decision to step down from the post June 30 and retire from the company August 30.
From his new C-suite vantage point, Barr indicated he likes what he sees.
“IHG is clearly one of the leading companies in the industry with our strong portfolio of brands and a really unique geographic distribution. We’re arguably the most global hotel company out there,” said the CEO. “We clearly have very, very strong business here in the Americas, but also a growing business in China—a really strong distribution around the world. We’re very focused on offering a portfolio of brands that’s highly differentiated, consistently delivered, global in scale and really well positioned for growth going forward.”
Barr noted IHG has 5,200 hotels open, representing some 800,000 rooms and 1,500 in the pipeline with 250,000 rooms under development. Of those, IHG owns eight, a testament to former CEOs, Solomons in particular, whose goals were asset light.
“So it’s a big business that’s continually getting bigger. And our share of the supply of the industry is growing versus our historical position, so we’re increasing our supply share by three times our existing estate. The industry is getting more branded and we’re gaining more and more share of that branded pipeline, too. So it’s a well-positioned company today with a sharp portfolio of brands that continue to accelerate growth around the world,” said Barr.
While having such mass might make other hotel companies envious, Barr observed such growth—and deciding how to do it—is not always easy.
“That is probably one of the biggest challenges a global hotel company faces: How do you prioritize your resources and how do you focus your growth?” said Barr. He noted he and his executive team look at the scale of the lodging opportunities available, notably in the United States and the growing market of China, as well as the U.K., Germany, Middle East, India, Southern Asia, Australia and Japan. “Those are the real big profit centers that exist around the globe. So what are the right brands to bring to those markets? What’s the right go-to-market strategy because they are very, very different? The way that you operate in Japan is different than Germany; the way you grow in China is different than the way you grow in the U.S. You have to be very clear about what your operating model is going to be. Are you going to be in a franchise business or a managed business? Are you going to focus on scale, where you want to launch brands like Holiday Inn Express or are you going to focus on key cities where you might only want to have InterContinentals, Crowne Plazas and a few Holiday Inns? So it’s been very targeted. You can just chase growth and it can be very unprofitable and also not very sustainable. When I work with the executive team, it’s really mapping out the profit pools around the company and making sure we have the right go-to-market strategy for each one of those,” said Barr.
Asked if areas like South America—where InterContinental Hotels was launched in Brazil in 1949 by Juan Trippe, the founder of Pan American Airways—or Africa are on his radar as well, Barr acknowledged select parts of Africa “are quite interesting” but the company has not been as focused on those as it’s been focused on Asia, the Middle East and China “because we see big opportunities there.”
Mexico and key cities in Latin America also are on Barr’s checklist. “We’re just being very focused on where we can grow our brands profitably and create value for our owners,” said IHG’s CEO.
Since taking on the position, Barr has been traveling around the world meeting with various regional teams and speaking to owners, getting their input on advancing the company.
“I know the ‘plumbing and the wiring’ of this company exceptionally well. I know what we do really well, but we can get better,” said Barr. “I don’t believe [I] can learn that by sitting in my office in Dedham. You have to go out and talk to our owners and ask: ‘What are the things that are the pain points that we can do better? What are the opportunities for growth?’”
He also stressed the importance of talking to the teams who are in the trenches each day and asking: “What’s not working really well? What can we do better? How can we be faster at doing these things?”
“I’ve done four town halls in the past three weeks and spoken to 1,200-plus colleagues/managers around the company,” said Barr, all the while looking for input and suggestions.
The CEO said he was surprised at just how positive a reception he received regarding his appointment and was touched by the boatloads of emails and texts that said things such as, “It’s great to have someone who knows China in the role”; “It’s great to have someone who knows brands in the role”; and “It’s great to have someone who’s actually been a general manager in the role.”
“People have been looking at me saying: ‘You get what we do. You get what we do well and the challenges we have.’ It sets pretty high expectations, though, because everyone’s convinced I’m, of course, going to solve their issue tomorrow. So my job as chief executive is to prioritize about what we lean into first and how do I galvanize the company behind those things that will really accelerate our growth and drive performance,” said Barr.
One of the things at the top of the list is getting traction for its latest brand introduction, Avid Hotels. Positioned as a midscale, new-construction franchise entry, the launch is in reaction to what Barr characterized as an “unmet consumer need.”
The CEO said IHG surveyed what he called the mainstream segment in the United States “and we recognized there was about a $20-billion revenue segment—about 14 million customers—who are currently being underserved by existing brands. And actually, these customers aren’t staying in our existing estate,” Barr acknowledged. “So we recognized a big profit opportunity, a big source of customers who are unhappy. How do we build a customer experience and a brand that can meet that, and that’s [where]the birth of Avid Hotels came from.”
IHG has coined the denominator “Principled Everyday Traveler”—hardworking Americans who basically don’t want to overpay for hotel rooms—as a reference for who would embrace Avid Hotels.
“Saving $10 or $15 a stay for this customer really means a lot because it adds up over a year. It might be $500, $600, $1,000 they save…and that might be the family holiday budget,” suggested Barr.
When it was noted Holiday Inn Express seems to fit the same guest profile, Barr characterized Avid as a simpler product. “The guestroom is smaller, so you’re looking at 230 sq. ft. to 270 sq. ft., where a Holiday Inn Express room is about 330, 350 sq. ft. Breakfast isn’t a full offering, so it’s not going to be eggs and bacon and sausages; it’s going to be grab-and-go. So it’s a much more functional experience overall—design-led and clean rooms that we can charge a lower price for, and it also makes good sense for our owners,” said Barr.
He noted conversion opportunities would only be considered in urban areas where there is the potential to repurpose an existing building.
The FDD is in place and Barr said there had been 150 letters of interest. “People are queuing up right now to do this brand,” he said.
Cost-per-key is tagged at $85,000-$90,000 (excluding land), which is below Holiday Inn Express, with a footprint of 1.5 acres, about an acre less than HIEx.
“It gives you more flexibility on sites, lower cost to build. So our existing owners who own a Holiday Inn Express, a Candlewood [Suites], a Staybridge [Suites] are now saying: ‘I’ve got a great site in this market where I want to put an Avid,’” he said.
With agreements being signed now, Barr realistically expects the first Avid to open in 2019. “But I would love to see something late 2018,” he added.
Some industry observers have been curious about the track for Kimpton Hotels & Restaurants, which IHG acquired in January 2015 for $430 million, and how the company is wrangling the seminal boutique brand.
“We’ve actually been doing quite a bit around Kimpton in terms of the pipeline,” said Barr. “We’ve opened up Grand Cayman, just had the grand opening of Kimpton in Amsterdam. We signed in Mexico, in Paris. We’re about to announce signings in Asia-Pacific. We’ve really been beginning to accelerate the Kimpton pipeline. Candidly, we’re feeling our way through the first year, understanding such a unique brand and a way of working. How do we make sure we don’t kill it off? And find a way to scale it up globally? We’ll be fully integrating from a distribution and a loyalty platform beginning of 2018.”
In contrast, the path from deciding to add Avid Hotels to inking agreements took about 11 months and Barr wants to see more such “speed-to-market” on his watch. “We need to be very decisive about what we’re going to do and quickly go into market,” he said, noting in the past IHG’s done “brilliant things,” but took “a bit too long to debate them and make some of the decisions. I think we have to be a little bit bolder, a little bit faster. Continue to look at how we round out the brand portfolio, because we have white spaces in our brand portfolio, either through M&A or new-brand development or through partnerships. So really focusing on a growth agenda and accelerating our growth.”
And fueled by a balance sheet Barr described as “incredibly strong,” it’s apparently full-speed ahead for IHG. HB