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The day before another hotelier was elected to the highest office in the U.S., Skift traveled north to Toronto to meet with Four Seasons Hotels and Resorts president and CEO J. Allen Smith to talk about the challenges facing the luxury hotel market, and what lies ahead for the future of hospitality.
More than three years into his role as president and CEO of the storied luxury hotel company, Smith has endeavored to grow the Four Seasons brand with a uniquely singular focus on differentiating the Four Seasons brand within the luxury market.
When Smith joined, the company had less than 100 properties and today, it has 101 in 42 countries worldwide, with more than 50 projects in development. In the years since his appointment, Four Seasons also launched the Four Seasons Private Jet and the Four Seasons mobile app. The company’s latest development is a Research and Discovery Studio, of which Skift got a firsthand tour during our visit.
What follows is an edited version of our interview with Smith.
Skift: Are you paying a lot of attention to what’s happening with Brexit or the U.S. Presidential election?
Allen: I would say yes, we of course pay attention to those things. I think part of it, again, is you ask yourself what can I do about it. I can vote, so I’ve done that already. In the U.S., I think, right now where you see it, the short-term impact, in terms of the election just seems to have caused any number of people to take a pause, to figure out what’s going to happen. What are we going to be faced with come tomorrow night?
Regardless of who’s in office, if you think about the U.S. it’s an incredibly important market to us because of the size of our portfolio in the United States but also because the United States is the single largest source of room night demand for us globally. It’s a very important market for us in that regard so therefore among the most critical for us is how the economy is going to do.
Right now, as we come to the precipice of this election, the economy is generally okay. I know there has been a lot of partisan bickering about what the state of it really is but the most recent jobs report was generally favorable, and unemployment is reported to be around 4.9 percent, which is pretty low. Growth is predicted to be between 2 to 3 percent for the foreseeable future and so that’s a prescription that is generally OK for us in the U.S.
The other piece is the economy needs to continue to be favorable. That’s a big one. Also just the geopolitical outlook needs to be as stable as possible and we’ve seen the impact that terrorism has had in a number of places. Terrorism and political disruption have impacted a number of our properties around the world and, as you know, this is a business that responds instantaneously to that. Having an administration that fosters stability, globally, is also a good thing for our business.
I wouldn’t say there are any obvious immediate things I’d point to and say, “Wow this election has caused this today,” but hopefully we’ll have clarity tomorrow. People will have confidence in sort of the way it’s moving forward. Confidence is a big part of what matters in terms of how people behave.
Skift: What are the cornerstones of a luxury hotel experience today?
Allen: I think that the real key to the way in which luxury is going is very much about personalized service. It basically implies that you have a deep understanding of what you want individually. That is a critical piece that we’re continuing to move toward. Understanding your guests implies you know a lot about them. I think that in many industries, not just the luxury hotel business, the discussion of big data is all about having information about people’s habits and preferences that allow you to serve them better, regardless of what business or venue that is.
Ultimately we’ll see that people will look for ways in which we can continue to add value to their entire experience of travel. It’s not just confined to the walls of the buildings that we manage. It will be, “How can you enhance my experience from when I leave my home to when I return?”
I think part of what is interesting about all that is that some of the dominant themes in the broader marketplace have been about consolidation. Marriott buying Starwood, Accor buying Fairmont, and so forth. In the luxury segment, you know the big players have, in many cases, multiple brands, they’re very large, you know, that sort of thing.
I think our opportunity in that context is to be very focused on one thing, namely serving the luxury consumer but also continuing to focus very much on those themes of authenticity of the buildings and the properties that we manage, to the locations that they reside in and then also this notion of this very personalized form of service that can’t be automated.
It can’t be commoditized. It’s about having really well trained people who have great judgment. And having high levels of emotional intelligence because we’re not doing things by script, we’re not doing things by rote. We want to engage you as an individual and provide what you need while you’re there. There isn’t a playbook for that.
We can train people in certain things, but I think part of what distinguishes Four Seasons is the scale in which we operate: over 40 countries, over 100 hotels, the consistency with which we’re able to do that is among the highest in the industry and is really impressive. And that’s what people think of us for.
Skift: How do you offer personalized service and luxury without having a formal loyalty program to collect that big data?
Allen: I think what we’ve concluded is that, for our guest, the loyalty programs are defined by “I accumulate points and then I get something of value for that that I can redeem.” Truthfully that’s not what our customers are looking for. Our customer is looking for recognition: know who I am, and provide personalized services to me.
That’s really what they’re looking for so today, frankly if you define it that way that’s something we’ve done really well. For our best customers we know who they are and in many cases we have in effect affiliated them with someone within Four Seasons that will facilitate their reservations in other properties, movement around the world, whatever the case may be. As they go from property to property, people will know who they are.
We have more work to do in this regard. That piece is about the value proposition we’re delivering to our best guests. It’s that notion of recognition and that level of service it probably takes more work than just mining a big data warehouse but it’s a combination of both a data-driven approach and an observed approach in terms of knowing what they want and how they want to be served.
Skift: What do you think of Hyatt’s move to re-engineer its loyalty program to cater more to upscale or luxury types of travelers?
Allen: To tell you the truth, I haven’t heard the details of it so if you want to tell me the details I’d be happy to respond.
Skift: Hyatt announced they are replacing their current loyalty program with a new one called World of Hyatt, which has three tiers where there were only two before. With the new program, you need to stay more to qualify for the elite tiers so it is rewarding people who spend more with Hyatt. There’s been a lot of discussion about it and not all Hyatt loyalty members are pleased with the changes.
So many in the industry are wondering: Do you craft a program that rewards people who are focused on points and earning free stays or try to engender a purer form of loyalty?
Allen: For us, it is a business and how much someone spends with us is a reflection of their loyalty. I know people want to cloak it in other terms, but that is an important dimension of it. I think, given that all we do is focus on the luxury segment, many of our guests regardless of how much they spent with us have the same expectation for how they will be served.
The other thing that is sort of interesting to me about the concept of loyalty in this business, and it’s something we’re working hard to address and build the loyalty of our guests to Four Seasons. We have a segment of intensely loyal Four Seasons customers who, they will tell me, when they travel around the world they will only stay with Four Seasons.
Or they will even choose destinations based on whether there’s a Four Seasons there. That’s phenomenal and we go to great lengths to reinforce that group of people. There’s also a large segment of people that have very high awareness of the brand and have very high awareness of The Ritz-Carlton and many of our other competitors, but they don’t have a strong preference. It’s very situational. In Paris, they stay with us, in London they may stay with someone else, and yet they’ll perceive themselves as being relatively loyal to us because whenever they go to Paris they always stay with us there.
Part of the opportunity is to convert those people to expand their quote “loyalty” to us to the other destinations in which they travel. That just comes from providing the right kind of value to them. Part of it though is that this is a funny business because people make their decisions spontaneously, especially, I think at our end of the market.
It can be very idiosyncratic. It can be “I really like this neighborhood, I really like this part of London, I really like the bartender who knows my name and favorite cocktail.” Sometimes it can be situational loyalty, but it doesn’t mean they aren’t a great customer of ours.
Skift: Where do you see the evolution of the high-tech, high-touch approach headed?
Allen: I think there’s just this seamlessness with which it will occur. I was in China and I had a tour of the Alibaba campus, which is amazing if you ever get the opportunity. One of the things that struck me was they were pointing out how everything is done on people’s smartphones, laptops. I basically just skipped right over that but, for one thing, these devices, they already are everywhere but they will become even more so in terms of integration, in terms of how service delivery occurs.
The other thing for us is that the technology there is in the service of the guest and the sake of enhancing their experience. For us that means giving people choice of how they are served. The technology will be there and it will be available and if that’s how they want to engage with us they can. If there is someone who likes to be recognized by the doorman, they want their baggage carried for them, they want to be greeted at the front desk, that’s fine, we’ll do that too.
Part of it is, for us, that technology, for one thing, enables better service, and it also should enhance our ability to understand our guest. It’s not there for the technology’s sake. Keeping that into perspective is always important.
Skift: What are your thoughts about the next generation of luxury travelers?
Allen: Part of it is we think of the customer we’re trying to serve as sort of a modern luxury traveler. As opposed to it’s the Millennials or it’s this or it’s that. Generally, for people to frequently stay at our hotels it implies a certain level of economic wellbeing. That is one part of it.
Interestingly though I think many of the elements that we find of appeal to a Millennial audience are also appealing to people of my generation.
Skift: Everyone says they have this Millennial mindset these days.
Allen: I think that’s part of what is interesting about it. Is that you have people like me that very much appreciate that mindset so I think we’re trying to be conscious, spending more time focused on the Millennials not because we’re going to have a Millennial product, but because being attuned to how their needs change over time is going to be very important and may inform how we continue to evolve our service offerings.
As an example I’m sure you’ve heard of Alipay. I think that is a form of payment that is widely used in China and especially among a certain demographic. Give that demographic five years or perhaps less and their expectation will be that will be the form of payment available to them. It may not be at this moment in time, but it will be soon and so being responsive to that ends up being important.
Skift: What are your thoughts on this current crop of lifestyle hotels that we see? So many of them, like Equinox for example, seem to want to marry lifestyle and luxury together? [Note: Chris Norton, who had a long tenure with Four Seasons and was recently promoted to COO, left the company in August to become the new CEO of Equinox Hotels.] Do you think Four Seasons would ever have its own lifestyle brand?
Allen: If you look at one of the things that’s unique about our company, is because of the uniqueness of all the hotels we operate we have hotels that if you were to say take off the name of Four Seasons and you walked in, you’d say wow this is a cool lifestyle hotel, if you spoke that way. I think the breadth of the character of the properties that we manage, we have properties that fit that profile, but I think in many respects what the lifestyle, in my mind, has been a response to is this desire for things that aren’t commodities, they aren’t cookie cutter, they’re very unique, there’s a strong emphasis on design and food and beverage and that sort of thing, and that is something that is common across the marketplace.
People aren’t going to necessarily call us a lifestyle brand because they think of smaller boutique type players as the ones doing that. On the other hand, we have many of the elements. It’s just that we happen to be an established brand. It’s a very competitive market. There’s lots of opportunity for people to enter and with new variations with the theme and Equinox is an example.
The themes around wellness and fitness and the culinary side, you can find all of those themes in our hotels today. I think the packaging may be a little different but all those things are present.
Skift: Do you think Four Seasons has enough scale or are there possible mergers or acquisitions in its future?
Allen: Our growth is really in two principal ways. The development of new projects and the other way in which we are growing is by converting existing hotels into Four Seasons hotels.
This year, for example, between the delivery of newly built hotels and the conversion of existing hotels we expect to open nine hotels in the year. Compared to Marriott, Hilton, and those guys, that’s like a rounding error but for us it’s a significant number. It’s the most we’ve opened in a single year. We don’t have a target, like a unit count target that we’re trying to hit. In our case, the quality of the growth is critical in maintaining the integrity of the brand.
If we look at the pipeline of projects we have, it’s split almost equally a third, a third, a third among the Americas, Europe, Middle East, Africa and Asia. I think we will continue to grow at a healthy pace. For us, because we’re not in the commodity business we have to always make sure these properties meet our needs both in the terms of the quality of the market and the quality of the developer we’re working with, and the quality of the building.
Skift: Would you ever add a brand that’s not luxury?
Allen: We don’t have any plans to do so now. We view our opportunity to be focused on what we do, which is serve the luxury segment both in luxury hotels, resorts and residences. Especially, if you think about someone like Marriott who now, across their company, has 30 brands. They’re the largest operator of what would be considered luxury hotels with eight different brands, they’re obviously a formidable competitor. In some respects, they’re approaching the business in a way that’s very different than we are. Their strategy is about distribution across many different segments and they’re a terrific company and they do that really well.
We’re about serving one segment and doing nothing but that. I think, for the luxury consumer, the manner in which we are able to do that will matter over time. I think we’re going to be able to continue to do it, again, at the scale we do it, better than anybody.
Skift: I know you mentioned one thing about controlling or having an impact of the guest experience beyond just the four walls of the hotel. Four Seasons does have its own jet, for example, and next week, Airbnb will be announcing its foray into tours and activities. Do you see this hospitality trend continuing?
Allen: You mentioned the jet. I think one of the reasons that has been so appealing to people who have chosen to do it is because it’s an end-to-end Four Seasons experience. Everything has been thought of from the moment they leave their home to the moment they come back, and everything between and that for those people is very appealing.
If you look at this cycle of how people make decisions about how they’re going to travel and where they’re going to travel, we want to do the best we can to make sure we’re present in their decision making process as early as possible and that we help enable them in realizing that whatever they want to do. So we don’t have the precise blueprint yet on how we’ll execute that but I think it’s a natural extension, frankly, many of the things we do for them already in a more informal sense. But finding ways to better institutionalize that is certainly something I can imagine us doing.
I think part of what’s going to be interesting to watch with a group like Airbnb is they have extraordinary financial resources to devote to exactly that sort of thing and they will continue to evolve their business offering in ways people may not have been able to foresee but they will be very formidable, I’m sure, when they do.