Suite dreams: Rocco Forte has finally emerged from the shadow of his father, with the City giving the nod to his plans for streamlining Britain's biggest hotel and catering group to fit his own vision. Nicholas Faith reports

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The Independent Online
THERE WAS a distinct air of scha denfreude at 166 Holborn last week. The clouds over the headquarters of Forte, the biggest hotel group in Britain, had miraculously cleared, thanks not so much to any act of Rocco Forte, the group's executive chairman, as to the feet of clay now revealed by two of his main rivals - the Savoy and Queens Moat.

The Savoy reported its first-ever loss 10 days ago, while Queens Moat is in breach of its banking covenants. In comparison, Forte looks relatively sound, giving Rocco confidence that he has successfully stepped into his father's shoes, and has survived the attacks of the past few years, some of which - like the fact that he has not inherited his father's talent as a deal-maker - were fairly well founded.

Last week's results marked a further decisive step in reshaping the group in line with his ideas, which in many ways are a marked contrast to those of his father, Charles. The son is prepared to run Forte less autocratically and is itching to streamline the magpie collection of assets he inherited into a far more focused company, concentrating on groups of branded hotels and chains of roadside restaurants.

Gone are the days when Rocco appeared to be a slightly ineffectual, somewhat remote Prince Charles clone. The new Rocco Forte has rolled up his sleeves and got down to the job. He admits to copying his father's legendary habit of rummaging around in his hotels' kitchens - 'You can tell a lot from the state of a fridge. Some people are afraid of kitchens, but I'm not. I've worked in them.'

Rocco began the break with his father's regime, appropriately, in the boardroom. The board had been dominated by Lord Forte's veteran friends, such as the octogenarian politician Lord Thorneycroft. These have now gone, and Rocco has been in sole charge since last October, when his 84-year-old father moved upstairs to become president.

To counter criticism that he combines the roles of chairman and chief executive, he brought in as non-executive directors two of Britain's toughest businessmen, Sir Paul Girolami of Glaxo and Sir Anthony Tennant, formerly of Guinness.

He sees these appointments as a first step in reorganising the group's management structure, which still reflects the autocratic tradition built up during his father's 60-year reign. 'Non-executive directors aren't there to police the executives, they're there to work with them to see the longer-term view if the executives get too blinkered. And I don't believe that you can have a strong executive chairman and a strong chief executive. They can't work together in the long run.' That is a tacit admission that he could never be truly in charge while his father was chairman.

'I hope to appoint a managing director in due course, probably within the next couple of years, and to bring in more executives from outside,' he said.

He will need help to prove he can make money from the business. Without the bad news from the rest of the sector, last week's figures would have looked pretty terrible. Pre-tax profits before exceptional items were virtually unchanged at pounds 72m and the dividend was reduced, albeit by less than the market had feared. Even more important, the cash flow is clearly insufficient to match the group's ambitions without considerable further sales: allowing for the dividend, and interest payments of pounds 129m, Forte had to draw heavily on the net pounds 297m from disposals, most obviously from Gardner Merchant, to meet the pounds 196m needed to refurbish and improve Forte's hotel portfolio.

Yet the market obviously believes Forte looks sound next to many of its competitors, and marked the shares up by 13p in response.

From Rocco Forte's point of view, the past fortnight - particularly the suspension of Queens Moat, the group's most energetic young rival - has been something of a vindication of his strategy. In the past couple of years, Queens Moat had been held up as a model that Forte ought to have followed. Queens Moat, the theory ran, had a strong presence on the Continent, particularly in booming Germany, while Forte's hotels were largely concentrated in recession-hit Britain and in the United States, where competition is notoriously severe. In Britain, Queens Moat had devised a management incentive system that appeared to have protected the group from the worst effects of the recession.

Then came the revelation that Queens Moat had booked as profits the revenue it hoped to achieve from the targets it had set its managers. The group is in financial trouble as a result.

As recession hits Germany, Forte's concentration in Britain suddenly looked fortuitous. The outlook in London, where the group is heavily involved, is more promising than for years past. As Frank Croston of Pannell Kerr Forster, the hotel consultant, said at a recent hotel conference: 'The yield per room has declined by nearly a quarter between 1989 and 1992, and profits per room by a third. But despite some increase in supply there will be a steady recovery, helped by devaluation, and yield could be above the 1989 figures by 1995.'

Even in the British provinces, Forte's marketing efforts are bearing fruit. Like the group's sophisticated corporate advertising campaign, these were characteristic not so much of Rocco himself, but of the team that helped him to define and tackle objectives.

Rocco had a difficult act to follow. Lord Forte was responsible for building the biggest catering-cum-hotel business in Europe from the small chain of ice-cream parlours / sandwich bars built up by his father. 'Charlie' Forte is a strange mixture, his heritage of Italian puritanism combined with a love for the good things of life. He retains his image of himself as a poor Italian immigrant; confronted by the proposition that he was the model for Basil Fawlty, he prefers to compare himself with the volatile Manuel (whom he physically rather resembles). He returns every year to a hero's welcome in his home village, where there are 600 other Fortes.

Not surprisingly he has the successful immigrant's new-found passions: farming, golf and shooting, collecting Meissen china and the paintings of L S Lowry.

Above all he is a patriarch whose life revolves around the family he dominates. As one old friend put it: 'He's succeeded in 20th-century business with the mind-set of a 19th-century entrepreneur, combining paternalistic Victorian values with a set of ideals.' Lord Forte himself once said: 'My motivation in business is a sense of protectiveness towards the family.'

It was in 20 years after the Second World War that Lord Forte revealed a formidable talent for spotting business opportunities and homing in on them. His appetite was omnivorous. Around Piccadilly alone he bought the Criterion (and Lillywhite's department store) and the Cafe Royal - for a mere pounds 170,000. In Paris he bought three leading hotels (including the Lancaster) for a derisory price from a well-heeled widow, the Frederick group in London at a price which worked out at pounds 2,600 a bedroom (a hundredth of the figure reached a couple of years ago) and in the early 1970s he snapped up 32 more hotels from a cash-strapped J Lyons for pounds 27.5m - only pounds 7m of which was in cash. These successes far outweighed the bad deals, such as his return to his roots as a purveyor of ice-cream (remember Mr Whippy?)

But in the end the spread was too great to be manageable. It included such odd lots as nine piers, airport cafes, 15 motorway service areas - and the chain of genteel high-street cafes, the Kardomah group. He even bought a publisher, Sidgwick & Jackson, and a magazine, the weekly Time & Tide.

The group was run with a combination of strict financial controls and idiosyncratic high-handedness by Lord Forte and a handful of trusties, notably his first partner, Eric Hartwell, who met Forte while trying to sell him a fridge for one of his cafes, and stayed for half a century. It was the accountants who ensured the steady flow of profits, enabling Lord Forte to continue to satisfy his acquisitive urges.

Inevitably he made enemies: for a long time he and his company were, justifiably, the favourite Aunt Sallys of those who thought about food, the chattering gourmet classes, who equated the whole group with its chain motorway service areas, and with the 'portion control', which shackled chefs in the restaurants by decreeing a 65 per cent gross profit on every item of food (classier restaurants apply an overall figure).

Although Charlie Forte was a stock market favourite during a couple of decades when 'no one in the City ever got fired for buying Forte', he had trouble soon after his company went public in the early 1960s, particularly over a profits 'pause' in 1965-66.

But his worst difficulties came after what had appeared his biggest coup, the 1968 merger with Trust Houses, then far and away the most respectable - and biggest - British chain, with 200 hotels, mostly in country towns, but including such well-known names as Brown's and the Hyde Park.

Trust Houses was headed by Lord Crowther, the urbane former editor of the Economist and epitome of the Establishment figure, and the two soon became bitter enemies - at one point Forte found himself fighting not only Crowther but also Allied Breweries, which was moving in with a bid. The bid failed, and Crowther died unexpectedly a couple of years later.

One of Lord Forte's five daughters, Olga, who married an Italian marquis, is now a director of the family firm, but the father's hopes were concentrated on the only son, Rocco. He was given the appropriate training, sent to Downside, the smart Catholic public school, then Oxford, and through accountancy training, before entering the family firm in 1973. Ten years later, at 38, he was appointed chief executive. As heir apparent, he faced a daunting task: to emerge from his father's shadow, and to tidy up his mixed inheritance. He has gone a lot further in both directions than the City has given him credit for.

No one took Rocco's post as chief executive seriously at first. Rocco did not help his own case when his first independent deal turned sour. In April 1988 he paid pounds 280m for the Kennedy Brookes hotel and restaurant group, and almost immediately the forecast profits of pounds 10m turned out to be the result of property deals. Four years later he attracted adverse publicity by havering over the sale of the successful Gardner Merchant contract catering company.

But more recently his reputation has improved and his strategic vision of the future shape of the group has become much clearer. Gardner Merchant has at last been sold for a respectable pounds 402m, with Forte retaining a 20 per cent stake in the company. He has increased the group's previously minimal presence in Continental Europe with a number of deals, including the purchase of 40 French motorway cafes from Accor for between pounds 65 and pounds 70m. He has entered two partnership deals, which show not only the general respect felt for Forte's management skills but also reveal the group's cash shortage, which prevents outright purchases.

Forte has established a network of 100 motorway motels-cum-restaurants in Spain, in partnership with Repsol, the Spanish oil giant. And it has won the contract to manage 18 hotels in Italy for another oil company, Agip. This is not the end. 'Within five years,' says Rocco Forte, 'we hope to have much bigger roadside catering and hotel chains in Continental Europe, as well a bigger hotel portfolio. But the opportunities for purchase may well be greater in a year's time' - when, perhaps, Forte's finances may be healthier than they are now.

Although Rocco Forte airily dismisses talk of cash shortage, the group is obviously unable to exploit the opportunities presented by the recession, because of its gearing, which remains high despite the sale of Gardner Merchant.

In Britain, for instance, Forte is unable to take full advantage of its strong position in roadside catering, with its leading brands of Little Chef and the associated Travelodge hotels. Abroad, it is having to rely on management contracts for hotels which cannot bring in more than pounds 2m to pounds 3m profit even when successful (as they have been in the Middle East).

The hundreds of British hotels that dominate the group's finances were an organisational shambles during Rocco's early years as chief executive. In fact, his first big step towards independence was an apparently minor managerial switch, transferring Alan Hearn, then head of the group's restaurants, to run the hotel side in late 1990 - a move reflecting frustration with existing management.

Hearn brought in a new central managerial team, most notably Paul Neep, a senior marketing man at Guinness, appointed by Rocco as marketing director. Rocco was showing some flair in picking people to run his group. As one observer says, 'Rocco did the right thing, though he didn't actually know much about marketing.' Nevertheless he encouraged Hearn and Neep to recruit other executives from the alien world of fast- moving consumer goods (FMCG for short), such as drinks or branded groceries. There had already been some half-hearted attempts at market segmentation. But, says Neep, 'in the past the name Forte covered such a wide range that your opinion depended on your last experience . . . the new exercise was all about market segmentation.'

Neep compares the group's hotel problems with those of an airline. Airline seats and hotel rooms 'are highly perishable products which you have to see from the consumer perspective, whereas previously the group had been operationally driven'. The key, he said, was 'diversity in unity . . . making sense of the pack of cards we had been dealt . . . But even when we'd agreed the segmentation, we had to decide whether they all had to be linked to the basic name.'

It was largely family pride which induced Rocco to attach the family name to all the group's hotels. There was a handful of hotels which were deemed not good enough to bear the family name and are not included in any of the groupings Hearn and Neep devised. The Cumberland, Regent Palace and Strand Palace in London are the three most obvious examples of hotels now largely occupied by foreign tour groups, but Forte still has faith in them: 'Some of these are the powerhouse of our profits.'

He would be happy to be rid of many of the non-roadside hotels in the United States and marginal hostelries, such as the former Crest in Liverpool, and although he will not comment on his plans, it seems that neither airport services nor stand-alone restaurants form part of his vision of the group's future - although the Wheeler's name, which came with the disastrous Kennedy Brookes purchase, could be slotted in as suitable for restaurants within hotels.

Rocco has already shown a recognition that the Forte brand name was never going to be synonymous with fine dining or individual cuisine. He has hived off a lot of the restaurants inherited from Kennedy Brookes as a chain of 'distinctive' restaurants (like the Dome chain). Even more boldly, he encouraged the Michelin-starred chef Nico Ladenis to take over a restaurant in the newly refurbished Grosvenor House, on generous terms. He has gone into partnership with Bob Payton, of Chicago Pizza Pie Factory fame, in the new Criterion in Piccadilly Circus. He seems prepared to encourage other well- known names to work in partnership or simply as chefs.

The new hotel team did inherit a couple of brand names. In the US Travelodge had a good reputation for offering better-than-average motel accomodation. In this country Travelodges had grown as part of the Little Chef roadside restaurant chain. They were separated and strict discipline was imposed. To keep to the price and profit guidelines, there can be no 'amenity creep', no additional touches such as telephones in the rooms. But cash shortage is preventing expansion in what is the fastest-growing sector of the hotel market.

Cash shortage is also preventing the establishment of a real presence in another expanding sector, the resort hotels, with their range of sporting activities, even though many country house hotels are on sale at bargain prices as a result of the recession.

Travelodge is one of the three 'brands' in the Forte portfolio; the others are Post House and Crest. All offer a guaranteed price and standardised accommodation in precisely defined categories, where, says Neep, 'the customer knows what he or she is going to pay before arriving, with no unpleasant surprises or extras'. By contrast, the three 'collections', Heritage, Grand and Exclusive, are supposed to 'offer individual service'.

Post House was an inherited brand name, but, says Neep, ' it had rather lost its way, with four-star add-ons to its original chain of three-star hotels'. The brand (or chain) of 55 hotels is now aimed squarely at the middle- management market, in competition with but much cheaper than Novotel, while the Forte Crest name covers 'high-quality modern business hotels'.

Heritage is largely the old Trust Houses inheritance, the coaching inns and hostelries in county towns. (The name Trust House was dropped.) One up are the Grand Hotels such as the Randolph in Oxford or the Waldorf in Aldwych, London. Here, as with Travelodges, the cash squeeze slows down modernisation, for these mainly old buildings can absorb immense amounts of cash. The Waldorf, the first hotel Lord Forte ever bought, was recently refurbished under the direction of Rocco's sister, Olga Polizzi, at a cost of pounds 15m and today, although the tea-dances it runs are back in fashion, the lavish restaurant facilities face daunting competition. Forte himself believes that the refurbishment programme for these older hotels can be completed within two or three years for a total of pounds 150m, though this will absorb much of the group's cash flow until then.

But perhaps the most significant category was the 'collection' of 'Exclusive Hotels of the World'. There are 17 of them, each of which, the company claims, is a brand name in its own right. The Exclusives, such as the Hyde Park in London and the Plaza Athenee in Paris, were chosen 'as a combination of location, the rate they could charge, and their reputation', and are allowed considerable independence.

The whole group - from Exclusives at the top to humble Travelodges - has a sophisticated reservation system, now being installed airline-fashion in travel agents. It can, for instance, ensure individual managers don't take on business at any price when the computer reckons there is a good chance that the rooms will be filled with full-price customers. The branding has worked surprisingly well. Even a hotel as apparently well-known as the Cavendish in the heart of Saint James's has enjoyed a remarkable increase in bookings since it was marketed as a Crest.

But one potential result of the categorisation has been largely overlooked. It was Rocco, after all, who negotiated the truce in his father's long-running battle with the Savoy group, where Forte now holds 68 per cent of the shares but only 42 per cent of the votes, and cannot bid again until the end of 1994. Following the death of the former Savoy chairman, Sir Hugh Wontner, Forte's most implacable foe, and the appointment of receivers earlier this year to St Anselm, a property group which owns 4 per cent of the Savoy's precious voting shares, the end of the truce could well see the conclusion in the battle. Forte hopes to show that its Exclusive Hotels retain their individual lustre and can thus appease the fears of the Savoy directors that the hotels' precious brand names would be swallowed by the Portion Controllers.

Forte himself makes no bones about his ambitions: 'I feel we could make a better return on their assets if we had more control on their business. Moreover, it doesn't take a great deal of imagination to see that our Exclusive Collection could be named after the Savoy.' Now that would be a final triumph for the family. Lord Forte would achieve a long-held ambition, and the son would have proved to him, as much as to the world, that he had something to add to his inheritance.

(Photographs and graph omitted)