Andrew Cosslett: 'Emotional contracts': at his hotels, the shareholders aren't disturbed
For all his marketing speak, IHG's boss hasn't put a foot wrong. Now he wants to leave his footprint on China
Sunday 05 March 2006
Andrew Cosslett is, by his own admission, a big man. Sitting in a large, sparse office, which he likens to an interrogation cell in a Soviet gulag, the chief executive of InterContinental Hotels Group (IHG) - and one- time rugby player - dominates the space. To his left is a bowl of chocolate, testament to a sweet tooth that could mean he ends up out of shape as well.
So the 50-year-old gets up before 5am three times a week to go running. He then heads for the FTSE 100 hotelier's Windsor head office (which is being redecorated, hence the gulag feel) or, more often than not, an airport to jet off and see one of the group's 3,600 hotels.
Last week, though, he was heading for the City to unveil IHG's annual figures. There he repeated his ambitious growth targets of between 50,000 and 60,000 new rooms in the next three years, as well as detailing a £500m special dividend after the sale of IHG's stake in fizzy drinks group Britvic. Pre-tax profits, meanwhile, rose 8 per cent to £284m.
It has clearly been a busy year for the former Unilever and Cadbury Schweppes man, who was brought in to replace the ousted Richard North in February 2005. While Cosslett admits that going from food to hotels was a big change, he adds: "It was a new industry but there was a lot of familiar ground: the focus on brands, starting a strategy and looking at growth targets. We have good brands and I think they could be stronger. That was a very positive factor for me."
IHG's portfolio - spanning the UK, US, continental Europe, Africa, Asia and Australia - has been overhauled in the past two years. The group has sold off assets - the actual buildings - but continued to run the hotels under management or franchise agreements. For shareholders, it has proved a lucrative policy, with more than £2.25bn either being returned or earmarked for return so far.
But as the strategy proceeded, the board decided it wanted a marketing expert, rather than former finance director North, to take the group's brands, which include Holiday Inn and Crowne Plaza, forward.
One of the first things Cosslett did was relaunch the upmarket InterContinental chain. He concedes this will be "a long process - it's a big ship to turn round" - but also sounds excited: "This is quite a journey we are on."
New hotel brands are also being developed, such as the midmarket Indigo in the US. "It's slightly alternative, it's slightly boutique-ish," explains Cosslett. "It's for people who define themselves that way. So it tends to appeal more to people in media, advertising and so on."
However, the group still lacks a budget product. This part of the sector is booming, yet IHG's otherwise bulging cupboard is looking bare. "We're not really interested in the bottom-bottom end, where the margins are pretty slim," says Cosslett. "The amount of value coming out of each property is pretty restricted."
But that does not mean he is ruling himself out of the market long term. "We're in no rush to do it - we've so much on just driving the brands we already have. But we will look at it when [the opportunity] comes along."
Whether that will be through organic growth or acquisition, he's not fussed. He says he would like to use the brands he already has - as with the Holiday Inn Express, a move he compares to Tesco's different formats - and if he buys something, it would have to be a chain with operations in a number of countries.
Certainly, there's enough cash floating round: a further £600m is likely to be raised from the sale of 31 European hotels. At the results, the group said some of this could be used to fund expansion.
However, budget hotels aren't Cosslett's priority at the moment; China is. The group has around 50 hotels in the country and he wants to increase that to 125 in just over two years. "China is going to be enormous for us in the future," he says.
Cosslett believes there is a unique "interception of factors" driving growth in the country, from the booming economy to the predicted explosion in both inbound and outbound travel. "That's going to be great news if you own brands. People will look for the brands that they know from home.
"We're going to have to get our people China-fied. The country is our number one focus."
As he warms to his theme, Cosslett's time at Unilever and Cadburys becomes more and more noticeable, as do the long periods he has spent overseas (nearly seven years in Australia with Cadburys, for example). Speaking in a hybrid global drawl - "strategy" becomes "stradegee", "little", "liddle" - this is the ultimate marketing man, a real brand junkie. He talks of giving guests "a good feeling when they are in the property" and engaging in an "emotional contract".
But his strategy is a logical one. IHG is the world's biggest hotel operator and yet boasts just 3 per cent market share. And 60 per cent of the world's hotels are still unbranded businesses.
So the growth opportunities are phenomenal as long as you are able to build your brands, so convincing people to run your hotels and guests to stay at them.
IHG's size also works in its favour: it can offer managers and franchisees a wealth of support that smaller operators do not have access to - from call centres and websites to loyalty schemes and huge marketing budgets. "We create a system, and that system is the machine that really drives demand. We put a lot of time and effort into building the horsepower of this system."
On the way out, Cosslett shows the pictures that will take pride of place on his post-gulag walls. They are all of IHG hotels and locations. If it seems a bit cheesy, that's because it is. But the industry is becoming more and more competitive and marketing is vital. Cosslett wants to make sure that, like him, IHG stays in shape.
BORN 14 April 1955.
EDUCATION BA in economics and MA in European Studies, University of Manchester.
1979: marketing manager, Unilever. Went on to hold a variety of marketing roles in the food divisions.
1990: joined Cadbury Schweppes as marketing director for Schweppes GB. Subsequent roles included chairman, Cadbury Schweppes Australia; chief executive, Asia Pacific confectionery business; and managing director, Great Britain and Ireland.
2003: president - Cadbury Schweppes Europe, Middle East and Africa.
2005: chief executive - InterContinental Hotels Group.
Other positions: non-executive chairman, Duchy Originals.
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