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Great hotel chains should not buy trophy properties

Ask anyone in the global hotel business and they will tell you that the great Indian hotel chains are among the best in the world.

But here’s the thing: while East Asian hotel companies have gone on to become leaders in hospitality around the globe, Indian chains have lagged behind.

 

If you look at it logically, there is no reason why the Taj and Oberoi groups should not run as many deluxe hotels abroad as say, Mandarin Oriental, The Peninsula or even the Shangri La.

 

   But when Indian companies have opened in the West, they have rarely met with much success.

 

   There was a brief period in the 1970s and the 1980s when it seemed as though the Oberoi group would be India’s first global chain. There were Oberoi hotels all over the Middle East; there were properties in Singapore and Colombo; the group opened in Australia and a New York property was acquired.

 

   Sadly that model did not work. Most of the hotels were run on management contracts and often, they were not renewed. In some cases, the Oberois eventually felt that the hotels were not worthy of the brand. Some projects were mistakes (New York never took off).Political problems put an end to some collaborations: Egypt, for instance. And only a few stood the test of time: Bali, for instance, where the Oberois were pioneers.

 

   The handicap faced by Indian chains – compared to, say, those from Hong Kong – is that the Indian government, rather than encouraging our companies to grow internationally, made it difficult for any Indian firm to do business abroad. It was hard to make a single foreign investment without running afoul of one of the idiotic provisions of FERA, an act that turned virtually every Indian who travelled abroad into a criminal.

 

   The other problem ---- and this is a controversial view --- is that until recently, the world (especially in the area of hospitality) was not willing to take India seriously. Given a choice between an European/American group and an Indian company most of the world would pick the Westerners. It cannot be a co-incidence that the Hong Kong chains that flourished in the West were run by people with white faces.

 

   The Taj ran up against this kind of prejudice when it acquired a stake in Orient Express Hotels (now renamed Belmond) a decade ago. Orient Express ran some great hotels but it had problems with profitability and would have benefitted from a tie-up with the Tatas. But its management spurned the Taj’s overtures, even going so far as to claim that an Indian connection would harm a luxury brand. (I wrote about this at the time in Mint. Here’s the link.)
https://www.livemint.com/Leisure/YHFFO7AO882SnIXIR1UF3I/Why-OrientExpress-should-thank-the-Taj.html)

 

   But mostly, I fear, the reason Indian hotel companies have fared so badly is because they have gone about it the wrong way. The Taj made a mistake by trying to acquire Orient Express (or, at least, buy a stake in the company) without doing its homework. (At one stage, the Taj was the company’s largest shareholder but it owned mainly non-voting stock.)

 

   Some of the other high-priced Taj purchases were mistakes. It should never have spent so much for a hotel in Boston (it has since sold the building); the lovely Campton Place hotel in San Francisco will only work if the Taj spends more money on it ---- which, the Taj says it will finally do this year; The Pierre is one of the world’s great hotels and the Taj runs it very well, but it is a ‘trophy’ property, one that lends prestige to its owners while simultaneously emptying their pockets; and it was a huge mistake to have sold New York’s  Lexington Hotel which would have been a steady money-spinner for the group.

 

   Some people would argue that great hotel chains should not buy trophy properties. The skill of a hotelier lies in taking ordinary properties and converting them into great hotels. Last month, in London, I met Liam Lambert who was briefly the CEO of Oberoi Hotels. Lambert once ran Mandarin Oriental in Europe and we talked about how that chain had taken over the crumbling old Hyde Park Hotel after Charles Forte had ripped its soul apart (the Forte-bashing was me, by the way, not Liam) and turned it into a world class property.

 

   After his Oberoi stint, Liam worked for Corinthia Hotels, a Maltese company that bought a disused building in Westminster and turned it into a deluxe property that Liam regards as the best hotel in London. (Yes, okay, he may not be entirely objective about this.)

 

   Whenever I hear tales like this I am always reminded of the one great success story of Indian hoteliering abroad: the Taj-owned St. James’s Court Hotel in London.

 

   The Taj began negotiating to buy the hotel when it was a two-star dump run by a company called Crest Hotels in the 1980s.

 

"Not all hotels can be turned around so the trick lay in finding the right dump with lots of potential. Once the Taj owned the property, it fell back on Indian ingenuity."

   The hotel’s ownership changed hands during the negotiations and as the deal-making went on, the Taj took a management contract for a small hotel called Bailey’s only (I suspect) because it needed a base and a guest house in London, while the St. James negotiations were on. (Once St. James’s Court was up and running, the Taj gave up Bailey’s.)

 

   I stayed at the old St. James Hotel in 1982 as a transit passenger accommodated by Air-India. It was such a dump that it reminded me of one of those depressing hospitals for lepers that crop up in descriptions of Dickensian London. I remember telling Ajit Kerkar, who ran the Taj, and whose dream project this was, that I thought he had made a serious mistake. There was no way this hotel could be turned around.

 

   In response, Kerkar and Camellia Panjabi (his number two) explained to me how hotels worked. They were offered fancy properties all the time, Kerkar said. But the Taj never agreed to buy such well-known hotels as the Carlton Tower in Knightsbridge which had often been on the block, because they knew they could never make any money from them.

 

   The Taj’s formula was to buy a rundown, old hotel and then turn it around. Not all hotels can be turned around so the trick lay in finding the right dump with lots of potential. Once the Taj owned the property, it fell back on Indian ingenuity.

 

   An Indian engineer would redesign the hotel’s systems. An Indian interior designer would transform the look. Indian operations specialists would plan the service. And so on.

 

   If the Taj used its own expertise then it could upgrade the hotel for a fraction of what it would cost a foreign company, hiring British and American consultants and experts, to do the same job. A room that sold for £ 30 at the old St. James’ in 1982 would sell for at least £ 150 when the Taj re-opened the hotel four years later.

 

   Of course, there was more to it than that. There was also first rate marketing (Camellia Panjabi’s forte). They changed the name from St. James Hotel to St. James’ Court to indicate that this was a new property. They took a deliberate decision not to put ‘Taj’ in the name because the brand was then not sufficiently well-known in the UK.

 

   To emphasise that this was a top class property, they opened a Sichuan restaurant (in those days, the UK had still to discover Sichuan cuisine though the Taj had House of Ming and the Golden Dragon back in India) and persuaded Jean André Charial, of the Michelin three-star Beaumaniere, to open a restaurant there.

 

   By the time the new version of the hotel opened in 1986, memories of the dump that the old St. James Hotel had been, were erased. Today I doubt if anyone in London even remembers a time before St. James’ Court existed.

 

   Of course, it wasn’t always easy. The Indian government would not allow the Tatas to send money to London so as the expenses mounted, Kerkar looked around for new investors, accepting a large stake from the Hindujas, then the richest Indians in the world. (Srichand Hinduja was briefly a Director of Indian Hotels, the Taj’s parent company). Eventually, the Hindujas sold their stake and new investors were found.

 

   The UK suffered from terrible slumps and there were at least two occasions when the hotel was run on the basis of lines of credit from very nervous banks. But Kerkar’s essential vision held: the property rose steadily in value, guaranteeing that even if the Taj had to sell the hotel it would still end up with a profit. And steadily but surely the hotel began to be accepted as one of London’s top properties.

 

   I stayed at St. James’ Court a lot in the 1990s and then, I drifted away. In the post-Kerkar era, the management began to lose the plot. There was the disastrous decision to tie up with Crowne Plaza so the hotel’s name was changed to Crowne Plaza-St. James. It cost the property its market niche and the management began to focus instead on the apartments which were separately branded as 51 Buckingham Gate. Service standards slipped and the hotel became a dharamsala for visiting Indians.

 

   Fortunately over the last few years, the Taj has got it right again. The dreaded Crowne Plaza branding has gone and the rooms in the main block have been renovated in a contemporary style. The 51 Buckingham Gate apartments attract rich American and Chinese (Indians are now the minority) guests and are run to very high standards.

 

   General Managers always make a difference to a hotel. Prabhat Verma made St. James’ Court a contender again and the current GM, Digvijay Singh, has managed the miraculous feat of providing Asian levels of service and luxury with a largely European staff.

 

   The hotel has a pleasantly international air with strong Indian roots. It houses the Michelin-starred Quilon run by the Taj’s most famous chef Sriram Aylur. But even the food in the hotel (banquets, coffee shops, lounge, room service) is outstanding. Prabhat Verma (who looks after the Taj’s international operations) and Rakesh Sarna (the Taj’s last MD) had the bright idea of sending Sheroy Kirmani, a low-profile but terrific chef (in the Ananda Solomon tradition) to London.

 

   I have stayed at St. James’ Court thrice in the last two years and while, during the same period, I have also stayed at other London hotels --- the Mandarin Oriental (good), the Corinthia (not sure it lives up to Liam’s praise but it is excellent), the Churchill (a real dump and a disgrace to the Hyatt brand), and Brown’s (brilliant) --- there is no doubt that St. James’ Court has a special place in my heart.

 

   Perhaps it is because I saw it at the very beginning. Or perhaps it is because I am just so proud that it broke the jinx surrounding Indian hotels abroad: not only is it a huge money-spinner for the Taj group but it reminds us that Indians should not buy trophy hotels.

 

   We should create our own.

 


 

Posted On: 14 Jul 2018 02:35 PM
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