The Ritz-Carlton History
In 1898, Cesar Ritz saw his dream come true. Having left behind his life as a shepherd in Switzerland, he moved to Paris where he worked in some of the finest hotels and restaurants in the city before finally opening the grand hotel that bears his name. One year later, he opened London’s Carlton Hotel, setting the stage for what would ultimately become The Ritz-Carlton Hotel Company.
Relying on the famous hotelier’s vision of excellent personalized service that satisfied the most discerning guests, The Ritz-Carlton expanded to North America. One Great Depression and two world wars later, many of the luxurious hotels had folded. By 1983, when the Atlanta-based Johnson Company bought the North American rights to The Ritz-Carlton name, only the hotel in Boston had survived, thanks to the largesse of a wealthy property owner. From 1983 until 1997, The Ritz-Carlton expanded domestically and internationally under the Johnson Company’s ownership.
In 1997, Marriott International purchased The Ritz-Carlton, which operated as a wholly owned subsidiary. By the end of 2000, The Ritz-Carlton was primarily a management company operating 38 hotels and resorts across the globe (see Exhibit 1 for comparisons between The Ritz-Carlton and Four Seasons), with minority equity stakes in 10 properties and outright ownership of 3 hotels. The primary growth strategy for The Ritz-Carlton was to obtain management contracts for new hotels and resorts around the world (see Figure A).
Figure A Ritz-Carlton New-Hotel and Resort Openings Since 1983
Source: Company. Number of openings represent only those that remained under the management of The Ritz-Carlton Hotel Company through 2000.
Millennium Partners Overview
Millennium Partners was a New York-based real estate development group founded in 1990 by Christopher Jeffries, Philip Aarons, and Philip Lovett. The principals initially set out to create high- end luxury apartments that would command premium prices from wealthy individuals looking for second or third homes in world-class cities. Millennium’s Lincoln Square four-building complex in New York City was their first project, setting the tone for future developments. The address for celebrities such as Regis Philbin and Rosie O’Donnell also included the renowned Reebok Sports Club/NY, as well as the highest-grossing theater complex in the United States—Sony’s 12-screen Lincoln Square multiplex.
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Brian Collins joined Millennium Partners Management in December 1996 as their CFO, subsequently becoming the COO and a partner, as well as a principal and the president of Millennium Hospitality Partners. Collins explained how they came to be hotel owners:
We are residential developers who ended up in the hotel business. It was not our intention to end up owning eight hotels, which is what we have under construction today—six Ritz- Carltons and two Four Seasons. Our intention was to create a base for our luxury apartments. Our vision is that apartments sell for a substantial premium if they have height, light, and views. The trick then was what to create below those apartments, which is both economical and adds to the residential experience, which also lifts it up in the air. So you try to do it with the best theater company, one who understands our vision. Then we’re starting on the third floor. And you try to do it with a Sports Club. Their box, their basketball court, is about 29 feet, and that’s another three stories. So if we do nothing else but have those two, we’re 60 feet in the air. Washington’s a bad example, because we have a 110-foot height limit. In San Francisco, the hotel is 13 stories, so the apartments are starting maybe 250 feet up in the air. And now you don’t have any apartments that don’t have height, light, and views.
The other thing that helps sell residential properties is services. We said “Well, how can we solve this service problem? How do we convince people that they’re going to get great, great, great service?” And Chris Jeffries hit on the idea of a luxury hotel. At the high end of the market, there’s really two choices: Ritz-Carlton and Four Seasons. Ritz and Four Seasons are clearly the best hotel operators. So we’ve approached both, and we’re doing deals with both.
Millennium Partners was one of the several hotel owners for whom The Ritz-Carlton managed properties. The Ritz-Carlton charged management fees that were typically 3% of gross revenues, augmenting their income stream with revenues from land rent, resort timesharing, franchise fees, management incentives, and profit sharing.2 While there were many independently owned and operated luxury hotels around the world, The Ritz-Carlton and Four Seasons were the two most internationally recognized chains serving the highest end of the market.
Two key indicators of success in the hotel industry were the average daily rate (ADR) and the revenue per available room (RevPAR; see Exhibit 2). While the ADR was bounded on the upper end by what the local markets would bear, RevPAR was influenced by both ADR and occupancy rates. Filling hotel rooms was crucial, and The Ritz-Carlton’s general managers aggressively pursued their two main customer groups: (1) independent travelers, and (2) meeting event planners.
Independent travelers, whether for business or pleasure, were courted in a variety of ways. For instance, when McBride was the general manager of The Ritz-Carlton in Kuala Lumpur, he greeted travelers at the airport with mimosas and discount coupons presented on silver trays, serenaded them with piano concertos, and even created a hotel room in the airport, complete with an armoire, bed, television, and other accoutrements representative of the hotel’s furnishings. As he prepared for the opening of the new hotel in Washington, D.C., McBride held an afternoon tea in Washington
2 1999 Marriott Lodging Annual Report.
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Circle, with 100 ambassadors, prominent citizens, and members of the media enjoying the city’s famed cherry blossoms as they rode to the tea in horse-drawn carriages and open trolleys.
Additionally, McBride worked to attract business travelers to The Ritz-Carlton. In Kuala Lumpur, he introduced the “Technology Butler,” which comprised a staff of technicians available 24 hours a day to assist guests with computing problems and other technological difficulties. In Washington, McBride created a concierge desk at the Delta Shuttle at National Airport, implementing airport check-in procedures which provided customer convenience that outpaced the competition.
Beyond the individual initiatives of general managers, The Ritz-Carlton worldwide focused on the role of meeting events in attracting independent business travelers. The Ritz-Carlton recognized that event attendees were previewing the hotel, making every interaction they had during their stay another step in a “progressive trial.” This perspective reflected the organization’s recognition that their product pipeline was different from those of many others—the customers had to come to them. Because they attracted many individual guests at once, meeting event planners were seen as “the vital few” customers, representing a small number of organizations that held many large meetings in various locations around the world. These “vital few” accounted for 40% of annual sales income. According to Patrick Mene, The Ritz-Carlton’s corporate vice president of quality:
Our event business pays the mortgage. The individual traveler helps us with our profitability. The nature of our business is that a guest room and space is the most perishable product we have. An apple left unsold today can be sold tomorrow, but a room night lost today is lost forever—it’s an extremely perishable product. That’s why the meeting business is so desirable, because it is presold, it’s contracted, and it’s a growing market. It’s a more controllable segment of our business.