Shane Harris is chief executive of Jupiter Hotels, which owns and operates 26 hotels in the UK under the Mercure brand through a franchise agreement with Accor. He tells Janet Harmer why the future of the mid-market sector is bright, despite its decline during the recession
Why did the mid-market sector suffer so badly during the recession?
Mid-market hotels remind me of orphan children in hand-me-down clothes in that there is a lot of inventory out there that has seen no investment. The usual lifecycle of hotels will see some form of refurbishment every six to seven years. When the crash came in 2007, many hotels were halfway through their cycle and put their refurbishment plans on hold. Now six years on, there are many hotels that have gone 13 years without investment and are looking tired.
Also, the explosion of restaurants, leisure centres and health clubs has encouraged customers away from mid-market hotels, where they once went to eat or go for a swim.
The mid-market provides huge opportunities as guests want a full service experience in both the leisure and business sectors. But there is a need for the market to reinvent itself.
So how does the mid-market revive itself?
For too long, operators have been trying to be Jacks of all trades by providing full food and leisure facilities, but due to the outside competition in these areas, hotels need to concentrate on what they do best. Guests are generally looking for something that is not homogeneous. They like a sense of history juxtaposed with something new. They want something that is exciting and different from a budget hotel, and they want good, basic food.
How are you breathing new life into the Mercure properties owned by Jupiter Hotels? They are an eclectic bunch of hotels and we have looked at each one as an individual. Some are 300 years old, some date from the 1960s/1970s. We've listened to our customers about the design and they generally like the lifestyle look, nothing that is too old or chintzy. They want the wow factor.
When it comes to food, guests don't want a formal dining experience or even separate restaurants. As a result, we've moved toward creating bars, like those found in BA executive lounges, with different areas providing different needs. So we now have multi-functional lounges where you go can go into one corner to read a book in privacy, eat and drink in another area and watch a football game elsewhere. This offer differentiates the hotels from the budget market. We've lost a huge amount of business to the budget sector and we've got to win it back.
We've closed the leisure facilities in three hotels as we could no longer compete with the local amenities. Previously a strong local membership kept them profitable, but now the members have been lost to nearby specialist clubs which know that sector well. There has been no impact on turnover at these hotels. If something is not working, you have to have the conviction to close it down.
Where required, we've focused on providing truly exceptional meeting and conference space through cutting-edge technology and eye-catching design. We've unveiled a £60,000 refurbishment of the ballroom at the Mercure Brighton Seafront, invested £500,000 in the International Suite at the Mercure Manchester Piccadilly and created the largest hotel event space in Kent at the Mercure Maidstone Great Dane hotel.
What are the key practical improvements that you are making to the hotels? The first year since Jupiter Hotels took over the properties was spent on sorting out the operations, looking at levels of staffing and the impact on services and amenities, rather than the capital side. Each hotel was looked at for efficiencies, with regard to the budget sector and competitive mid-market hotels. A capital plan has now been put in place to renovate every hotel.
One key area for improvement is the beds. Hotels generally don't spend enough time and money researching beds. We have put a two-and-a-half year programme in place to replace all 3,500 beds across the portfolio, and we've already installed 500. We are using Kaymed beds from Dublin, which are the type of beds you would normally find in an upscale hotel.
The TVs in the bedrooms are the original style of flat screen units, which some people may regard as being quite old. However, talking to the guests, the issue was not the TVs themselves, it was the lack of channels. So we installed headends (a facility that communicates cable TV services), which enables each TV to offer over 50 channels. The previous complaints we received declined substantially, which goes to show that you don't need to spend millions on TVs to provide what the customer wants.
How are you improving the design of the hotels? There is a paradigm in this industry that to create a lifestyle hotel, you've got to spend a fortune, but with good design and creativity, you can have real impact and make a room look as though you have spent a fortune on it when you've actually only made a small investment. For instance, it is important for the bed to have the wow factor and you can achieve this by introducing bigger and thicker duvets, new pillows and proper throws which cover the whole of the bottom of the bed.
How are you driving up room rates? We've introduced Privilege Rooms to 5-10% of the room stock in each hotel. We've transformed the rooms by spending around £1,000 per room on new linen, vibrant wallpaper, modern fabrics and colours, as well as introducing touches such as bathrobes, free soft drinks in the mini fridge, espresso machines and other amenities. This has added another £20 to the room rate. It has been very successful and has shown that a little bit of colour and imagination can make a big difference.
What is the focus of the food and beverage offer at Jupiter Hotels? It has been important to recognise that we're very good at hospitality and providing a good night's sleep, revenue management and room management, but we're not necessarily restaurateurs. This, together with the increasing demand for more casual eating, has led to us introducing more approachable menus. We've introduced a range of six or seven different varieties of burgers to all the menus and we would like to be known for serving really good burgers, alongside good fish.
We offer generalised menus across all the hotels, which change three times a year, with the chefs in each property sourcing fresh produce locally and adding one of their own dishes to the menu. However, where we feel there is an opportunity to create a destination restaurant, we believe it is important that the hotel has a different food and drink offer. For instance, that is the case at the Mercure Newbury Elcot Park hotel, where the menu is being developed to roll out this year.
Breakfast is an area we are looking to improve as there is a huge wastage here. We perhaps should be focusing on some very basic products which we do very well.
What are you doing to ensure your employees are driving business forward? Accor has its own internal strong service levels, but we also have our own internal training. In particular, we are giving more responsibility and control back to the general managers. This is something that is going to be a big focus for this year. On top of their hospitality qualities, the GMs have got to be more business focused.
Why was Mercure chosen as the brand for the Jupiter portfolio? The Mercure brand was adopted because it takes a long time and capital to build a new brand. It obviously offers a solid brand network with standards, but is also very flexible and very suited to an eclectic group of hotels like Jupiter. Other brands from the likes of Hilton Worldwide and Marriott tend to be more prescriptive. Accor is now very big in the UK and having a relationship with them gives us access to a lot of big corporate accounts and conference bookers. I had a good knowledge of Mercure from my time at Moorfield when I was involved with the acquisition of 24 former Macdonald Hotels which we then branded as Mercure.
What do you think the outlook is for the mid-market sector? Primarily, capital needs to be made available to allow the mid-market to reinvent itself. Occupancies and revenues won't improve unless the properties themselves improve. Access to capital is the big challenge and it is important that banks make capital available to reinvest in hotels. Forecasts for the economy are improving and there is every sign that the budget and luxury sectors will continue to grow, but the mid-market will be left behind without investment. But it has to be remembered that it doesn't cost a lot of money to make improvements.
Does Jupiter have plans for future growth? Yes, we intend to continue to invest in the mid-market as we believe there is an opportunity for growth in the sector - we certainly don't believe it is in decline. But there is a need to reposition it. We have been the under bidder on a number of major hotel portfolios in recent months and will look at other opportunities as they come to market - both groups and individual properties.
In the future we are likely to be a multi-branded company; we will look at each hotel and consider what would be the right brand for the property.
When do you expect the shareholders will look for a return on their capital? Of course, both our shareholders want a return on their capital, but there is no definite period. The usual time is between five and seven years, but who knows how Jupiter will involve? There may come a time when some of the assets are sold, but there is no timeline. The important thing is that both parties have a real understanding of hospitality and together we all have the same vision. They believe in mid-market hotels and intend to invest wisely in the business to put the pizazz back into the sector and create a reason why people should come back to us.
Jupiter Hotels was founded in September 2011 following the collapse of Jarvis Hotels into administration. Ownership of 26 hotels was transferred to Jupiter, which was launched as a joint venture between private
equity firm Patron Capital and West Register, a division of the global restructuring group of the Royal Bank of Scotland. The new owners injected £40m into developing the business,
while the company's debt with RBS, HSBC and Bank of Ireland was cut from £130m to £71m. A franchise deal with French hotel company Accor resulted in the rebranding of
all the properties to mid-scale brand Mercure. There are now 74 Mercure hotels in the UK, with plans to grow to more than 100.
SHANE HARRIS CV
Shane Harris joined Jupiter Hotels in August 2012, having spent most of his career working on the development, brand strategy and reinvention of the mid-market
hotel sector in the UK.
A business graduate of University College Dublin, Harris worked for InterContinental Hotels Group from 1993 to 2005, during which time he created the
Holiday Inn Express brand in the UK and Europe as vice-president of business development and strategy. In 2008 he joined the private equity company, the Moorfield Group, to head up the hospitality and leisure team, which was responsible for acquiring a number