Lester Hotels

Source: Retail Digital

Date :7/26/2007 11:31:53 AM

Lester Hotels Management Services draws on the entrepreneurial spirit to retain its margins

Lester Hotels Management Services is a company with a reputation for progressive and successful hotel management. Company Chairman Simon Lester told James Hurley how commitment to its stakeholders allows the company to deliver consistently impressive results for investors in an atmosphere of continually rising customer expectations

Written by James Hurley & Produced by James Smith

Lester Hotels Management Services Ltd [LHMS] was established as a Hotel Management Company in 2001 with the specific aim to manage properties on behalf of private owners. The company uses its expertise to develop businesses, people, profits and asset values, operating hotels for a number of owners and companies under a range of brands.

Bespoke services

The range of services that the company offers includes estate management, human resources support and a comprehensive range of management and financial services. LHMS can act as a bespoke consultancy or take over the entire day-to-day running of a hotel on an investor’s behalf. The company has worked with several high profile PLC hotel groups providing consultancy services on a range of subjects ranging from operational to sales and marketing strategies as well as strategic acquisitions for financial institutions and independent investors.

“LHMS provides hotel management services for a range of clients,” explains Simon Lester, the company’s Chairman. “That can be a specific service, like a feasibility study, an investment appraisal or consultancy, or the full operational management of the hotel unit for an independent owner. It can be as comprehensive or as targeted as they like – it’s a shopping list and an owner can select from this, or we can take over the entire running of the hotel and report to the owner on a monthly basis on the performance of their hotel.”

Perhaps the clearest testament to Lester’s faith in the company is illustrated by the fact that LHMS runs its own hotels as well as those of its clients, under the banner of the Lester Hotel Group. “LHMS is a subsidiary of the parent company, Lester Hotel Group. The business is now structured so that every hotel we buy becomes a subsidiary company of the group. The hotel company grants an arms length commercial management contract to LHMS which then operates the hotel on commercial terms. LHMS is, to all intents and purposes, an independent hotel management specialist company. It has its own board, CEO, and Finance Director - a completely separate management team. Whilst I’m the chairman of that group, the management team retains full day to day responsibility for the running of the hotels,” he says.

After spending two years in the Middle East with a five star hotel group, Lester returned to work for the Spring Hotel Group, working his way up to the role of Operations Director. In 1999 he conducted an MBO of part of the company and formed his own hotel group. Lester says that the timing of the MBO was crucial. “The market was just coming out of recession and within a year we were able to completely financially restructure the business and move it forward.”

Ideally positioned

Now an experienced entrepreneur, Lester is certain that his grounding in the hospitality industry has been central to the success of LHMS. A Hotel Management graduate, he now looks to foster an understanding of hospitality throughout the company and the hotels that it runs. “Through 20 years of hotel management, you learn what works and what doesn’t. It’s not about finding people with the right skills as much as finding people with the right culture who understand the meaning of hospitality. My view has always been that if you look after the guests, the numbers will look after themselves. We focused on getting the simple things right and providing a good overnight experience. For me, it’s about finding people with the same core values as me and developing the hotel by developing the people who work in it.”

Lester looks to work with people who share his attitude, so a unified culture is built around each hotel. “You can have a great building but if the service doesn’t match, the guests won’t return. David Stanford’s (CEO) motto is ‘real service rather than lip service’ and our FD worked in hotel operational management before he became an accountant, so he understands what sits behind the figures.”

In an increasingly competitive and overcrowded industry, not all hoteliers share this breadth of experience, a fact that LHMS may ultimately be thankful for if the market changes, as Lester explains. “There are an awful lot of unsophisticated new entrants who don’t understand the market. Whilst the market is strong, they will always do well. The test will be when it drops – and it will drop, because the hotel market is cyclical. I am very concerned that many of these new entrants will be disappointed during a downturn because they don’t fully understand the fluctuations of the hotel industry.

“LHMS is ideally positioned to take advantage of a fluctuation in the marketplace where an investor has had enough and wants professional management of his asset. I do fear that there will be some hotels that will not survive if the market drops and interest rates remain firm, and we will be back to managing properties for financial institutions. We are ideally placed to take advantage of that when it comes, and it is a case of when, not if,” he says.

Positioning itself to manage and grow owners’ assets, LHMS emphasises its offering of a change of lifestyle for independent owners who don’t necessarily want to sell their prized asset. “There may well be scenarios where we advise the owner – whether it be our parent company or an independent investor – that there is a point in the lifecycle of a hotel where you can optimize value and that may involve selling the hotel and taking out the profit at that point,” Lester explains. “For each owner and each hotel, that’s different. This may mean selling hotels or retaining hotels, but we will always retain a core number under management and in ownership.”

Maintaining operational margins

As interest rates, land values and property prices increase, entry into the market has become increasingly tough. With high profile groups such as Marriott moving away from ownership and focusing on management, how does LHMS remain successful in an industry that’s experiencing pressure on its operational margins? “The key word for opportunities in this industry is differential. It’s about how hotels differentiate the customer experience while maintaining their margins. As competition intensifies there’s automatically a pressure on margins, which raises the question ‘how do you differentiate the customer’s experience whilst retaining a margin?’”

The answer, Lester explains, partly lies in the flexibility that is central to the company’s management model. “A large chain has to manage within their brand criteria, but we have the freedom and flexibility to apply any brand that we think is appropriate to a particular hotel and location, or even de-brand a hotel if we think that’s more appropriate. We have the entrepreneurial spirit to position a hotel to benefit from the local market.”

The company is currently developing the ‘Madison’ brand for its hotels, but Lester says there is no pressure to rush the new branding out. “We will only do that when we now it will fit in its location. The Madison brand is all about differentiation. It’s about taking what’s good in the marketplace and adding something special based on what we know customers want and is currently being provided.”

In terms of market pressures, Lester says that changes in the level of services hotels offer and the subsequent rise in customer expectations means there is currently an even more pronounced challenge to provide something different. “The mid market hotels were originally providing something very different from the limited service hotels. In the last three years the novelty of limited service hotels has faded and they are now looking at how they can take market share from the mid range hotels – they’ve now started to offer services that are remarkably similar, if not the same as the mid-market hotels. They’re attacking that market more aggressively so it’s about providing something neither of those hotel standards currently provides. In our view, it’s about providing the best overnight experience because ultimately that’s what the guest is paying for.

“The one big challenge from our point of view is to meet a continually rising customer expectation,” he continues. “It wasn’t that long ago that we were marketing hair dryers and trouser presses and tea and coffee making facilities in all bedrooms. The challenge is how we manage a rapidly rising customer expectation while maintaining an operational margin.”

In the current environment, sellers tend to have an inflated view of the value of their business, so being able to identify property or sites at realistic prices is also a challenge. The company’s latest acquisition is Nant Ddu Lodge in the Brecon Beacons. While the company “had to pay through the nose for it,” Lester is excited about the hotel because it operates at 88 percent occupancy, a rate normally only seen in central London. “There is scope to double its size and we know there’s strong demand in the location.

“One of the things we’ve done is broaden our horizons in terms of scope of area. We’re now own hotels, or are looking to buy, in Wales, and Scotland. We’re just poking our noses into Europe a little. It’s a case of being patient and not just taking the first opportunity that comes along.”