A message of change from Kempinski CEO

GENEVA, Switzerland – “Brace yourself because we are going to present to the board an organic plan and a bold plan because this brand deserves it.”

That is the strong message Kempinski Hotels CEO Barbara Muckermann delivered this week while talking to Hotel Investment Today. It's what she knows is required and is not afraid to deliver.

Muckermann took over in June a European luxury brand that has been through a lot of upheaval ever since past-CEO Reto Witter unceremoniously left the Geneva-based organization in 2014. Since then, multiple CEOs have come and gone at one Europe’s only true luxury hotel brands that deserves better.

Kempinski Palace Engelberg, Switzerland

The owner, the Bahrain royal family, made a significant statement about making change by naming a woman and a luxury outsider as its new CEO. Muckermann, outspoken and honest about the brand’s position, previously spent 25 years in the luxury cruise industry and has experience with American public companies and luxury retailers. But she is new to the hotel world and is in the process of collecting her data and intelligence to create a plan to recalibrate the business that today operates 82 luxury properties in 36 countries, mostly in Europe, the Middle East and China. Kempinski also has a pipeline of 34 hotels that Muckermann said will be reevaluated as she strives to raise the bar and remake the brand with German heritage as a global luxury player to be reckoned with.

When she presents her new direction by December, the strategy will include a renewed focus on North America, she said.

“You can only be a luxury brand if you’re truly global. Today, there is no national luxury brand – that doesn’t exist,” an upbeat and excited Muckermann said. “The North American market is both from a source and a destination market, the largest market in the world. You cannot exist without North America. The problem that I haven’t solved yet is that if you want to be in North America, you need two things: a unique angle and scale. In North America, you cannot go half pregnant. You need to have a full-fledged plan with big investments. Then you come in and do it. And before even thinking about coming in, you need to know the angle. I’m looking for that. I don’t have the answer today, but maybe by our next interview I will.”

Measuring her words, Muckermann noted that ultra-luxury hotels should grow at 10% CAGR for the foreseeable future. But she is not sure that demand will grow at the same level. With ADR already at historical levels, it does give her reason to pause. “I will not push the button on North America, but I know that market too well not to be scared of it – in a good way,” she said. “But what I can tell you is that the day Kempinski enters North America, it will not be small because it cannot be small.”

Yes, the strategy for growth is going to require investment, and Muckermann took the job confident she had the backing of its one and only shareholder.

“If we were to enter North America, you don’t enter it on a smile, even if you’re a blonde – that doesn’t happen,” she quipped. “So, yes, anybody who wants to be serious about growing and picking the properties in North America will need to put equity on the table… I’m very confident of the support of the family. But at the same time, it would be totally ridiculous for me to expect a blank check without the plan. Of course, the two things go together. I committed to present the plan, which is well underway. And when we present the plan to the board, I am confident that it will have the support.”

As she figures out North America, Muckermann points to China, where its Nuo and Bristoria brands she believes have a lot of runway for growth with local partner Beijing Tourism Group (BTG). “China domestic has huge potential. So, I might actually spend more time on Nuo as I think about my balance sheet,” she said, adding that Bristoria is very small right now but was developed for the Chinese market as a “trampoline” to Nuo.

To be clear though, while part of the cleanup and strategic assessment of the portfolio is going to establish the role of the brands, Muckermann said her priority will be investing in the Kempinski brand.

Difficult months ahead

Muckermann’s desire to “cleanup” will likely lead to an initial reduction in hotels, she said, including reconsidering deals that perhaps shouldn’t have been signed in the first place. “My next months will be tough, having difficult with some of our owners,” she said. “There are investments and changes we need to make, and I’m expecting that some of the owners might not be ready to make them, and that’s fine.”

The move back to pure luxury will be good for the brand image and its bottom line because it should create a higher multiple on valuations, Muckermann added.

The Apurva Kempinski Bali

“As a niche player, we absolutely don’t have any choice than to go back to luxury and redefine and refocus and restrengthening our luxury appeal, using the strength of having our European perspective to make it different and unique,” she said. “The market only pays for difference and uniqueness. So, we will be becoming smaller before becoming bigger.”

The recalibration should also lead to the development of more residential components and Muckermann said a working group is in place to develop a residence proposition “that can be superior to some of our competitors.”

Residential should also give Kempinski, predominantly a management company, greater access to more agile private capital. “I think residences is another huge area of opportunity that we are currently focusing on,” Muckermann added. “Strategically, from a Kempinski Hotel perspective, I would like to see hotels and residences together because it will strengthen both propositions.”

Bigger picture, however, Muckermann is not without her concerns about market conditions. “If you take the ADR that you’ve seen in the last three years and plot that with lowering interest rates, it will look like a beautiful stretch,” she explained. “That’s the biggest fear that I have at the moment because I don’t have enough sensitivity in the market yet – enough data yet – to know when the next bust will be. But I suspect that with a growth of inventory at over 10% CAGR per year, and even with wealth growing, I’m not sure that the inventory and the supply is growing in sync with the demand.”

That leads Muckermann to further ponder the right growth model for the next five to 10 years. “I’m not going to ask for money from my stakeholders until I figure that piece out,” she said.

Finding the Holy Grail

On top of all of the strategy questions comes what Muckermann calls a huge responsibility to take charge of a 127-year-old brand that she grew up with in Germany. “Brand and product building is my pocket of strength and when Kempinski came along it was like finding the Holy Grail for any brander,” she said.

There’s been too much change at the head of Kempinski. We have one shareholder who’s fully committed to the company. We have a fully committed board. They chose me, I think, also because they wanted to give a message of change to the market.

Barbara Muckermann

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To that end, she said she is going back to the roots of the brand to find which characteristics remain relevant. “That’s where you really do a calibration job in pulling up and pushing down brand qualities, depending on how the market changed, because this strong brand didn’t really evolve as much.”

What is abundantly clear is Kempinski’s affinity for gastronomy. It is still there, according to Muckermann, but maybe “covered with dust.”

“We don’t talk about it. We don’t think about it. We don’t develop it as much,” she continued. “So, this is where I think the role of a brand custodian will be – go back, find those strong roots and move a little bit of the resources to make sure that they can shine… My role will be to clean up the brand attributes, show them to the world and maybe tweak a little bit of the resources and the narrative. But it’s all there – that’s the amazing piece.”

Muckermann said her style is influenced by spending almost 30 years working for American companies or with Americans. Today, she counts veteran hotel executive Jennifer Fox and Virtuoso's Matthew Upchurch as confidants. “I’m incredibly transparent. I strongly believe that the best and the most terrible things you can say can be demystified by discussing them. Any problem becomes manageable,” said the veteran who started her career in crisis management. “I come from a perspective where there’s never a problem that’s big enough in luxury hospitality to be afraid of. Most of our stories are good stories.”

As for being one of the few women in a top hospitality role, Muckermann thinks it helps because it really shows that the owners strongly want change for the brand.

“There’s been too much change at the head of Kempinski,” she added. “We have one shareholder who’s fully committed to the company. We have a fully committed board. They chose me, I think, also because they wanted to give a message of change to the market.”