By Martin Kelly
Chip Conley saw the pool at the Pheonix Hotel and thought : “What a great place to have a party.”
It was 1987 and he set about turning it from a faded “no-tell motel” in the seedy Tenderloin district of San Francisco into the most talked about hotel in town.
“The first year it was not clear if we were going to succeed or not,” Mr Conley said. “The second year was better and by the third year we were in People magazine.”
The key was concept, commitment- and rock and roll. “We deliberately targeted the rock and roll industry from the start,” Mr Conley said.
“I knew the (legendary) rock promoter Bill Graham and he started sending customers our way. He said there were no other hotels for bands to stay in San Francisco – they were all boring and expensive.”
So the rock stars headed for the Pheonix Hotel and its great party pool, giving the new hotel instant celebrity and endless free PR. But strip away the glamour and it was all business.
Almost 20 years later, the dumpy motel on the wrong side of town is still going strong – the foundation of what is now Joie de Vivre Hospitality, one of the best two or three boutique hotel operators in the world.
JDV now has 37 hotels (up from 24 in 2004) – all either in or near San Francisco.
Along the way, Mr Conley, the founder and CEO, has learned a few things about the fast-growing boutique hotel industry, which is attracting a lot of attention – and people fresh to hospitality – in Asia-Pacific.
“Check your ego at the door, otherwise you’ll spend a fortune to lose a fortune,” he said.
“Make sure you are very clear about what your primary niche market is, and make sure it is large enough to keep your hotel full 365 days a year.
“That’s the problem Ian Schrager had at the Clift (374 rooms). If it was a 200 room hotel it would be fine,” Mr Conley said, revealing how competitive – and important – personalities can be at this end of the market.
Ian Schrager, founder of Studio 54, is probably the world’s most famous boutique hotel operator. Apart from the Philippe Starck designed Clift, his properties include the Dealno in Miami, the Mondrian in Los Angeles, and Morgans in New York.
It hasn’t all been plain sailing for Joie de Vivre. The early 2000s were particularly tough, highlighting the downside of its reliance on the fortunes of San Francisco, the IT and tourism industries.
“Room revenue dropped over 40 per cent in San Francisco. There was the tech wreck, 9/11, SARS, and the convention centre was size-constrained. We were vulnerable to failure but hung in there.”
Not without pain. The company took stern measures, cut costs and retrenched up to five per cent of its staff. Mr Conley, who owns a number of the properties, didn’t take a CEO salary for three years.
It also went on the front foot. “We total revamped the website. One of our greatest strengths was also a weakness – we had too much choice. So we created the Hotel Matchmaker, and by doing that were able to take the emphasis away from price.”
The Hotel Matchmaker, a cartoon brunette known as Yvette, asks guests five questions such as: “What kind of people do you connect with – fun loving/energetic, serene/soulful, charming/urbane, adventurous/active, gentle/quiet, professional/tailored?”
“Yvette” then recommends a hotel based on the response. It could be the cinema-inspired Hotel Bijou, the arts and literary infused Hotel Rex or the Hotel Del Sol, a “boutique motel” – each of which has been created in the image of a niche-oriented magazine.
“We focus on the psychographics versus the demographics of our guests,” Mr Conley said.
In addition to the Hotel Matchmaker, a better booking engine and online incentives, JDV also ramped up its internet distribution through web retailers Expedia.com, hotels.com, Hotwire, Orbitz and Travelocity.
As a result of these actions, online distribution trebled within a year. Growth may have slowed but in 2005 online sales still grew 35 per cent.
Mr Conley said he believes that operators should take all the distribution they can get – but online allocations must subject to strict yield management.
For example, each JDV property is yield-managed individually.
“It’s like when the first supermarkets opened – the way people bought things changed,” he said.
“That’s what are doing for the hotel business. We have to accept that they are not going away and we have no choice but to distribute through these sites. But it is important to regulate how much inventory we give them.”
Overall JDV pricing is competitive – offering a best price guarantee – and the company takes a pragmatic approach.
“When I first started, I liked to charge guests 10 per cent less than guests thought it should cost. But I learned over the years to charge as much as I can,” he said.
“Because running hotels is a cyclical business you need to sock some money away to see you through the bad times.”
However, it is difficult for boutique operators to price higher than the premium chain hotels.
“I don’t think it is sustainable to price above the chains unless you have something that is absolutely unique,” Mr Conley said.
After coming through some tough times, Mr Conley is confident about the prospects for niche operators.
But to survive and prosper, Mr Conley warned, a hotel must offer guests three things: amazing service, a great bed and a high-speed internet connection.
Another tip is to use an existing shell to create a boutique hotel.
“It’s really hard to create a soulful hotel from scratch – and expensive, too.”
He concluded: “The future is still very bright for boutique hotels because people are looking for personalized service on all levels.”