Barr: Consolidation likely to linger; IHG may add to it
 
Barr: Consolidation likely to linger; IHG may add to it
29 NOVEMBER 2017 9:30 AM

IHG CEO Keith Barr downplayed takeover rumors but talked about the opportunities for the company to be a buyer. He also discussed the benefits of the company’s regional realignment.

LONDON—InterContinental Hotels Group CEO Keith Barr didn’t have much to say about potentially being acquired by another company during an interview at the Denham, England-based company’s central London office, but he readily addressed the notion of IHG increasing its size through acquisitions.

Asked about the persistent rumors that IHG would be acquired, Barr’s response was short: “I love when people talk about us; you know, it’s nice to be in the news,” he said.

The spate of hotel industry consolidation during the past two years—including Marriott International’s acquisition of Starwood Hotels & Resorts Worldwide and AccorHotels’ deal to buy FRHI Holdings’ Fairmont, Raffles and Swissôtel brands—should continue for the foreseeable future, Barr said.

“There’s been consolidation taking place, and I think consolidation will continue,” Barr said. “Scale matters in this industry—it’s the ability to invest in the enterprise and technology.”

He said IHG could very well be in the mix if the right opportunity presents itself.

“We’re constantly looking how to grow the company intelligently,” Barr said.

However, the CEO said the company won’t force the issue as it’s comfortable with its scale and position in the market.

“We’re always going to be looking for more opportunities around the marketplace … that’s what you have to do,” Barr said. “As a publicly traded company, you have to look at what can create value for our shareholders, what can really make sure you have a strong sustainable company and identify what looks (good) out there.”

Barr was clear about what he looks for from any potential acquisition.

“I like to buy things out there that make money the bigger they get,” he said. “I like to buy things that are accretive to our company and that make a good strategic fit for us.”

Additional consolidation in the industry is needed by smaller companies that are going to have a harder time competing going forward, he said. It’s becoming a cost of doing business.

“When you’re saying you’ve got to do machine learning for revenue management, you’ve got to have a data-driven marketing organization, you’ve got to invest in a tech stack that enables you to connect end-to-end journey from cloud to hotel … (it’s) hard for small companies to go do that and that’s where you’ll see consolidation take place,” Barr said. “I think we’ll continue to look at how we can take advantage of that.”

Realignment is beneficial to markets
Barr also addressed the new regional structure IHG will have on 1 January 2018.

In September, the company announced a realignment of its global structure that resulted in the creation of one operating division for Europe, the Middle East, Asia and Africa. The EMEAA region will be headquartered in the United Kingdom and operate through strong sub-regional divisions. Europe currently has a separate division.

Barr said the move was made to make the company more agile, nimble and competitive while promoting faster growth. He said he used many lessons he learned a decade ago when he was tasked with creating IHG’s first Greater China region.

“Really understanding where you’re going to go and understanding the difference in markets is critical,” Barr said. “In the new structure, I say Europe is not taking over Asia; Asia is not taking over Europe. We have a real clear market focus.”

Ensuring how the right resources are provided to the various markets is essential, he said.

“Pushing resources down into the markets closer to customers, closer to owners, driving better performance and then making the enterprise work even better for those markets,” Barr said.

Barr said the perception that the division will be operated from London is wrong.

“It’s actually the opposite,” he said. “It really is about having that sharp market focus. The challenge with regional focus is that as they get bigger and bigger … you keep trying to centralize everything. We’ll centralize some things where there’s value in scale, but we want to push along down into the market so that we’re closer to driving performance.”

The company’s approach is to ensure all parties—IHG, its owners and franchisees, and its customers—are reaping the rewards of the relationship, Barr said.

“You have to have a commercial rationale for guests and owners to invest,” he said. “It’s really (about) understanding what’s important to customers, how does that create value for owners in long-term sustainability for their investments because that’s what owners are looking for. They want to make sure that they’ve invested behind a brand that’s going to create long-term inherent value and making sure they do that in a way that’s profitable.”

Profitability for IHG and its franchisees and owners is a topic that weaved its way into the interview several times. Trying to right-size operations and property-level offerings is an important platform for IHG, Barr said.

“I was really struck by talking to people in the airline industry who all talk about every time they put something into the guest experience in an airline they try take something out because they’re worrying about weight in an airline,” he said. “We’re looking at the same things in hotels. Every time we’re asking owners to spend money on something new, is there something we can take out? Is there something that was really important five years ago which may not be as relevant to customers today?”

Barr said the biggest opportunity for the industry is reaping the benefits of scale.

“That’s where it’s really going to drive performance going forward of having that ability to connect customers on a global basis against a portfolio of brands and be more connected with customers, too,” Barr said. “The biggest opportunity is to use data more … to make our customers’ journey (and) lives easier, and so how do we maybe partner with other parts of the travel journey as well, too, will be exciting.”

Barr said he doesn’t expect any reduction in IHG’s growth plans.

“We’re accelerating our growth right now and I want to see that continue, because I think having a really strong global company with the right portfolio of brands makes it a long-term sustainable business, too,” Barr said. “I’d like to see more brands; I think there are white spaces … that I’d like to fill out.”

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