Riu Hotels

Five-star growth

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Carmen Riu’s focus on quality and a gradual approach to growth has seen the sun shine on Riu Hotels.

While executives can forge strong bonds with their management teams, few look across the boardroom table and see someone they have known their entire life.

Carmen Riu, Co-President of Riu Hotels, a Mallorca-based international hotel chain, runs the company alongside her brother Luis. The pair are the third generation of their family to run and grow what is now one of the top 30 global hotel chains by size.

Headquartered in the siblings’ native Palma de Mallorca, Riu Hotels runs 107 hotels across the world. Every year 3.2 million guests pass through its locations across Spain, South America and the Caribbean.

At a time when the hotel industry has been shaken by recession, and Riu Hotel’s home market of Spain has found itself at the center of the Eurozone crisis, the siblings have used their strategy of organic growth to expand.

Underpinning the company’s steady growth has been the Riu’s focus on quality as opposed to package tourism. Each decision is made with an eye on fulfilling client needs and generating return business.

Our growth will be up to a maximum of seven hotels each year.

Their strategy is to repeatedly update their hotels to fit changing tastes and launch niche lines, such as adult-only hotels and family-friendly resorts.

“We think it is more important to make our hotels perfect, with our clients being content, than simply increasing the number of beds,” Riu says.

While some of Riu Hotel’s competitors have fallen on hard times as a result of overexpansion and borrowing during the credit boom, Riu argues that the company’s family management structure has enabled it to concentrate on the longer-term consequences of strategic decisions.

Unique management structure

Unlike many listed hotel chains, Riu Hotels does not organize itself using a typical boardroom structure. Instead, Carmen and Luis Riu sit above a team of five managing directors with whom they meet every month to discuss new ideas and get a snapshot of how each division of the operation is performing.

“It is a structure more similar to how German businesses are organized,” says Carmen, referring to the practice of using a team of managing directors to run the day-to-day operations of the company, rather than a full board of directors that makes all strategic decisions.

“There are not many companies with a brother and sister as CEOs of equal ranking. When we make decisions together, it is not always a question of making the good decision, but sometimes the least bad one. Having someone you can talk to in whom you have complete confidence is very helpful.”

Taking the long view

With 25,000 employees, Riu has not made significant reductions to its head count during the financial crisis. Instead, the business has maintained investment in its hotels.

Riu believes that, by remaining family-owned, the business can be managed in a way that gives it flexibility and agility, allowing it to make decisions faster than more bureaucratic listed competitors.

“There are advantages compared with being a listed company,” she says. “Decisions can be taken more quickly, and we don’t need to pay a dividend.”

“In this type of business,” she adds, “you have a responsibility to make sure it moves forward, but also to pass it on to the next generation.” This means taking into account the impact the decisions will have on the business over decades, rather than the next corporate reporting window.

The company has grown internationally over the past two decades, expanding from its original base in Spain’s Balearic Islands, but the siblings have paced the opening of new hotels to ensure that each maintains its quality, and to allow enough resources to be allocated to renovating existing hotels.

“We want to grow organically,” she says. “We want to have the best standards of quality, and we have decided that our growth will be up to a maximum of seven hotels each year.”

While the hotel sector saw a drop in demand during the economic crisis, as tourism fell and business-related travel collapsed, Riu has opened new hotels in fast-growing South American markets and brought older hotels up to date, in some cases demolishing them completely.

Meanwhile, some competitors that borrowed heavily during the credit boom over the past decade have been forced to retrench, or sell off hotels. Riu’s slower and steadier approach has meant investing and maintaining staff levels when others were cutting, giving the business an advantage during the financial crisis.

“In the first years of the crisis, we slowed down a little, but we are now opening new hotels in the Caribbean and one in Berlin, and we are also building hotels in Panama and Costa Rica.”

The company has also enjoyed strong bookings in the Caribbean, with the company responding to increasing demand from the United States for hotels in Central America.

One of the initiatives Riu Hotels has pursued has been adult-only hotels, which Riu cites as an example of how she and her brother have listened to clients and tour operators and responded to changing tastes.

Lessons learned

But what is the biggest lesson the siblings have learned in the three decades they’ve worked in their family business?

“I think a company with a business model that has worked for many years is constantly learning,” says Riu, referring to Riu’s gradual growth strategy, which eschews big risks.

But if there was one game-changing call, Riu cites the decision to leave Mallorca in 1985 and open a hotel in the Canary Islands, allowing the group to do business all year due to the hotter weather.

This was the start of the group’s moves into new markets. Further expansion will be grounded in the lessons the Riu family learned when they first ventured from their home market.

“You have to confide in people outside your home base and learn to delegate - that is very important in order to grow,” she says. “You must also try to understand the different cultures of other countries and that is more subtle than simply using good lawyers.”

Most importantly, Riu Hotels remains determined to stick to a gradual approach to expansion. Riu believes that this approach will always help her brother and her make the best decisions for not only a growing business, but a part of family history spanning three generations.

“We are not only going to worry about the next shareholder meeting,” she says. “We are thinking about the next 20 years.”

Given Riu Hotel’s performance over the past two decades, it’s a strategy with proven success.

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