Malmaison hotel du vin group

Strategic Management Case Study

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Creating the brand: origins of the Hotel du Vin chain

Beginning in 1994 with a 13-bed hotel in Winchester, the co-founders of Hotel du Vin (HduV), Robin Hutson and Gerard Basset – previously Managing Director and Head Sommelier, respectively, at the UK’s premier country house hotel, Chewton Glen – attempted to fi ll a gap which they had identifi ed in the UK hotel market for quality-driven, affordable provincial hotels. Building the brand initially around a quality and affordable in-house bistro, extensive cellar and a central theme of wine, the HduV in Winchester achieved remarkable initial success – a 90% occupancy rate within the fi rst few months of its opening and critical acclaim from the UK media.

Three years later the proto-chain expanded with a second and larger opening of a 34-bed hotel in Tunbridge Wells. By raising a further investment of £5 million ($7.65m; €5.85m) 1 from both initial and new investors, including Anita and Gordon Roddick of The Body Shop, the chain expanded to four hotels by 2001 with openings in Bristol (1999) and Birmingham (2001). By the autumn of 2004 the group had added two further hotels, in Brighton and Harrogate, taking its portfolio to six sites. Additionally, it had acquired, and was in the advanced stage of develop- ing, a former brewery in Henley-on-Thames, and had pur- chased the rights to develop a highly attractive 41-bed site in Cambridge. It had also begun discussions relating to four other potential hotel sites.

CASE STUDY

Hotel du Vin: strategic entrepreneurship and innovative continuity in the boutique hotel sector

Michelle Lowe , Neil Wrigley and Katherine Cudworth

The Hotel du Vin chain is a pioneering, award-winning boutique hotel group operating in the UK. It was estab- lished in 1994 by Robin Hutson and Gerard Basset under the ‘Alternative Hotel Group’ company name. The chain experi enced steady but consistently successful growth throughout the 1990s and 2000s until the group, six hotels strong, was sold in 2004. This case study explores six dimensions of strategic entrepreneurship that defined the development of this iconic British firm.

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This case was prepared by Michelle Lowe, School of Management, Neil Wrigley, School of Geography, and Katherine Cudworth, University of Southampton. It is intended as a basis for class discussion and not as an illustration of good or bad practice. © M. Lowe, N. Wrigley and K. Cudworth, 2013. Not to be reproduced or quoted without permission.

Hotel du Vin & Bistro, Winchester, Hampshire.

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630 HOTEL DU VIN

Achieving a turnover exceeding £18 million per annum and an occupancy rate close to 80% by 2004, HduV had an enviable reputation for quality and enjoyed a high public profi le – AA ‘Hotel of the Year’ (2002) and the Guardian ’s and the Observer ’s ‘Best UK Hotel’ (2003). At this point the co-founders and their fi nancial backers accepted an acquisition bid from the British-based property company Marylebone Warwick Balfour (MWB) Group Holdings for £66.4 million. Signifi cantly, £10 million of this related to the valuation of the HduV brand.

The innovative nature of its initial development and expansion

HduV was an iconic pioneer of the UK boutique hotel market. Like other major players which developed in the sector in the mid-1990s, such as Malmaison and Firmdale Hotels, HduV sought a blend of quality design and service which was able to respond to changing consumer cultures, such as a growing willingness to pay for quality at afford- able prices, the growth of gastro-dining, and early forms of what in the 2000s became known as ‘restaurants with rooms’.

A career-long hotelier, Hutson honed his skills in a series of hands-on roles that saw him rise to the post of Managing Director of Chewton Glen (a luxury country house hotel). After eight years in the role he began to question his long-term prospects in hotel management when it had become clear that there was no opportunity for equity investment and progression from a salaried position. The catalyst for the initial business plan was a lunchtime visit by Hutson and Basset to the Lansdowne Pub in Primrose Hill, London, an early frontrunner among London’s gastro-pubs. Taking further inspiration from successful hotels and restaurants in London, such as Conran, 190 Queens Gate and Blakes, the co-founders formulated an innovative model for the provincial hotel market which focused on a wine-orientated bistro ex - perience with an affordable luxury hotel element. That business plan began with an initial formulation ‘on the back of a cigarette-packet’ – a level of informality that continued with the arrangements for fi nancing the fi rst HduV hotel. That fi nancing saw Hutson seek investment from a wide network of friends and family, and via con- tacts made through his role at Chewton Glen, but signifi c- antly it included two important venture capital investors, Ashley Levett and Charlie Vincent. These ‘business angels’ brought not only fi nancing to the project but a necessary level of expertise, given the co-founders limited fi nancial experience.

The tying together of hospitality and wine, based on the core competences of the directors of HduV, meant that the company was able to leverage a key competitive advantage from the context of a rapidly growing UK wine market. Business partner and co-founder Gerard Basset, a former World Champion holder of ‘Sommelier of the Year’, pro- vided the core capability for the HduV wine branding and was commended by Hutson for his knowledge, which brought ‘credibility’ to the business concept. Consumers in the UK were spending an increasing amount on wine by the late 1990s, with wine’s share of the market for alcoholic drinks increasing by almost a third to 28% between 1997 and 1999. Signifi cantly, this gave the co-founders the opportunity to introduce brand-building events such as wine classes and tastings. They had recog- nised that many of the hotels operating in the market at that time tended to neglect food and beverage as a source of revenue and relied more heavily on room occupancy. In contrast, the forefronting of the wine elements of the brand at HduV allowed the development of multiple ancillary income streams. As HduV Finance Director Peter Chittick commented, these multiple ancillary income streams allowed the hotel group to avoid what he calls ‘black spaces’ and developed a model that worked: ‘Lunch, din- ner, hotel, week, weekend, weekday – 365 days a year.’

Building the brand and appreciating its property element

As the company developed, the role of property in the HduV brand became more and more clear and emerged as one of the key cornerstones of the hotel group’s identity and value proposition. As highlighted by Chittick in Business South Magazine in June 2003: ‘The HduV brand is all about beau- tiful buildings, fabulous food and wine, a relaxed, informal atmosphere and sensible prices.’

Press reviews of Hotel du Vin

‘Hotel du Vin have the whole of Britain to clean up. They get it right, while just about all the others get it wrong.’

Times Magazine , 5 February 2000

‘Where many hotels fall down is in maintaining consistency of their product. Not so for Hotel du Vin . . . Hotel du Vin demonstrates the wow factor. It shows the innovation that everyone in the industry should aspire to.’

The Sunday Times , 29 July 2001

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it ho ut p er mi ss io n fr om t he p ub li sh er , ex ce pt f ai r us es p er mi tt ed u nd er U .S . or a pp li ca bl e co py ri gh t la w.

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HOTEL DU VIN 631

Hutson clearly drove this dimension of the brand, hand- selecting quirky buildings and previously overlooked sites. Together with his wife Judy, he sympathetically and carefully restored those buildings, ensuring each had their own idiosyncratic interiors, mixing classic and con- temporary design which anticipated the ‘shabby chic’ design trend of the 2000s and which emphasised and complemented each building’s history. The distinctive and historical buildings, including a 1715 Georgian house, a Grade II listed 1765 Georgian mansion, an eighteenth- century sugar refi nery, a nineteenth-century eye hospital and a former brewery, were what Hutson aptly described as ‘distressed assets, in the middle of good towns’ and increasingly came to embody the property-backed nature of the HduV brand. When recounting how he identifi ed ‘good towns’ and suitable new hotel sites, Hutson lists particular indicators that he would intuitively look for (types of cars parked at the railway station, or the presence of ‘brass plaques’) to judge the number of professionals. He had a feel for these indicators, and of the ‘growing buzz’ of the towns. He used intensive on-the-ground research, or what he has described as ‘wearing out his shoe leather’. The key to each new HduV site was his intrinsic ability to sense pent-up demand for sophisticated but relaxed cosmopolitan-style hotels.

In addition, he realised the value of being the fi rst mover in the boutique hotel chain sector to enter such towns. In this way, HduV became the fi rst boutique hotel chain to move into Tunbridge Wells, Bristol, Birmingham, Harrogate Cambridge and Henley, fi rmly placing HduV ‘ahead of the curve’. In the case of Birmingham, which broke his normal model of provincial towns, Hutson relied on his sense of the renewal and rediscovery of that city and the architectural attraction of the revitalised ‘Merchant City’ in which the hotel was located.

The challenge posed by the need to balance innovative entrepreneurship and brand management

As the acknowledged creative force behind the growing chain, Hutson admits that the transition from innovative entrepreneur to manager was not a straightforward one, particularly in regards to his quest for idiosyncratic design. He told Locum Destination Review in 2002:

‘With four executive directors and another four non- executives, I’m having to learn to be a bit more demo- cratic these days . . . I’m probably a control freak, but someone has to look after the detail and that’s the way it works . . . it’s so much part of us, I couldn’t possibly do just a cookie-cutter chain.’

Despite the fi rm’s growing success, Hutson and his co- directors were resistant to the notion of rapidly expanding the chain. Indeed, privately they had acknowledged a limit of developing only eight to ten hotels in the chain early on in the venture. As HduV began to reach that target and its 10-year milestone, the co-founders began to voice concern that the company was becoming too large and unyielding for them to control, to the detriment of the service offer. Hutson recalls how the fi rm began to become less fl exible and started to lose the cohesiveness vital to effective know- ledge sharing between management and employees:

‘I’d got to the stage where I didn’t know all the staff members’ names and, you know, things were going on in the hotels that I’d lost control of . . . Gerard would talk about this as well . . . we’d recognise things that were not as good as they should be and not . . . not as we intended them, and just very diffi cult to infl uence and turn around really.’ 2

In order to tackle the management issue of maintaining and controlling the HduV brand, Hutson employed a strat- egy of ‘incubation’, which he felt helped ‘keep the culture going’ as HduV grew. Each new hotel that opened was run by a manager who had previous experience of running the Winchester HduV. In this way managers were initiated in Winchester and the directors had the opportunity to over- see their profi ciency before promoting them to the respon- sibility of running a newly opened part of the chain. As Mike Warren, Brand Director at HduV, notes: ‘[It] was a direct transfer of the knowledge, skills – bang! Open [the new HduV] and do what we do in Winchester.’ 3

However, due to the continuing expansion of the group, this strategy of incubation and ‘bringing up staff through the ranks’, in order to imbue workers with an implicit knowledge and understanding of the culture and the brand of HduV, was not feasible for all members of staff. Both Hutson and Warren questioned whether the expansion of the chain, both prior to and following its buyout by MWB, made this strategy less feasible. Speaking of the Harrogate and Brighton openings, Warren talked about having to employ key staff members such as sommeliers and recep- tion managers from outside the company, and admitted that the essence of HduV got ‘slightly diluted’.

The sale of the chain and its strategic implications

In moving to acquire the chain in 2004, MWB’s strategic intention was to pair HduV with its own boutique hotel brand Malmaison, and to exploit the back-offi ce synergies possible by merging the chains’ duplicated functions such as fi nance and HR systems, purchasing, supply chains, and

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it ho ut p er mi ss io n fr om t he p ub li sh er , ex ce pt f ai r us es p er mi tt ed u nd er U .S . or a pp li ca bl e co py ri gh t la w.

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632 HOTEL DU VIN

management of the two hotel brands. Both for the directors of HduV who sold out and for MWB who acquired the chain, the sale raised important strategic issues.

The challenge faced by its new owners following the merger of Hotel du Vin and Malmaison

The merger and subsequent expansion of both the HduV and Malmaison groups raised the serious challenge for MWB of managing two separate brands and workforces under a single senior management team. Robert Cook, for- mer CEO at the joint group Malmaison Holdings, a sub- sidiary or MWB, described both the chains as having their own ‘personality’, and his central strategy of keeping each distinct from the other. He likened HduV as the ‘shabby chic country cousin’ to the ‘sleek and glamorous’ Malmaison, or alternatively as the Morgan car to the Maserati. 4

Although initially Cook found the brand divide to be a potential impediment, as staff were unwilling to ‘jump the fence’ to work in the other hotel group, two to three years after the merger he felt that this trend had reversed and staff mobility, with the help of key ‘trailblazing’ individuals such as Warren, became as fl uid between the two groups as it had traditionally been within: ‘ What we did do was . . . we created a sort of culture that we’d develop from within, so therefore, if you’re a deputy in a Hotel du Vin, you’ll then go and become a deputy in a big Mal, to then come back to being a number one in a Hotel du Vin.’ 5

Between 2004 and 2011 MWB rapidly expanded HduV by a further eight sites. Following minor adjustments to its operating model, the new owners were keen to continue to exploit the intangible assets of HduV, closely following the winning formula of the brand, namely hotels in historic buildings within essentially provincial towns and cities with year-round demand. It is clear from key individuals within both HduV and Malmaison that during this rapid expansion and consequent organisational restructuring there was a focused endeavour by the new owners and managers to simultaneously retain the ‘culture’ of both brands.

The key challenges faced by the two companies follow- ing the merger were as follows: 6

● Ensuring the values and cultures of both Malmaison and Hotel du Vin were not diluted whilst bringing the two workforces together under the same operational leadership

● Managing signifi cant growth from 11 hotels to 27 hotels in less than four years, creating over 1500 new jobs

● Creating a continuous learning culture while meeting the needs of the guest, the group, the local hotel and the different learning styles of the people in the business

● Protecting the ‘DNA’ of both groups (the people) to secure the groups’ success.

In addition to the branding and human resources chal- lenges posed by the merger, MWB was also faced with the task of marrying two managerial and operation styles. Talking of the differences existing between the two brands following the merger, Warren describes Malmaison as hav- ing more of a centralised corporate structure compared to HduV’s management style:

‘My view is that one of the brands was too systematic and too procedural and had too much bang-bang-bang- bang-bang, and the other didn’t have quite enough. That was the big difference, you know, and . . . some of the systems and procedures in Malmaison were essential and were very good, you know, for managing . . . cost perspective and purchasing . . . but some . . . were not, and were less human, they didn’t take account of, per- sonality, you know?’ 7

Sustaining entrepreneurial innovative energy following the chain’s sale

Following the sale to MWB in 2004, Hutson remained with HduV for a few months to oversee the transition and development of the Henley site. With the exception of the operations director, all the key directors from the board left the business. However, rather than being severed after the sell-off, the network ties of the directors were reworked and reformulated. Hutson, Basset, Chittick and Levett all pur- sued new entrepreneurial enterprises within the industry. These entrepreneurial relationships – based on reciprocal links between the new business ventures – meant that, with the exception of Basset, each has at some point been involved with no fewer than two companies founded by another member of the original HduV board.

Many of the new business ventures of the HduV directors are characterised by hybridisation – that is to say, they appear to straddle the divide between the original HduV concept and intimately related spin-off concepts. One example of this would be Hutson’s new venture ‘The Pig’ proto-chain, envisioned as a ‘Hotel du Vin for the country’ and drawing heavily on its predecessor’s core strategy, that is providing luxury without formality, shabby chic design and quirky idiosyncratic buildings set in locations which have the potential to offer year-long demand. This chain, which by 2013 was three hotels strong, has by common consent phenomenal potential to expand. Indeed, Peter Chittick, who was involved in the fi nancial strategy of the chain, believes that, like HduV earlier, it could be ‘easily rolled out in up to eight to ten locations in the UK’.

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it ho ut p er mi ss io n fr om t he p ub li sh er , ex ce pt f ai r us es p er mi tt ed u nd er U .S . or a pp li ca bl e co py ri gh t la w.

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HOTEL DU VIN 633

Hotel du Vin and Malmaison: future strategic challenges

By 2010–11 the combined turnover of the two hotel groups had exceeded £160 million and both chains shared similar high occupancy rates of around 77%. HduV con- tinued to win critical acclaim and accolades after its sale to MWB, such as the Guardian ’s and the Observer ’s ‘Best UK Hotel’ title which it received between 2004 and 2009. See Table 1 for key performance indicators.

The successes of both the HduV and Malmaison chains have been paralleled by the acute fi nancial problems faced by their parent company MWB Holdings, which collapsed into administration in November 2012 following a dispute between the group and its subsidiary, the offi ce space provider of MWB Business Exchange, to which it owed £8 million. Shareholders Pyrrho Investments, the Hong-Kong-based fund which owns 24% of MWB Group Holdings, blamed the ‘poor corporate governance’ of former group CEO Richard Balfour-Lynn, who resigned from the company in March 2012.

Despite debts in the order of £230m, Malmaison and HduV Chief Executive Gary Davis stated that the collapse of the parent company would not impact on day-to-day operations and that, following strong business perform-

ances from both hotel chains, the group plans to continue expanding both brands with the launch of 12 new hotels over the next 10 years, with a new Malmaison to open in Dundee in 2013.

Finally, in reviewing the growth of HduV post-sale, Hutson offers his thoughts on how the chain has been able to sustain its strong business performance and continue to expand, despite facing the strategic diffi culties that follow a shift of governance towards a larger corporate structure:

‘It’s the graveyard of many a good entrepreneurial business, isn’t it, sort of going from that small . . . small hands-on approach into something more corporate. With the Hotel du Vin I think because the concept was strong enough, it seems to have weathered [that transi- tion] reasonably well.’ 8

Notes and references 1. £1 = $1.53 = €1.17. 2. R. Hutson, personal communication, 2011. 3. M. Warren, personal communication, 2011. 4. Robert Cook, Directors Magazine , June 2008. 5. Robert Cook, personal communication, 2011. 6. Sean Wheeler, Group Director of People Development at HduV and

Malmaison, quoted in Leader Magazine , 2008. 7. M. Warren, personal communication, 2011. 8. R. Hutson, personal communication, 2011.

Table 1 Key financial and performance data of HduV and Malmaison

Year Total revenue (£000) Operating EBITDA (£000) Occupancy rate (%)

HduV Malmaison HduV Malmaison HduV Malmaison

2004 – 32,628 – 8,568 82 78 2007 37,074 58,198 9,143 14,761 83 78 2008 45,314 62,322 9,927 16,526 81 79 2009 50,763 60,271 11,221 15,366 81 78 2010 50,385 60,815 11,507 16,268 78 77

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