The Okura Hotels & Resorts, is a chain of luxury high-end hotels which provide all the services you need to enjoy Japan to its fullest.
Could you tell us your story surrounding the COVID outbreak and how your hotel group responded to the impact?
Actually four years ago today we finished renovations on the very flagship hotel we are sitting in. The Okura Tokyo was developed to target the Olympics in Tokyo. The plan was to hold the Olympic games in the summer of 2020, so we opened our new hotel the year before. We entered the COVID period without being able to recover from the investment, and if I’m honest I didn’t expect COVID to last as long as it did. I expected to have the pandemic pass by the end of 2020, so having three years of the pandemic meant huge financial damage.
There is a silver lining, however, and the Olympic Games were eventually held and this hotel was used by certain personnel associated with the Games . Japanese companies, as you might know, highly value their employees, so although our business was shrinking we did not fire anyone. However, this move to protect our employees increased the financial hit that we took, so much so that within three years we had already reached a JPY 40 billion deficit. This amount is the equivalent to 10 years profit in our company. Add to that the fact that we just renovated this hotel and it cost us JPY 115 billion in investments. As you can imagine, we were reeling from a massive hit.
With the construction of this hotel, we were able to utilize several schemes and not have any loans for the construction. Overall because we didn’t have any loans we were able to survive the damage caused by the COVID-19 pandemic. I’m sure you’re now questioning how we could accommodate JPY 115 billion without any loans right? This is a composite of the office facility and the hotel facility, and when we were redeveloping we sold the office. We have utilized a special purpose company (SPC) to sell this office section, and the company also made partial investments. The former Hotel Okura Tokyo comprised a Main building and South wing on separate sites facing each other. The plan was to reconstruct the Main building first and then the South wing. However, we finally decided to concentrate all of our resources on rebuilding the Main building and using the existing South building as a long-term lease. With the sale of the office, we were able to acquire JPY 60 billion and from the lease of the existing tower we were able to acquire about JPY 60 billion so in total we were able to cover the cost of the reconstruction of this building. That was cash flow, however, and in the books, we are still in the red, so what we did was sell half of the residential structure of the existing building so we could compensate for the loss. On the balance sheet, it is now balanced.
It is interesting how you were able to offset the costs with these different actions you took. We saw lots of efforts and policies by the Japanese government to try to support the hospitality sector during the lockdown. What did you think of those shot-in-the-arm policies? Do you think they were meaningful or that they had a positive impact?
The Go-To Travel campaign of the Japanese government was launched around 1 year after the onset of the COVID-19 pandemic. Around that time COVID began to escalate even further so the Go-To Travel campaign was halted. The actual scheme finally began to get some traction in Fall 2022 and I believe that it has helped the hospitality industry to expand.
In your answer, you said that despite the very tough conditions you still managed to not lay off any employees during that entire three-year period. I’m sure that securing good human resources is one of the biggest challenges facing the hospitality industry at this time, both in terms of recruiting new workers but also with experienced staff retiring before becoming aged. What is your company’s strategy to address this challenge of maintaining your world-renowned staff?
With COVID hitting when it did, many workers in the hospitality sector have pivoted to careers in other industries. Since many shifted there is now a shortage of manpower and I believe this will continue in the long run. We revisited our roster of staff, and additionally, we have revised our opening hours. All in all, this has changed our style of operation. The purpose is to relocate personnel to high turnover hours of operation rather than keeping them in low operating hours.
Overall the Japanese population is aging rapidly, therefore it is hard to secure new young members of staff. Even before COVID, we were contemplating providing a scheme in Japan to support exchange students, especially from Asia, who are interested in studying hospitality at a college. It was mainly aimed at overseas staff who were working in our group hotels or were interested in working in hospitality but didn’t have a bachelor's degree in the field. We wanted to support those kinds of people to come to Japan and help them integrate into the Japanese educational system. The initial purpose was to support our growing overseas business by securing additional manpower. They come to Japan and study in Japanese at a college for two years while working part-time in our hotel. They then return to their home country and become managers in the hotels we operate there. The students cover one-third of the fees out of pocket, we cover one-third and the final third can be covered by working part-time at our hotel.
One strategy some firms are utilizing to deal with the labor shortage is the use of foreign labor. The other mainstream strategy has been to utilize digital tools and technologies to streamline processes. How do you believe digital tools are changing hospitality in Japan?
Our group, Okura Hotels & Resorts, is a chain of luxury high-end hotels, so we don’t provide services that are outside the realm of hospitality. The existence and the mission of our hotels are to create high contact with customers to increase customer satisfaction. Increasing that satisfaction must not only be through human contact but also through the utilization of DX. We have renewed our systems for next year so that we can accept any request from customers, thus providing a more holistic service. Basically, the front face of the hotel will be much more human-centric, with the back end being more IT-related to increase business efficiency.
From your point of view as the head of the organization, what do you believe makes the Okura Hotel experience truly unique among high-end hotels in Japan?
We stress the quality of our Japanese hospitality service and channel the hospitality spirit that Japanese hotels are world famous for. Hotels often first think about accommodation, and oftentimes hotels delegate their restaurants to other companies. We focus not only on accommodation but also on our restaurant division which provides high-quality cuisine to guests.
In 1962 we established our first hotel, where we are sitting today, and over our 60-year history we have welcomed numerous VIPs. I would also like to express the accumulated experience we have in offering accommodation to VIPs that meet international protocol standards.
You mentioned earlier your foreign student exchange program. Could you tell us more about your vision to develop Okura as a global hotel brand rather than just a Japanese brand? Are there any particular locations that you are looking at for further expansion?
Every year we have a global meeting with all general managers. This opportunity helps our group to come together and gain a deeper understanding of the philosophy of our hotel group. It also allows us to understand the vision and the future path that the group will be taking as a whole. Of course, we cannot contact overseas businesses daily so it is up to the management teams in each locality to manage the operations there.
I think another unique point about our hotels is the restaurants and the cuisine we serve there. To ensure authenticity we dispatch Japanese chefs to locations that are serving Japanese food. We also allow chefs to gain experience in localities for around 3-5 years before coming to Japan for further training. Chefs and staff would take lessons in the local hotels, learning about the basics of Japanese cuisine, and then after 3-5 years they would have the chance to come to Japan and increase their techniques. When they eventually go back to their home countries they can evolve as prominent Japanese cuisine chefs. However, when Japanese chefs are in a local area their trainees tend to follow them, but once the chefs leave, their former trainees sometimes develop techniques that don’t suit Japanese cuisine. If they do this, we can’t maintain the standard.
Let’s take an example of a Thai chef coming to Japan to learn about Japanese cuisine. By doing so we can create connections and the chef can learn all about the protocols of Japanese cuisine. We are not looking to become a mega-global brand, rather we would prefer to focus on specific locations for our operations. In 2018 as a group we called out for what we called the Five-by-Five (5x5) strategy. This involved choosing 5 countries or areas and having 5 hotels there. The 5 countries and regions chosen were Thailand, the Philippines, Vietnam, Indonesia, and Taiwan. We have already managed to achieve 5 hotels in Thailand, with Taiwan and Vietnam sitting at 4 hotels.
To differentiate ourselves from the mega-hotels we want to focus on specific localities and provide services in those areas. We want to not only emphasize accommodation but also the food and available restaurants in those locations. The purpose is to make a local hotel that locals can come and visit frequently with restaurants that people enjoy. We see potential in Southeast Asia which has high growth income.
If we talk about Japanese food culture, it is very well-known in the West. If you go to New York, LA, London, and Paris, some of the best restaurants are Japanese. I think Western consumers understand that high-end experience, but I think when we talk about the Japanese hotel industry, it is not as well understood by Western consumers. Here in Asia, it is appreciated, however, and of course in the domestic market too. Do you agree that Japanese hospitality is yet to be fully understood by Western consumers? Do you think that with an influx of 32 million tourists coming to Japan, it will start to change?
The Okura Tokyo, our flagship hotel, caters to a large number of Americans, almost 30% of our total clients. In total, around 60% are foreigners with 40% being Japanese. Those who choose our hotel are VIPs who understand the hospitality of our group. Oftentimes they are repeat customers. In the 1990s when I visited the US only 25% of Americans held a passport, and although that number is higher now at around 56%, the number that have never left the US is surprising. It is hard to promote ourselves in this situation, so instead we have become a little more passive in receiving VIP guests. Despite this, I am confident that once guests stay in our hotels they will understand why Japanese hospitality is held in such high regard.
Back in the 1990s when the bubble economy burst we stopped our overseas business. It wasn’t until the year 2000 that we began discussing the idea of operating overseas once again. We finally restarted overseas operations in 2010 with our initial hotel in Macau and then in Bangkok and Taipei in 2012.
I think that Japanese people traveling to Thailand instantly knew about our hotels, but with the Macau hotel people from Hong Kong also knew of our hotels. When we established a hotel in Taipei it was instantly recognized because of our customers in Japan, Macau, and Thailand. Actually, in Bangkok, the 2nd most customers come from Singapore, and although we don’t have a hotel in Singapore, people from there have heard rumors that Singapore and Thailand are close geographically. I would say that our overseas operations are not just there to welcome outbound guests from Japan, but rather to penetrate our brand throughout the global market.
An eventual goal is to establish Okura-branded hotels in Europe and the United States, however, the stakes are rather high with those lofty goals. We are still preparing to find new opportunities in those markets. I think by having hotels in those locations more people around the globe can learn about our brand and the uniqueness of Japanese culture.