Southern hotel chain eyes the north

By Graeme Kennedy

Friday 10th March 2000

MOUNTAIN HIGH: The A-Line Hotel, Queenstown, is one of the group's gems

FOCUSED: Brendan Taylor sees growth in 3-4-star hotel sector

New Zealand-owned three to four-star hotel chain Scenic Circle is continuing its rapid growth of the past five years with plans for a strong North Island presence to double its size by 2002.

The Christchurch-based company started modestly 20 years ago. Wealthy Americans Earl Hagaman and Ralph Brown operated six tourist-oriented hotels until Mr Brown died in 1995.

The chain now has 800 rooms in 13 properties under its brand as a result of management contracts and marketing agreements. A fourteenth property is scheduled to open at Punakaiki Rocks in October.

Managing director Brendan Taylor said Scenic Circle was installing a $500,000 central reservation system and planned further expansion in the Auckland and North Island regional markets.

Mr Taylor said the company was in discussion with several Auckland groups which could lead to Scenic Circle hotels in the city within four to six months.

"And we are identifying other areas where we feel we need to be, like Rotorua," he said.

"We see ourselves as good supporters of the smaller developing centres such as Napier and Tauranga and we will be seeking strategic alliances and management contracts.

"We will double in size within two years - we are looking at 26 or 28 properties throughout the country, working with independent hotel owners."

Engineer-adventurer Ralph Brown moved to New Zealand in the mid-1970s seeking investments and a new lifestyle. Mr Hagaman, who made a fortune from oil investments and is featured in The National Business Review Rich List, came to holiday with his old friend and decided to stay.

Together, they began buying hotels including Dunedin's Southern Cross, the Glacier country Hotel at Fox, the Lakeland at Queenstown and Graham's Motel and the Westland Motor Inn which have since been amalgamated as the Franz Josef Glacier Hotel.

They floated Scenic Circle in 1987 but, caught by the crash and subsequent market downturn, bought the shares back to re-privatise the company.

Mr Brown, a keen outdoors man who had shared adventures with mountaineer Graeme Dingle, died from a heart attack while fishing in the remote Canadian wilderness a week after he won the world jet-boat championships in Canada.

Mr Hagaman bought his friend's shareholding - including a parcel placed in trust for the National Geographic Society - and now owns the Southern Cross, the merged Franz Josef hotels, Glacier Country, the Cotswold in Christchurch and the A-Line in Queenstown which Scenic Circle formerly operated under contract.

Now a New Zealand citizen, Mr Hagaman also owns 42% of Dunedin's casino in the Southern Cross, which is being expanded with the addition of another 30 rooms.

"Earl's philosophy is that he has enough of his own wealth invested in the industry here to show he's serious about it," Mr Taylor said.

"We are now concentrating on management and marketing contracts, charging a fee to operate hotels for owners and investors under our brand and backed by our sales and marketing, group purchasing power and operational expertise,"

"We have the base, the infrastructure, the support and the grunt to support independent hotels and our new central reservation system can only benefit the operation.

"The overseas chains are moving in but we see ourselves as New Zealanders.

"We live here and owners and investors can talk directly to us because we put our faces behind the company - overseas organisations can't do that.

"Being New Zealand-owned and based, we are aware of what is needed to make a profit here while a lot of overseas chains underestimate the New Zealand environment.

"Our company is very hands-on without a big, expensive infrastructure so we are able to make the most out of our profits."

Mr Taylor said Scenic Circle had been consistently profitable with a 15% gain last year while most competitors had been "going backward" due to over-building in major tourist areas including Christchurch, Queenstown, Rotorua and Auckland - especially for the America's Cup.

Wellington, he said, was about two years away from being over-built (when hotel operators in an over-capacity market are forced to drop rates and buy business).

Mr Taylor said most profitability and growth in the New Zealand hotel business was in the 3 to 3.5-star sector where Scenic Circle was firmly positioned.

About 60% of revenues came from the inbound tourist market, 30% to 35% from corporate travellers and the rest from domestic leisure activity, he said.

The corporate market was growing as businesses focused on their own profitability and turned more toward the three- and four-star product like Scenic Circle's rather than the five stars, he said.

The company has expanded its corporate sales division with representatives in Auckland, Wellington and Christchurch.

Mr Taylor joined Scenic Circle eight years ago as Franz Josef manager, rose to group operations manager and, on Mr Brown's death, to managing director. He had previously been operations manager for the Tower hotel chain and manager of Fiji's Treasure Island resort.

All Scenic Circle properties, he said, were different in style - from Wellington's Abel Tasman, the Fino Casementi all-suite hotel and Pacific Park in Christchurch to The Marlborough in Blenheim, Hamilton's Alcamo, the Wanaka Hotel and the Gold Ridge in Queenstown.

Managers were chosen to match their personalities with hotels - a Franz Josef manager would not come from an Auckland corporate background, he said.

"The variety encourages individuality and allows managers to make the most of their strengths," Mr Taylor said.

"There's nothing worse than staying at the same hotel chain where every hotel is the same and we find our customers enjoy the variety.

"We want Scenic Circle to be a 3.5-star product that meets the standards of the areas we are in and the needs and expectations of customers while maintaining our individuality."

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