Editor’s note: Every Sunday Fortune publishes a favorite story from its magazine archives. This week, we turn to a 1953 article about Conrad Hilton, founder of Hilton hotels. The company this week returned to the public market, after being taken private by Blackstone Group in 2007 shortly after the start of the recession. Hilton Worldwide Holdings
HLT
raised $2.35 billion in a record initial public offering for the industry. Here’s a look at how its founder built the brand and how he saved his hotels from foreclosures during the Great Depression.
If it held no other fascinations-and it has a multitude of them-the Hilton Hotels Corp. would still incite businessman’s admiration for the manner in which I put together by the acquisitive genius of Conrad Nicholas Hilton from down Texas way. Only a dozen years ago Conrad Hilton, then fifty-three, was a relatively small-time operator -his personal check good for perhaps $250,000 – rummaging around for bargains in the godforsaken hotel business. Unless you were a travelin’ man, hitting the dusty local stops in the southwestern swing, the chances are you never heard of Hilton or his hostelries until he made a paragraph of national news with his purchase of the snobbish Los Angeles Town House in 1942. The next year he bobbed up in New York, bought the bustling Roosevelt and the grand old Plaza, and some time afterward wrapped up Chicago with the purchase of the Stevens, world’s largest hotel, and the historic Palmer House. Sundry others followed, including Washington’s Mayflower in 1946, and in 1949 he was the Man Who Bought the Waldorf. Next month he opens the Castellana Hilton in Madrid, next year he’ll greet the first guests in a Hilton hotel now building in Istanbul. In his live prospect file, some fifteen locations, foreign and domestic, are listed in order of feasibility. The last item: Jakarta, Indonesia.
It is not, however, the quantity of the collection (fifteen hotels, 13,000 rooms) that impresses so much as its quality, and, of course, the virtuosity of Hilton’s performance. For this empire of Hilton’s is no potpourri. Though some hotels were sold off for the obvious lump profit-in his lifetime he has completed forty-three hotel deals – he never lost track of his grand design. And while some of his deals were lightning fast, others were years in the consummation.
Three talents in large measure explain Hilton’s success. First, he is a fast man in an appraisal, and never approaches a hotel property without a remarkably accurate estimate of what it is earning or could be made to earn. Second, he is a smart negotiator who can sell himself to others. But third, and most important, he is an extremely resourceful financial strategist who knows every move in the book.
How Hilton did it
In acquiring his properties, Hilton utilized every conceivable approach-sometimes buying up the bonds at bargain rates, sometimes quietly appropriating the stock in the open market, sometimes making a quick cash offer at the propitious moment. His forte was buying big, debt-laden hotels for small amounts of cash, and then finding ways to refinance the fixed obligations at advantageous interest rates. As the properties under his control multiplied-they were all separate corporations at first-he began to juggle them around, often selling the prosperous ones to the unprosperous ones to get the tax benefits. He was particularly adept at forming syndicates to purchase hotels, set up so as to provide a tax harbor for himself and his fellow investors while they watched their equities grow.
At first, the syndicate members were mostly old friends and faithful employees, but as Hilton’s stature rose, big dealers like Floyd Odlum and Colonel Henry Crown, Chicago’s emergent moneyman, were glad to get aboard. But Hilton, who rarely took less than 25 per cent of a deal, was the boss, and built his empire according to plan. How well it was planned, and executed, was shown in 1946 when the companies were consolidated into the Hilton Hotels Corp., the stock of which was listed on the Big Board. One effect of the consolidation was to reduce the aggregate debt by 27 per cent. Upon exchange of stock, the investors in the old companies found their original holdings had increased in value approximately 275 per cent. As for Conrad Hilton, his own equities in the corporation at that time had jumped to more than $9 million.
That is the dramatic side of the Hilton story. It must also be pointed out that Hilton acquired his major properties just as the whole hotel business was entering a boom, and be rode along comfortably with it. Nevertheless, dashing trader Hilton knew an extra trick or two about the business of wringing a profit from the day-to-day operations of a hotel. Almost without exception, hotels taken over by Hilton management s}J.owed sharp improvement in operating ratios within the very first year. This was certainly an important factor in his ability to attract capital.
To imply that Connie Hilton excels in and loves the minutiae of hotel management would be gross fabrication; on the contrary, he is bored by them. But he is never bored by profits, and is highly impatient when any of his properties fails to earn what his calculations show it should. Such profits are the vindication of his beloved “deals.” His managers see that he gets them.
With minor exceptions each Hilton hotel is considerably more profitable than the average hotel of its comparable size and class. The Hilton group’s gross revenues of $87 million in 1952 topped all hotel chains. Sheraton was next with $64 million (year ending January, 1953), Statler third with $52 million. On a basis of pre-tax earnings on capitalization, Statler made 12.9 per cent in 1952; Hilton 12.7 per cent; and Sheraton 12.1 per cent. Sheraton’s net profit after taxes last year was $4,725,000; Hilton’s was $4,520,000; Statler’s $3,520,000.
To each his own
In character and concept, however, Hilton Hotels Corp. differs strikingly from rival hotel chains; in a sense, indeed, they and Hilton are not rivals at all Sheraton, for instance, with twenty-nine, has twice as many hotels in the U.S. (and Canada) as Hilton, hut only 1,000 more rooms. Sheraton, though it now favors big hotels, too, will move in on any reputable property, transient or residential, where it sees an opportunity to make good earnings. Statler has eight commercial hotels, all wholly owned, and all of them built by Statler. It is a drumright, highly stylized operation with central purchasing and administration, and standardized service throughout.
Hilton, on the other hand, is now interested only in the biggest, and if possible the best, hotels in the larger cities. Prestige is paramount in the Hilton scheme of things, and more than once he has subordinated profit in order to secure it; the Waldorf and the Plaza, for instance, are more important for the tone they lend than the earnings they contribute to the Hilton system.
Hilton always wanted a hotel to be strong in what he calls its “function facilities,” for reasons of both prestige and revenue production. Eight of the Hilton hotels have elaborate facilities for conventions and banquets. The eight: Conrad Hilton ( n’e Stevens) , Palmer House, Dayton Biltmore, Jefferson (St. Louis), Mayflower, and the three New York hotels. Last year they contributed $77 million of the company’s $87-million gross. Though convention business is recorded on the books as approximately 15 per cent of the Hilton Hotels Corp.’s gross, that figure vastly underemphasizes the real worth of conventions to the system. Since such business can be effectively solicited, prepared for, and thoroughly cost-controlled, it is immensely profitable to a hotel. The Conrad Hilton and the Palmer House, which together furnish more than half of the corporation’s net profit, draw a third of their revenues from conventions.
“Most of our hotels,” Connie Hilton explains, “were intrinsically great hotels when we acquired them. We try to bring out that greatness to its full potential. The last thing we want to do is change their character, and make them so many peas in a pod.” Statler standardization, highly efficient though it may be, is therefore not attempted by Hilton, though of course his hotels avail themselves of certain obvious advantages of group ownership. The principal furnishings and equipment of all Hilton hotels, for instance, are purchased through Marshall Field & Co., on a cost plus 5 per cent arrangement. The hotels have an inter-reservation system, feed each other patronage, and pass the valuable convention business around the family circuit.
The gold diggers
Hilton has never yet taken over a good hotel and failed to make it better from a revenue standpoint. The traditional Hilton procedure is called “digging for gold,” a romantic term for utilizing every possible foot of space for the production of maximum income. This operation has accomplished some flashy results. At the Palmer House, for example, a bookshop paying $300 a month rent was booted out and replaced by a cocktail lounge that grossed $1,000 a day; employee locker space was shifted to make room for fifty additional transient rooms ; a ground-floor luggage room was banished to the cellar and replaced by a thriving liquor store. Palmer House profits rose $1,500,000 in the first Hilton year. At the Plaza, Hilton turned cellar storage space into the fashionable Rendez-vous room. which grosses $600,000 a year, and by removing a stockbroker’s office (rental, $5,000 a year) from the ground floor to space upstairs, he was able to reinstitute the Plaza’s famed Oak Bar, for an additional annual gross of $225,000. Even the majestic Waldorf-Astoria was modestly exploited in this fashion. When the lobby pillars were being repaired, two of them turned out to be non-structural and hollow. The management immediately installed vitrines, which means showcases, which rent for $5,000 a year.
Though “digging for gold” is still standard operating procedure, it has about reached its maximum in most Hilton hotels. Less spectacular, but more important and more enduring, is the Hilton airtight system of cost control. Actually, it is no different from the system employed by all the big hotel chains (there are no longer a.ny secrets of moment in the hotel industry) but no one pm·sues it more relentlessly than Hilton. The core of the system is a monthly profit-and-loss forecast prepared by each hotel, and supplemented by a daily statement of business done (of which copies are forwarded to the central office in Chicago, and to Conrad’ Hilton, wherever he may be). The monthly forecast is completed· about ten days before the first of the month (e.g., the July forecast is filed on June 21). The estimate is based on convention, banquet, room reservations, and other business already booked, and on the type and amount of business done during that month in the preceding year. Its primary purpose is payroll control (payroll amounts to 36 per cent of all Hilton costs). Because management is thereby forewarned of slack periods, it can trim ship by laying off extra help, and by inducing as many of the regular employees as possible to take vacation
The crush is over
This type of control has been of immense importance during the past eleven years because it is not so easy to fill up a hotel as it was during the war . The national occupancy rate for a ll hotels has been declining steadily, and Hilton is no exception. In 1946, the peak year, the average for Hilton was 92 percent. Last year it 1vas 76 per cent, about two points below the national average. This has no t been reflected in earnings, since average room rates have been increased substantially (average room at the Ploza, for example, was $7 in l946; now it’s over $11). Nevertheless, the problem is there Hilton is alert to it. For one thing, Hilton is emphasizing salesmanship to a degree it never found necessary before (as will be detailed later), but in the hotel industry results J’rom this effort come slow. The immediate answer is, by the exertion of strict controls, to make more money out of the guests you’ve got . Some Hilton hotels could drop to 50 per cent occupancy for a time and still make a profit.
Policies of this kind are applied throughout the Hilton system. But the strength of the system remains at the local level; the central office at Chicago, with only twenty-two employees, is primarily a clearinghouse. Connie Hilton in invests a great deal of confidence and considerable autonomy in his general managers. Most of them he has made relatively rich by cutting them in on his notable deals. They are expert at anticipating his desires.
So, from an operations standpoint, the Hilton Hotels Corp. is far from a one-man show. If sixty-five-year-old Connie Hilton retired tommorow – which he hasn’t the slightest intention of doing-it might cause some intern al commotion but should scarcely cut a ripple in the smooth flowing course of the company’s custom, service, or profits. Nevertheless the policy of the corporation and its posture in the industry can only be interpreted in terms of the urgings and ambitions of the man Hilton. He always wanted to be rich- as who does not?- but he wanted the honors with the emoluments, national prestige, and public identification with the “biggest and the best.”
Back when Hilton’s operations were confined to Texas and the Coast, he remembers how he stretched a slim budget to pay for a series of ads in Time magazine. “I wanted to tell people all over the country my little hotels,” he says, and then adds a most un-Texan like remark: “I was determined to be more than just Texas.” But it was Texas that toughened him, and schooled him in the wiles of finance as well as in the arts of innkeeping. Connie was born in San Antonio, New Mexico, the son of August Hilton, a Norwegian immigrant who was himself a trader and enterpriser of parts. Papa owned a general store, a hotel, a bank and a small coal mine. Connie was educated in military prep schools, and had a couple of years of college. He joined his father’s business, and was bumptious enough to get elected to the state legislature at the age of twenty-four.
At the close of World War I, in which Conrad Hilton served in France with the Quartermaster Corps., Hilton Sr. died at a period when his fortunes were low. With $5,000 to his name, Connie quit New Mexico for the oil-mad town of Cisco, Texas, where he hoped to buy an interest in a bank. While lounging in the lobby of a miserable fleabag called the Mobley Hotel, he saw so much traffic that the decided to buy the hotel instead of the bank. With his $5,000, plus $15,000 from friends and a $20,000 loan fro the Cisco bank, he formed his first hotel syndicate. In the enxt fifteen years Hilton bought, built, or leased some eighteen hotels throughout Texas.
The California conquest
During the depression Hilton lost several of his hotels through foreclosure. But his chief creditor, the American National Insurance Co. of Galveston, promptly hired Hilton to manage the properties for a salary of $18,000 a year, and by 1938 he had won back possession of five hotels and was headed California way to purchase more.
It was a time when the financial community regarded the hotel industry as the poorest kind of investment. But Hilton saw that the situation was due not to inherit weaknesses in the business but to the fact that the industry had been terrifically overbuilt and flagrantly over financed durgin the 1923-29 boom. He realized that, with their debt reduced by 77-b reorganizations, any number of fine hotels built in the Twenties were now in position to make good money. But the average investor was thoroughly browned off on hotel securities, and long after the general market began to climb they remained dirt cheap. As early as 1938 Connie Hilton began buying the bonds of the Stevens Hotel at about 25 cents on the dollar, and as late as 1942 he bought Waldorf bonds at 4 1/2 (sold eighteen months later at 87 1/2 for a profit of $390,000).
Connie’s first California deal showed his mettle as a trader, and also served to introduce him to capitalists from Chicago. A syndicate, headed by broker Packey Dee and Lawrence Stern, president of the American National Bank & Trust of Chicago, had sent a bright young lawyer named William J. Friedman out to San Francisco to arrange the purchase of the Sir Francis Drake Hotel. Through friendship with Asa Call, president of Pacific Mutual Life, which held the first mortgage on the hotel, the group expected to cinch the deal quickly. But Call regretfully reported that one of his vice presidents had already given a commitment on the mortgage to “some fellow from Texas named Hilton.” They next approached the bank that held the general mortgage bonds, but found Hilton ahead of them on the option. Packey Dee was then summoned to conference, and declaring “If we can’t lick ‘im, join ‘im,” offered Hilton a half interest in the deal. Hilton laughed pleasantly and said, “I’ve got the deal and you haven’t. How would you like 25 per cent?”
Hilton and Dee formed a $300,000 syndicate, and purchased the hotel for $275,000 cash, leaving $25,000 as an operating fund. This was the way the purchase money was distributed: for $50,000 the syndicate bought the capital stock and shareholder notes, which had a face value of $1,800,000; they paid $100,000 for second- and third mortgage bonds totaling $675,000; and they reduced the $1,625,000 Pacific Mutual mortgage by $125,000, in consideration for which Pacific Mutual gave them a lower interest rate on the remaining mortgage. Four years later the Sir Francis Drake was sold for a net profit of $500,000. Friedman, by the way, was hired as Hilton’s general counsel. Packey Dee was a co-investor on the Stevens deal and banker Lawrence Stern is a director of Hilton Hotels Corp. Among other California deals, Hilton picked up the Breakers at Long Beach. by paying 10 cents on the dollar for its bonds (he sold it in 1947 for a profit after taxes of $744,000), bought the Rosslyn in Los Angeles for $400,000, and finally the Town House in Los Angeles, for which he paid owner Arnold Kirkeby $175,000 cash and assumed debt of $830,000.
Connie steps out
With the acquisition of the Town House, Hilton first savored, if not national prestige exactly, national publicity. The Town House, on Wilshire Boulevard, had been built in 1929 at a cost of $3 million. Its luxurious suites and pretentious services (guest telephones in the elevators) drew the patronage of Tallulah Bankhead, Noel Coward, Henry Kaiser, Howard Hughes, Benson Ford, et al. Connie Hilton himself became something of a Hollywood celebrity and it was during this period that he married the spectacular Hungarian beauty, Zsa Zsa Gabor, and perfected his celebrated aptitude at dancing the varsoviana, a sort of supercharged waltz.
When it came to acquiring his first New York hotel, Hilton exhibited a strange delicacy. Instead of attempting to knock over the Waldorf-Astoria, which was his heart· desire, he bought control of the Roosevelt, which wasn’t much of a deal by the usual Hilton standards. The Roosevelt is one of the so-called Grand Central group of hotels owned by the New York Central Railroad. The railroad owns the land, the building, the furniture and the equipment. What Hilton bought in 1943 for $100,000 in cash (and debt of $1,800,000) was control of the leasehold, running to 1964, with no renewal rights. The rent is based on a formula that amounts to 50 per cent of the net profits. Hilton can live under the arrangement, but no fortune will ever be forthcoming.
Why did smart trader Hilton for a deal like that? Because it fitted his Grand Design. He wanted first to feel out New York City, demonstrate his competence at running a big metropolitan hotel, and ingratiate himself with the New York Central people, who also owned the Waldorf-Astoria property. It paid out in all respects. Before the year was out Hilton was approached by Floyd Odium’s associate, L. Boyd Hatch, with the suggestion that Hilton and Atlas Corp. might find a mutually profitable venture in the New York hotel field. The result was the purchase of the Plaza for $600,000 cash, plus a $6,800,000 mortgage held by Metropolitan Life on which Hilton immediately secured an extension at a reduced interest rate.
Lovely old lady
The Plaza, again, does not rank as one of Hilton’s more notable financial coups. She was, in Hilton’s wonderfully apt phrase, “an expensive, aristocratic old lady,” who required a lot of coddling. Behind the exquisite facade Hilton engineers found a structure that was just short of a physical wreck. A couple of million dollars had to be spent for a thorough overhauling. Nevertheless, Hilton maneuvered the Plaza into the black, and also made judicious use of the Plaza’s carry back losses: the Plaza Hotel Corp. promptly bought Hilton’s prosperous Los Angeles properties, the Town House and the Rosslyn, for a tax saving of $800,000. As with the Roosevelt, the Plaza had its strategic value. By his discreet preservation of the Plaza’s Edwardian charm, the big Texan proved he was a reliable custodian of cherished traditions. The Waldorf overseers noted this, too, with approval.
Chicago was tougher than New York, but Hilton’s campaign there was the most fruitful of his career. Hilton first set his sights for the Stevens back in 1938, when he formed a group to buy the securities of the Stevens Hotel Corp. He was the largest stockholder of the Stevens when it was appropriated by the government, for use as an Army barracks, in 1942. The government purchase-$6 million was strictly for the hotel. The corporation remained intact, and when the remainder of the stock was auctioned by the trustees, Hilton got it for a bid of $180,000. There was a big tax carry-over for the book loss on the sale of the hotel to the government, which Hilton immediately put to use: the Stevens Hotel Corp. bought the stock of Connie’s successful Long Beach hotel, and also purchased his leasehold of the El Paso hotel. The net tax savings amounted to $1,400,000. All this was incidental to the main objective ownership of the Stevens Hotel.
When the government threw the hotel back on the market late in 1943, however, Hilton hesitated. The placed needed a mammoth job of restoration. While Hilton brooded, the Stevens was successfully bid in for $5,351,000 by Stephen A. Healy, an ex-bricklayer who had become one of Chicago’s biggest contractors. His robust gang of construction workers quickly put the Stevens in shape, and e even pitched in on maid service and bell-hopping when hotel help was hard to get. When Hilton confidently made his bid, Healy brushed him off. He was making money in the hotel business, too.
He met his match
From this point on, Healy enjoyed the extraordinary privilege of playing Hilton on the hook. After several overtures, Healy grumbled that he’d sell for a $500,000 profit. Hilton agreed, but when he called to close the deal Healy had gone to FLorida. When Connie cornered him Healy said, “I meant $5000,000 net, that’d be $650,0000.” AGain Hilton agreed, but on the appointed day Healy was his farm, resting; whereupon Hilton ostentatiously lit out for NewYork, resigned to the expectation that Healy would soon let him know that a $1 millin profit would be acceptable. Healy did and Hilton agreed. THis time Healy ran off to Hot Springs.
Hilton’s next gambit was to start negotiations for the purchase of the Palmer House. “Hilton hasn’t got that kind of money,” Healy snorted to friends, but he was disturbed. Now it was Hilton who couldn’t be found, though Healy’s scouts “searched every nightclub in Chicago.” Ultimately, Healy made a direct approach — he’d sell the Stevens for a $1,500,000 profit. Hilton pointed out that this was the fourth price offered. “Look, Hilton, said Healy in a tired voice, “You’re a businessman. I’m a businessman. This is it”
Thus Hilton paid $7,375.000 for the Stevens (which had cost $30 million to build). The cash requirement was slightly under $:3 million. The syndicate was composed of a nice balance of Hilton’s old-time and new-found friends from all parts of the country. Hilton had frankly used the Palmer House as a stalking him for the Stevens, but what he saw there he liked. As a social ornament the Palmer House was to Chicago what the Plaza was to New York, but more than that it was a solid earner and a highly lucrative piece of real estate. In dealing for the Stevens, Connie had met millionaire Colonel Henry Crown, who later was to become the second largest stockholder in the Hilton Hotels Corp. Crown had acted as an unofficial adviser to Healy. Some months after he had wrapped up the Stevens, Hilton approached Crown and suggested that they buy the Palmer House together. “You won’t believe this,” Crown replied, “but Steve Healy and I bought the Palmer House four days ago.” Thought Hilton, “Oh no- not again.” But fortunately the Crown Healy deal for the Palmer House was only verbal, and fortunately moody Healy had a change of mind. Hilton returned to elderly Henry L. Hollis, representative of the Palmer estate, and offered 819,385,000 for the hotel. It was promptly accepted. The cash requirement was $8 million, of which Hilton’s personal share was $2 million, Crown’s $1 million, and Atlas Corp.’s $1,266,000.
Best of the bunch
In strictest accuracy Hilton’s official biography should have been called “The Man Who Bought the Palmer House.” It is probably the most valuable piece of hotel property in the world. Among Hilton hotels it is regularly the top earner. Beyond that, the Palmer House has been the major medium for reshuffling and simplifying the capital structure of the Hilton Hotels Corp. In 1947 the Palmer House was mortgaged for $16 million to the Equitable Life of New York. The proceeds were used to retire an existing $10,200,000 mortgage on the Palmer House, and to redeem the outstanding mortgages on the Stevens, Town House, Hilton Long Beach, and the Hilton Hotel in Lubbock, Texas. This refinancing reduced annual interest costs by approximately $400,000. No wonder Connie Hilton describes the Palmer House as “the anchor of our hotel empire.” It was shortly after the purchase of the Palmer House that Hilton undertook, in the spring of 1946, the consolidation of the separate companies into the Hilton Hotels Corp. How happily this worked out is shown by valuations revealed at the time. For the $2,350,000 Connie Hilton had invested in the predecessor companies, he received securities in the new Hilton Hotels Corp. valued at $9,200,000. For Atlas Corp.’s investment of $1,425,000, its H.H.C. stock was worth $4,200,000. Seven Hilton vice presidents who had invested $577,000 over the years found their new stocks worth $1,765,000.
The crown jewel at last
The consolidation was supposed to mark the end of the exciting syndicate deals, but when Connie finally landed the Waldorf-Astoria in the fall of 1949 it was again a personal deal. The H.H.C. directors didn’t have the same passion for the jewel that Hilton did. The Waldorf, like the Roosevelt, is owned by New York Central, and is leased at an annual rental of roughly 50 per cent of net earnings. Hilton got 68 per cent of the stock of the Hotel Waldorf-Astoria Corp. for $2,500,000 and debt of $4,400,000. The Hilton Hotels Corp. participated in the syndicate to the extent of $1,900,000. Hilton put in $250,000 of his own money, as did Colonel Crown. But shortly the board took a more optimistic view and offered to swap H.H.C. stock for Waldorf stock, share for share. The corporation now owns about 85 per cent of the Waldorf leasehold, which with renewal options runs to 1998.
The men around Hilton
Though theW aldorf did not mark the end, it surely signified the climax of Hilton’s U.S . expansion. He bought the Jefferson, in St. Louis, in 1950, and in a deal with Roy Crummer, the spectacular promoter whose municipal-bond deals were recently under federal fire, Hilton bought a site in Beverly Hills on which he hopes one day to build a hotel. But his heart is in the European adventure. As he pushes on there, his domestic lieutenants finally have an opportunity to burrow into their jobs and work out systems that will enable Hilton Hotels Corp. to hold its position in a toughening market.
The men around Hilton are working hotel men who have come up from the ranks. There are no little Hiltons among them, sharing his dreams, aping his expansive ways. (None of Hilton’s sons-Nick, Barron, or Eric- has elected the hotel business as a career.) Hilton has always engendered competition among his managers, however, and come the day he steps down (or up to an ambassadorship that might beckon), a sharp struggle for power could well ensue. The executive vice president of the corporation is fifty-three-year-old Robert P, Williford, who began as a Hilton key clerk in Texas in 1931. Williford presides over the monthly meetings of the H.H.C. operating committee, usually held in Chicago, and he also supervises all the hotels in the central division. The eastern-division vice president is forty-seven-year-old Joseph P. Binns, who has managed the Stevens and the Palmer House, and is now general manager of the Waldorf. The western-division vice president is Spear! Ellison, forty, with Hilton for twenty~six years. The financial vice president is Charles L. Fletcher, formerly of the hotel accounting firm of Harris, Kerr, Forster; and John Houser is executive vice president of the international subsidiary. These men compose the operating committee, together with the following general managers : Vernon Herndon of the Palmer House, Robert Quain of the Conrad Hilton, and Frank Wangeman of the Roosevelt. There isn’t a picturesque “Boniface” in the lot, and it’s not often that one sees them bowing in a guest, imperiously inspecting a suite, or pre-tasting soups and salads in the kitchens. The glad-handing is largely delegated to the assistant managers. The general manager is too busy with his budget. ‘
Bringing in business
This is not to suggest that Hilton managers aren’t concerned with sales and with keeping the guests contented. Each hotel has a staff of from six to ten salesmen who constantly pursue not only the big convention business but all local sources of group patronage-club meetings and banquets, trade-union affairs, testimonial dinners, communion breakfasts, weddings, etc. They also cultivate the travel agencies and even certain gasolinestation proprietors who can turn trade Hilton’s way. In New York, representatives keep in touch with the United Nations and with the consulates for the. promotion of foreign business.
With the Hilton hotels, the concern is not so much with the volume of business as with the spread. All hotels suffer a sharp dip on weekends. Hilton has put on a drive to induce conventions to bring their people in on Saturday and Sunday, when there are twice as many rooms available as on Monday. Hilton is also working with the American Trade Association Executives to spread out the convention season over several months and break up the October jam.
As previously noted, a Hilton general manager’s primary responsibility is the maintenance of controls – keeping a balance between the basic expenses and services on the one hand, and the varying flow of business on the other. Though payroll control is the most important, Hilton watches all other costs just as sharply. A rigid control is exerted on all capital expenditures and maintenance, not only to prevent extravagances, but to see that enough money is spent each year to keep all hotels in first-class condition. Also, in all Hilton dining rooms menus are strictly precasted. At the Conrad Hilton, for example, each menu aims at a maximum food cost of 31Yz cents to the menu dollar (and if this puts a crimp in the creative ardor of the chef, that’s just too bad for him and for the customer). All down the line, the heads of each department – rooms, restaurants, laundry, front desk, security, etc.-cooperate knowledgeably with the master control system. And from their figures is compiled daily for each Hilton Hilton Hotel Empire manager a summary of the revenues, payrolls, and profit and loss for that day, and for the month to date, the preceding month, and the preceding year. No business is depression proof, but Hilton is about as well cushioned against shock as foreknowledge can make it.
In 1948 Hilton formed Hilton Hotels International, Inc., a wholly- owned subsidiary, which took over the management contract for three Bermuda hotels-the St. George, the Castle Harbour, and the Bermudiana. The venture was not a success (Hilton has never had much luck with strictly resort hotels) and Hilton pulled out. At the same time, however, Hilton International secured a twenty-year lease on the Caribe Hilton in San Juan, Puerto Rico, and this was a wonderful deal. The Puerto Rican Government built the hotel at a cost of $7,300,000 and retains the ownership. Hilton provided the working capital, and advice on the building and furnishings. The government gets 66 per cent of the profits, Hilton the rest, and Hilton’s share (except for the returns from· the gambling casino) is tax-free. Hilton got its investment back in the first two years, and the net to Hilton International now runs to more than $300,000 a year. It is out of profits of the Caribe Hilton that Hilton is financing the other foreign projects. In each case the hotel will be built and owned by the foreign government (or foreign- capital syndicate) and Hilton will invest only working capital and ” pre-occupation” expenses of around $200,000.
Five for sure
Thus far, Hilton has signed leases for two hotels in Mexico (one in Mexico City, one in Acapulco), and one each in Havana, Madrid, and lstanbul. Agreements have been reached for the operation of new hotels planned for London and Rome, and deals are cooking in Paris, Lisbon, Athens, and Cairo. Of course there are many uncertainties, even where agreements have been reached. The Albergo Dei Cavalieri Hilton in Rome, though signed for in 1950, awaits the solution of profound financial and political problems. London at this writing was not a certainty, though a building permit for a 650-room hotel building facing Hyde Park seems assured. But the foundation are in for the two Mexican hotels; the Castellana in MAdrid will open next month; and the Turkish project is under construction.
In Madrid, Arthur Elmiger, former manager of the Caribe, is opening the hotel, and his team includes the former manager of the Madrid Ritz. In Turkey local artisans and manufacturers are being used to the utmost extent, and a number of young Turkish college graduates are being brought to the U.S. for a year’s training with the Hilton hotels. The dollar problem is difficult but the governments of Spain and Turkey have been willing to make commitments that, in effect, allow Hilton to get its profits out. Hilton International is dreaming of profits of around $1 million a year about five years from now.
For Conrad Hilton, it is like the old days again. Once, during an exhilarating walk down Fifth Avenue with Floyd Odlum shortly after their Plaza purchase, he returned to his somewhat phlegmatic companion and cried, “Let’s buy all these hotels — the Hampshire, the Pierre, Savoy-Plaza, the Gotham …” He still thinks it was a wonderful opportunity lost. But now it’s London, Paris, Rome, Cairo, Jakarta …. And he doesn’t need Odlum, or anybody.
