echo-interview with Andrea Scherz, General Manager and majority shareholder of the luxury hotel Gstaad Palace

elipsLife echo: Mr Scherz, what attracts the super rich from around the world to the Gstaad Palace?

Andrea Scherz: Well, first it must be said that Gstaad is a very beautiful place. For me, it is one of the most idyllic mountain resorts in the world. As it is not too high, you can eat dinner outside in summer. Night temperatures drop to around 15 degrees, so that you can sleep with an open window. In contrast to St. Moritz, we can make sure in Gstaad that our guests also enjoy the summer feeling. And we should not forget the unspoilt landscape, or the fact that we have a well-functioning agriculture. All of these factors attract people to Gstaad. And last but not least, our hotel: the Gstaad Palace understands the needs and desires of its special customers. At the same time we also offer our guests an experience. The reason is simple: unlike many of our competitors we have remained authentic, which makes us unique.

For the past few years, luxury hotels have been springing up like mushrooms. What is driving this boom?

One of the members of our board of directors once explained this very well. In times past, a sail yacht symbolised wealth. In the 1980s and 1990s, the private jet entered the picture. Nowadays one also has a hotel. Not only do rich people like to invest in real estate, and hotels are often beautiful properties, but it is often also a question of prestige. I often hear from affluent people that they would like to own a good restaurant or a high-class hotel. I sometimes have to smile about this, because it seems that they all think it is easy to manage a hotel. And finally, hotels are a preferred tool for tax optimisation. A hotel that makes a loss but increases in value is a good way in which to reduce the tax burden.

Your competitors are often owned by investors worth billions, but you manage a family business. What are your chances on such an uneven playing field?

Yes, it is an unequal race. Almost as if I have to run a marathon in bare feet while the other runners all have the best running shoes. But then again, we can build on an image that has been polished and perfected over a hundred years. We offer the kind of hospitality and atmosphere that cannot be easily copied. The reasons for feeling at ease in a hotel or on vacation are generally very subjective, in any case. Maybe people feel very comfortable at the Gstaad Palace because they can feel that our hotel has grown organically like an old oak tree over many decades and seems able to weather any storm. In a time when the world is turning ever faster, people are looking for places that radiate a sense of calm, security and continuity.

Competition is said to enliven the market. Competition has moved in directly across the road from the Gstaad Palace in the guise of the Alpina Gstaad. Does Gstaad have place for two luxury hotels?

Allow me to correct you, but Gstaad already boasts four five-star luxury hotels. For a while, the Gstaad Palace was the only real five-star hotel in the village. In the meantime, however, the slightly run-down five-star establishments Parkhotel and Bellevue have been completely renovated and the Alpina Gstaad was opened. I have to say, though, that the demand for five-star accommodation in Gstaad did not quadruple in this time, but remained more or less constant, except for an increase in demand in the high season. In other words, in the past few years an ever growing number of competitors grabbed a slice of the same pie. This is also why things have not become easier for us.

So what is the major challenge for the Swiss hotel industry today?

The way I see it, just one day after the bad news that the Swiss National Bank is ditching the peg to the euro, the main thing is simply to survive. Times are really dark at the moment for a private hotel business. It is fast becoming a battle for survival, although things have not quite gone that far. But if the situation does not improve and there is no glimmer of light on the horizon, it will become a very difficult battle. We have been flailing since the first currency collapse in 2011 and have to work ten times harder to make ends meet. The situation has now become much more dire: the euro crisis is not yet over, stock markets have dropped sharply, and the rouble is no longer worth anything, with the Russians making up more than 10% of our guests. People are increasingly counting their pennies, even in our price segment, and do not go on holiday quite as often.

Have we understood this correctly, even the super rich want to save?

Actually, for most of my guests it is really not important if they lose 10% or 20% of their fortune, for example on the stock exchange. But when times are difficult, the motto "Cheap is beautiful" applies even in the highest echelons. As a result they no longer visit our hotel or they try their level best to push down the prices. At the same time things become very difficult for us if these rich people find a similarly good hotel in Cortina, St. Anton or Aspen, which have become almost 50% cheaper than us since 2011 because of currency differences.

What is the percentage of Swiss guests in your hotel?

At the Gstaad Palace, just more than 20% of the guests are Swiss.

And what is the split between summer and winter?

We earn around two-thirds of our revenues in winter and around one-third in the summer season.

Will you be one of the beneficiaries of the second home initiative if fewer luxury chalets can be built in the Saanen region in future?

Yes, we are certainly among the beneficiaries. I lost top customers to chalets every year. You have to remember that we have the same kind of marketing spend attracting rich guests to our town as the local tourism association. These guests then fall in love with Gstaad and buy a chalet. I should really receive commission for every hotel guest who later buys or builds a chalet in Gstaad, in which case I am likely to earn the same annual profit on commission as I now do with the hotel. I had guests who used to rent half a floor in my hotel for three weeks at a time, just to buy their own chalet at a later stage. That hurts.

What do you think are the ingredients for entrepreneurial success?

Passion has to be the most important, without a doubt. One has to approach one's work with heart and soul, with love, inner conviction and enthusiasm. We can only do the things that we like doing really well. In our industry it is certainly also important to focus on the needs of the customers. You have to do what the customer wants – not what you yourself want. This may sound banal, but I try to design my hotel to live up to the wishes of my customers. For example, for an entire year before I modernised our spa area I asked every single guest who visited the spa about his or her needs and expectations. The renovations were then mostly based on their answers. Another success factor is the employees. In a people business such as ours the employees play a very important role. We follow a simple maxim: happy employees, happy guests. We therefore always include special expenses for the employees in our budget.

Although the hotel and food services industries create many jobs, they are among the low-wage industries. How important is retirement provision then?

Because we are a low-wage industry, retirement provision is very important. Sometimes, however, this is difficult to do. Low wages translate into little retirement provision, which could be a problem. For this reason a well-designed Pillar 2 solution is of key importance. I would like to point out, though, that wages in the hospitality business are low, not because of greed or just for fun, but because this is the only way in which our sector can survive. An example of this, one which many of my customers can hardly contemplate, is the margins in the restaurant business. In our hotel the net profit margin for the restaurant business is just 3.5% – and this is among the best in the industry! It should also be remembered that the restaurant business is very labour-intensive. Many players are involved in the process of putting a steak on your plate: from the buyer to the person who accepts delivery of the goods to the hotel, to the cooks, the people who wash the plates and the pots, the waiter and the musicians. All of them want to be paid. It is lucky for us that we can compensate for the low margins in the restaurant business with higher margins in the hotel business.

It can become expensive for a company when employees fall ill and cannot work. What are your insurance arrangements for loss of earnings and disability?

In our company, all employees have the statutory insurance cover. Our accident insurance pays 80% of the salary costs from the third day following an accident. For our managerial staff we have supplementary insurance that covers 90% of the salary costs. For the daily sickness benefits insurance, we pay the salary costs of 88% for the first 60 days and then the insurance kicks in.

Pension funds find themselves in stormy waters, mostly because of low interest rates and the greying of the population. Will the pension funds – and therefore all of us – become victims of unfundable benefit promises?

I am no pension fund specialist, but even the specialists cannot agree on this issue. The fact remains, however, that the low interest rates and also the constantly rising life expectancy are factors with a massive impact on the current system that do not promote confidence in the present solution. I think that we will have no choice but to tighten our belts a little. This is the only way that the books will balance in the future.

With the AVG 2020 (reform of the retirement system), the options for withdrawing a lump sum from the retirement account to finance residential property or start an own business will be greatly reduced. Does this step by the state erode the trust of the insured, or do you think that this regulation is necessary?

Those who cannot think beyond their noses are sure to say that this is an attack on their personal freedom. But if we consider the issue in a little more detail, it soon becomes clear that this is necessary. We all have to understand that things cannot go on as they are. We have to protect the pension system as a whole. Personally I am not really enamoured of this new regulation because I too hoped that I would be able to buy residential property one day, but I understand that this is the right measure.

Is it fair to involve the pensioners in the rehabilitation of the pension system – or are vested pension rights taboo?

As I said before, I believe that we will all have to tighten our belts. But this said, I cannot quite see why pensions should be reduced. I would in any case be unwilling to accept a general reduction in pensions. I know pensioners who really battle to pay their bills with their current pensions and cannot even afford to eat meat every day. For these people a general reduction would just not be acceptable. If pension reductions really have to be considered, the solution should be a progressive system, similar to the system applied to our taxes. Those who earn more should also pay more. This would then be some sort of class system. But we would have to decide from what amount a pension reduction would not substantially harm the recipient.

If you could give the pension funds in Switzerland some advice today, what would you tell them?

Do not under any circumstances invest in the Euro!