Golden Arch Hotel Case Study Essay

Custom Student Mr. Teacher ENG 1001-04 7 June 2016

Golden Arch Hotel Case Study

Think of Switzerland and you’re likely to think of private banks and beautiful scenery. Think a bit deeper and you might picture cowbells, cheese fondue and the inimitable Swiss Army Pocket Knife.

After a recent visit to Zurich, however, these cliched images of Switzerland have been forever shattered in my mind, and replaced with one succinct, memorable mnemonic.

No, not a red flag with a white cross – more a Golden Arch.

Golden Arch Hotels, as they are known (there are two), are a high stakes experiment in brand leverage. After lobbying by Urs Hammer, Head of McDonalds in Switzerland, McDonalds has made the brave move to exploit their core competence (no, not making hamburgers – delivering absolute product consistency) to develop a holistically branded hospitality offer.

Sitting incongruously in a lush green field, just minutes from Zurich’s busy international airport, the prototype Golden Arch Hotel offers business travelers (read cheap-suited sales execs) a no-fuss, highly processed experience, replete with brand reinforcement at every turn. And yes, you can have fries with that.

From the ‘McDrive’ in the hotel car-park, to the show piece “restaurant” (read regular McDonalds outlet), to the licensed Golden Arch Lounge (where one can order McNuggets as bar nibbles) the hotel takes every opportunity to maximize your exposure to the brand.

The Golden Arch logo itself is a seemingly sacrilegious half form of the ubiquitous ‘M’ mark to which we are accustomed. This is duly represented in the car park fountain, shaped most precisely in the same ‘h’ shape, a symbol that is replicated throughout the hotel. Indeed, the arch logo finds its way onto most fittings and fixtures, from security smart-cards to luggage trolley handles and even bedroom furniture. Each bed is embellished with a red nylon sash (featuring the logo), and in case you temporarily forget who is behind all of this, your padded, shaped golden arches bedhead is there as a comforting reminder.

The rooms, though modern and very clean, are functional and austere in the extreme. One feels like a specimen or an inmate, and it’s not until you recline on the remote control bed (after removing the sash) that you feel inclined to relax and marvel at the incongruity of it all.

Dinner means queuing up at the in-house “restaurant” for dinner. On a sunny evening one can dine al fresco, subject to the exhaust fumes in the busy carpark. The snow capped Alps provide a contrasting backdrop to the sea of red and yellow logos, and coupled with the passing parade of Teflon suited in-line skaters, one feels vaguely like an extra in “The Wizard of Oz.”

Down on the ground floor, seated behind the sound proofed windows in the Golden Arches Bar, the weary salesperson can enjoy a cold alcohol-freis bier (that’s lite, to you and me), while watching silent Swissair planes approaching to land above the adjoining forest.

At night there are various in-house entertainment options – all of which involve telephone, internet or TV in various combinations. I was lucky (!?) enough to chance upon a French game show, where contestants dressed as baguettes were launched from a giant toaster into an equally large bol of café au lait.

Come morning, coffee in regular sized cups is served in the in-house Aroma Café (McDonalds’ scaled down answer to Starbucks) – or alternatively the main restaurant is open for a more (Mc)traditional cooked breakfast.

The hotel’s staff are courteous, responsive and eager to please, in true McDonalds tradition. Their keenness forgives them the problems of a hotel still suffering teething issues, and their smiles run far deeper than an automatic “have a nice day.”

The verdict? If consistency is the aim, then consistency is certainly achieved. The product is unmistakably McDonalds. Clean, processed, bland and reliable. …Well, except for the internet and phone. And the electronic check-in, pre-booked online… It seems McDonalds is playing a risk-minimization game with this new sub brand – the Golden Arches name being familiar, but distinct enough from the masterbrand to insulate it from any negative incidents, or indeed failure. Certainly consistency is a relevant attribute to bring to a hospitality business, but is it unique and compelling? Numerous other branded hotel chains have provided consistency worldwide, at all levels of the hotel five star rating system. Only time will tell whether there is space for another three star hotel offer. And only time will tell whether the world wants or needs a McHotel.

I, despite my brandist leanings, am happy to describe it as a “once in a lifetime” experience.

In the end, the decision by McDonald’s to build a couple of four-star European hotels, with arch-shaped headboards for the beds and fast-food restaurants onsite, wasn’t as bizarre as it seemed.

The Golden Arch venture in Switzerland ended in 2003 after two and a half years, when the pair of McDonald’s hotels closed. But as I tell my MBA students and executive-education participants, the foray can be thought of as an inexpensive “real option” that provided the innovation-hungry company with an opportunity to learn valuable lessons from a controlled failure.

Relatively few travelers ever stayed in – or heard of – the hotels, which opened within a few weeks of each other in the spring of 2001, one near the Zurich airport, the other in Lully near the A-1 interstate. They were the brainchild of Urs Hammer, chairman of McDonald’s Switzerland, who was responding to the parent company’s push for diversification and new ideas. The Zurich Golden Arch hotel opened first, and it was unlike any other hotel around. The McDonald’s restaurant just off the lobby was open 24 hours (a rarity in Switzerland). The guest accommodations, for $120 to $160 a night, featured a patented curved wall and a cylindrical, see-through shower stall that protruded into the bedroom. The decor was spare and brightly colored. A colleague of mine who stayed there in 2001 recalled frankly that “the entire feeling was one of oddity and discomfort.” The second hotel was similar. The hotels clearly didn’t deliver the expected results.

The worldwide economic contraction – and the appreciation of the Swiss franc – that followed the attacks of September 11, 2001, contributed to their demise, but there were other factors, both minor and major. The showers, for one thing: Families and business travelers rooming together complained about the lack of privacy (the glass was later frosted as a result). Another issue was that the English phrase “golden arches” isn’t associated with McDonald’s in German-speaking countries. Even worse, as the owner of a hospitality consulting firm pointed out, was that the word “arch,” when pronounced by German speakers, sounds a lot like a vulgar word for a person’s posterior.

Beyond all that, the strategy itself was questionable. Although the venture related to the company’s food business and relied on many of its core competencies, such as franchising and real estate management, the McDonald’s brand doesn’t square with the image of a four-star hotel. A financial analyst quoted in the Wall Street Journal noted, “I’ve just come back from lunch at McDonald’s. But I can’t imagine staying at a McDonald’s hotel on a business trip.” Indeed, the company shifted focus in 2003 away from such brand extensions and toward an ultimately better strategy of trying to get more customers into existing restaurants.

But the McDonald’s board knew what it was doing when it green-lighted Hammer’s project in 1999. Its decision was a real option: a fixed investment for an uncertain but potentially high return. Diversifying into the hotel business gave the company a shot at entering a billion-dollar industry. Because diversifications are generally more likely to fail than succeed, companies need to constrain the costs of moving forward with them. McDonald’s did just that. It made a relatively small investment and limited its risk.

By publicizing the venture mainly inside Switzerland and using the name Golden Arch rather than McDonald’s, the company avoided damage to the corporate brand. Moreover, the real estate investment did not result in a significant loss: The two hotels are now managed by Rezidor SAS Hospitality, which runs them under its Park Inn brand. While a P&L statement was never made public, the estimated operational losses were insignificant to the McDonald’s portfolio. The decision to exit the hotel business after less than three years represents a further limitation of the company’s risk.

The venture also offered insights – or at least reminders – about diversification and globalization. First, even for a company with deep pockets and billion-dollar brand equity, it is extremely difficult to take a name that is well established in one category (McDonald’s is fast food) and achieve success with it in a different, if related, category. Second, for companies going global, the more complex the service offerings, the more important the cultural context (unlike a fast-food restaurant, a four-star hotel is full of individualized customer interactions, for which guests have diverse and high expectations).

But there’s another point that’s perhaps even more important. Hammer was one of the company’s most successful franchisees, an entrepreneurial manager with a long history of fruitful business venturing. By supporting him, McDonald’s was reinforcing and nurturing its bottom-up innovation culture. In the words of a McDonald’s manager who participated in one of our executive education programs, “We try hundreds of things every year, and only a few turn out to be successful. But those initiatives make our business grow and keep our spirit alive. Not trying is not an option.”

Golden Opportunities Through Branding Well

A common question people tend to ask graphic designers like us, especially in the turbulent wake of the reactions to the London 2012 Olympics logo, is “what are you really buying when you invest in a brand?” In one word, credibility — and with it, the liberty to take it anywhere you please. In the April issue of the Harvard Business Review, an article by Stefan Michel discusses a failed attempt by McDonald’s to diversify its core business by opening two four-star European hotels. The Golden Arch Hotels launched concurrently in Zurich and Lully Switzerland in 2001, and became a three year experiment. For as low as $120 a night, your brightly coloured room featured a bed with a golden arches for a headboard, a transparent shower stall that protruded into the bedroom, and of course, 24-hour fast food. Several factors led to the demise of this daring venture, some of which included: the economic downturn after September 11th, the fact that the word “arch” in German speaking countries sounds very much like a vulgar word for a certain body part, and most obviously, the problematic shower stalls.

Another more recent event that has generated its fair share of headlines, was the announcement in March that Starbucks was launching its own record label. No longer just a re-distributor of albums owned by other companies, the new Starbucks record label is big step forward into decaffeinated territory for the green bean giant, as they attempt to capture new business in the recording industry. Currently, the first and only artist signed to the label is former Beatle Sir Paul McCartney. His new album, “Memory Almost Full” is now being sold at most Starbucks stores worldwide, in all major music retailers, and on iTunes. Only time will tell if the reputation of the Starbucks brand will be enough to support their venture into the music business.

Instant credibility through brand recognition was vital for both of these companies as they moved into areas where established competition already thrived. Success or failure aside, the ability to venture into uncharted waters is only possible after spending time developing a well-executed identity. Perhaps the most practical lessons we can learn through the antics of big brands behaving bullishly are three-fold. Firstly, a good brand lends credibility to your efforts. Second, credibility gives you the freedom to seek diversity. And finally, despite McDonald’s best intentions, the idea of a fast food/hotel combo conjures up dreadful visions of sleeping in greasy sheets, which is clearly not something very many people love.

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