When Americans Peter Morton and Isaac Tigrett opened the first Hard Rock Café in swingin’ London in 1971, it quickly became a success. But it didn’t transform into an iconic brand until Eric Clapton and Pete Townshend donated guitars to hang over their regular bar stools. Since then, it has revolved around rock memorabilia and popular music of all sorts.
But it looked like it had run its course in the early 1990s, when Morton sold his part of the company (a bitter split with Tigrett had already segmented it) to the Rank Group, a British entertainment and gaming company. Under Rank, the company continued its slow decline until one of its franchisees, the Seminole Tribe of Florida, bought it for $965 million in 2007.
The decision to buy Hard Rock International wasn’t a difficult one for the tribe. The Rank Group was enduring financial hardships and the sale of Hard Rock only made sense. It also was logical to the tribe because it had been paying a hefty franchise fee that would no longer be necessary.
Hamish Dodds, a former Pepsi executive, was pleased to see the arrival of the Seminoles, because he said the brand was tired and in need of reinvestment.
“The tribe took a much longer-term view of the business,” he says. “(Hard Rock Chairman) Jim Allen and the board of directors supported a heavy reinvestment rate into remodeling our cafés, opening new cafés and making the tough decisions about closing underperforming units. And it’s paid off.”
While Hard Rock’s entry into the casino business came back in the 1990s when the Hard Rock Hotel opened in Las Vegas (now owned and operated by Brookfield Asset Management, an offshoot of Morton’s settlement with Tigrett), that remained the only casino property for some time. Allen says when the tribe took over, that strategy began to change.
“The previous owner was not receptive to go through a licensing process,” he says. “I obviously have an opposite point of view. I received my first key license in New Jersey back in 1981, and my life’s been an open book the whole time. So, we have no problems applying for licenses, and I continue to grow the business that way.”
Hard Rock International doesn’t own any of the casinos branded with its name. While each deal is different, some are managed by Hard Rock for owners, and others are a licensing agreement with the owners operating the property. For Dodds and Allen, the management role is highly preferred.
“It gives us better insight into our brand and how it relates to the gaming customer,” says Dodds. “From a brand point of view, the closer we can get to the consumer is better. Our goal at Hard Rock International is to promulgate the brand and increase the value of the brand for our shareholders. We do that with restaurants, hotels, casinos and all sorts of marketing programs. So, getting close to the customer ourselves is always advantageous.”
Allen agrees, but points out that the company will adapt to any circumstance.
“Our goal is to manage whenever we can,” says Allen, “but there are certain parts of the world where it makes sense to have a local partner, and if they’re in the business of managing, we’ll at least understand who they are and their capabilities.”
Dodds says the company’s understanding of gaming creates a better financial situation if it has a management capacity.
“Strategically, we understand that gaming is a high-capital enterprise that brings high rewards, and we can parlay that into gaming, hotels or restaurants,” he says. “Our owners are very invested in gaming; they understand it, and therefore are willing to take some risks.”
But gaming is just part of the Hard Rock International big property portfolio. Non-gaming hotels are also a major piece of the pie. Like the casinos, however, Hard Rock manages or licenses the hotels. Dodds says there is even a division in the types of hotels that Hard Rock manages.
“We have two different kinds of hotels: hotels and resorts that are more leisure-oriented, and then we have hotels in cities that tend to be more urban and business-oriented,” he explains. “They each have different characteristics, obviously. On the gaming side, most of the situations we participate in are casino-driven, with hotels as key drivers of the casino business. In these cases, the casino is the primary revenue-generator. We will look at those projects from a gaming perspective. There are other situations where the casinos are more of an amenity to the hotel, like our property in Punta Cana (Dominican Republic) and one we are currently planning in Aruba. So we have to look at each property very independently and look at it in the context of its market.”
Hard Rock has a presence in each of the two Asian hotbeds of gaming, Macau and Singapore.
“They were both outcomes of different relationships,” says Dodds. “In Macau, our partner is Melco Crown—Lawrence Ho and Jamie Packer. They were looking for a differentiation of the resort experience, and being able to brand a Hard Rock casino added some differentiation for the gaming experience as well. In Singapore with Genting, there is only one casino, and the hotels at Resorts World Sentosa are seen as amenities to drive people to that casino, which is how the hotel there works.”
The iconic Hard Rock Cafés are now in 55 countries around the world, a figure that Dodds would like to see increase to 70 in the next several years. But while the company actually owns more than half of its facilities in Europe and the United States, in new jurisdictions, partnerships are preferred.
“We do this in areas where we don’t see a long-term critical mass for restaurants,” he says. “For example, in Santiago, we really don’t see the long-term prospects for more than one or two cafés in a country like Chile. It just isn’t worth the difficulty and the investment for us. We just don’t have the time or energy to understand the accounting regulations, employment laws or the culture of the country. So, we’re better off using local folks who understand these things and usually are already passionate about our brand. We help them with the marketing components and they add value by being connected and understanding the nuances of their market.
“It’s a low-risk approach for us, and probably means that we’re not going to be able to cash in much on the upside, but it gives us a great growth platform and allows us to expand our brand around the world pretty quickly.”
The revival of the cafés altered all elements of the product, says Dodds. The design, food (made mostly from scratch) and ambiance were changed, but it was the core value of the restaurants that re-injected the excitement of the early days.
“We’ve really tried to re-embrace music, particularly at the grass-roots levels in our new cafés,” he says. “People who go to our cafés these days have a good chance of seeing some live music.”
The emphasis on local music has also created new events that bring more people and build excitement in each café.
“We do what is now the world’s largest ‘battle of the bands’ with around 96 cafés participating,” he says. “The winner plays at one of our big concerts in London or does a round-the-world tour of our cafés. We’re probably going to do 20,000 live music events this year, up from 18,000 in 2012. That’s a pretty substantial commitment to live music by our company.”
It’s this connection to music and artists that sets the Hard Rock brand apart from all others.
“Our big ‘Hard Rock Calling’ concert in London, or some of the big events we put together at the Hard Rock Hotel in Hollywood or the Orlando venue, which is quite unique… all the artists love playing those venues,” he says. “We provide genuine, high-quality destinations for the artists to play. And we have a long-term relationship with most of the artists. They understand that our brand is interested in promulgating all genres of music. They understand that our display of artifacts is a way of paying tribute to the music and the artists. They trust us because they know that we’re not in the memorabilia-selling business. Anything donated to us we agree to keep and display with museum-like quality.”
Building a Culture
Anyone who has sampled the Hard Rock experience, whether its in the cafés, casinos or hotels, will agree that the employees are different than any other in those segments. In addition to careful customer service, the personality of each employee becomes clear. Dodds says that is encouraged.
“This is the very challenging part of the hospitality business, particularly when you consider hotels and gaming, which sometimes has a history of being somewhat reserved,” he says. “We have to balance that and recognize that our guests are expecting a mature experience, but also a fun experience.
“So, we have a delicate balancing act where we have to depend upon our employees to be really focused on executing their core competencies—the skills for which they are hired—but then we also encourage a degree of fun and individuality in their relations with our guests. But it’s a close call. They have to understand the guests and work out just how to interact with them with friendly and interesting attitudes. The staff also recognizes that they’re representing our brand and they can’t go too far.”
Dodds proudly points out that the company employees have demonstrated admirable loyalty to Hard Rock down through the years.
“We have a great culture that goes back to our roots with some of the philanthropic components that are identified with our brand,” he says. “We have the ability to retain employees that outpaces anyone in the industry, whether it’s the restaurant, hotel or gaming industry. We’re able to do that because we do trust our employee base to think and behave a little bit differently. But also, there are great career prospects here, and it’s a fun brand to work with. People want to work here because we’re a brand that doesn’t always just focus on the business. We work with our communities and some of the fun music-related components of our brand. We have a cultural indoctrination program for all of our new employees and managers, and it pays off because our human resources costs are much lower than other companies.”
The emphasis on the strength of the brand has been a paramount concern during the terms of Allen and Dodds. Brand integrity is being maintained even during occasional rocky relationships between Hard Rock International and its franchisees.
“We have one of the most exciting and powerful brands in the world,” says Dodds. “We operate our brands in a combination of managed and self-managed, as well as a whole slew of franchises and licensed properties. We’re also focused in different segments—restaurants, hotels and casinos. So from a consumer point of view, it’s very important that it all hangs together.
“The consumer doesn’t really understand—or care—about the different owners. Our goal is to do as much as we can to make the experience exciting using all those various components, by making sure we have strong brand controls and that we’re all using the brand in a consistent way.”
When a tribal casino in New Mexico recently ousted the Hard Rock brand (managed by the separate Las Vegas company of the same name, with which Hard Rock International has been engaged in litigation for several years) for an alleged lack of support, Allen was concerned about the impact on the brand.
“We are certainly disappointed that the relationship did not work out between Hard Rock Hotel & Casino Las Vegas and the tribe in New Mexico, the Isleta Tribe,” he says. “We certainly would have hoped for the best for both entities, and hopefully, things can progress positively for all parties in the future.”
Dodds says the legacy of the Morton-Tigrett relationship is something that the company and all its partners have to acknowledge.
“Everyone is dealing with a contractual reality,” he says. “We still have the same global agenda for the brand and still have a desire to keep growing the brand. Some of our licensees, however, have these so-called heritage agreements, and we need to use whatever we can to try to make sure the customer doesn’t get negatively impacted by some of our internal mechanics.”
He says the brand is resilient, however, and can survive these ups and downs.
“The good thing about our brand is we can be relatively flexible,” says Dodds. “We’re able to create a unique experience for our customers by using the brand as an overlay and adding music, food, resort, gaming and a few other components.”
Allen is proud of the turnaround that has occurred for the brand since the purchase by the Seminoles.
“Since our ownership, I think it’s fair to say that the Hard Rock brand is stronger now than it’s ever been,” he says. “So, I’m hopeful that we’ll be able to continue to mirror a similar path in the future to what we’ve been able to do in the past, but most importantly, so that it can bring real resources, real culture enhancement for the Seminole Tribe of Florida.”