Pro Perspectives: A Q&A With Lionstone CEO Diego Lowenstein

“I’m not a big believer in bringing in a third-party operator as the only operator in the hotel and keeping it independent. We see a lot of failures in that regard.”

The Lowenstein family of Lionstone Development planted its roots in Miami in 1966 with the purchase of their first hotel in Miami Beach. They continue to invest selectively in the Caribbean, particularly in the upscale resort, and luxury all- inclusive hospitality sector, in addition to partnering with Sir Richard Branson to create and open the first Virgin Hotel in Chicago.

Diego Lowenstein has been part of the family’s varied business interests across several countries since 1990, acquiring, developing, revitalizing, and repositioning hotels and casinos throughout Florida and the Caribbean in partnership with the Ritz-Carlton Hotel Company, Kimpton Hotels, AM Resorts, the InterContinental Hotels Group, Virgin Hotels, and Hilton Hotels. As CEO of Lionstone Development, Lowenstein believes brands that abandon the cookie-cutter approach to fine dining are the ones that will truly break away from the pack. From celebrity chefs and owners to a more locally- driven approach to design and food offerings, the right F&B choices can help them foster trial, encourage repeat visits from locals and dramatically boost a property’s bottom line, he says.

One example is Tatel Miami at the Ritz-Carlton South Beach, which features former Nobu Executive Chef Nicolas Mazier and is owned in part by Enrique Iglesias, Pau Gasol, and Rafael Nadal. The restaurant takes a fine dining approach to traditional Spanish food, and its bold design has helped turn the restaurant and bar into a mainstay for local dining and nightlife.

We talked with Lowenstein to see what’s on his mind of late regarding hotel fine dining, working with third-party restaurateurs, breakfast, and more.

Hotel F&B: From your dynamic experience in operating hotels, what is your current approach to finding the right restaurant partners for properties?

Lowenstein: We come from a food and beverage tradition; in Argentina, my family had more than 100 restaurants. We understand not just the hotel side but the independent and third-party-run restaurant side. If you look at how many independent restaurants that have been put into hotels and failed, it must be a crazy number. They are not long-lived. These restaurant spaces tend to be fairly expensive, anywhere from $3 million to $10 million in investment, and many never survive their 10-year term. Not only may their positioning not be relevant to the market, but many times they don’t work hand-in-hand with the hotel operator. Instead of becoming allies in making both the hotel and restaurant workable, there can be a lot of in-fighting.

For me, it’s about finding groups in the restaurant sector that truly understand what it takes to work inside a hotel. Regardless if they have a separate entrance, they are part of the hotel. There are other important factors, and one is capturing the hotel guest, by properly assessing and taking care of that guest. As you look at many operators out there, some get it and some don’t. Some are better staying standalone.

The other important distinction is whether it’s the only restaurant or the second restaurant in a hotel. I’m not a big believer in bringing in a third-party operator as the only operator in the hotel and keeping it independent. We see a lot of failures in that regard. You could have an amazing restaurant with a great name and great check at lunch and dinner, but that doesn’t necessarily make them good for breakfast, catering, or room service. In a hotel environment, the guest is going to judge you by room service and breakfast before they judge you by dinner. There are examples where it has worked, but it’s a risky proposition.

Another thing we’ve seen, not so much in urban markets but in resort markets, is when you have a restaurant, your
guests, even if they are staying four or five days, tend to leave. They had breakfast in your venue, and they don’t want to have dinner. They want to explore. There are missed capture opportunities by having a single restaurant. Sometimes the hotel is small enough—100 or 150 keys—and there is no opportunity to have more than a single restaurant. I’m more about bringing a relevant outside brand as a second restaurant in the hotel.

The brand and cost behind a restaurant is very important, but the operator is so much more important. I spend quite a bit of time looking at who the operator is, their track record, their understanding of the market, their understanding of the hotel environment, and then make a decision.

Hotel F&B: What is an example of a third-party restaurant relationship that didn’t work out?
Lowenstein: We had an experience at one of our hotels in Florida where we brought in a very formidable operator from the northeast who understood the hotel environment but didn’t prove themselves. They did a pretty fair job at breakfast and lunch and hotel-related services. Where they missed it was they didn’t understand the nuances of this

particular local market, and we didn’t get significant penetration into dinner and after-hours business. On paper, it looked good. On execution, it didn’t pan out that way.

I’ve had my share of success and failure; it’s hard to pin down and make it work. My current thinking is more to forget bringing people from out of town. Most cities in the United States have amazing chefs and restaurants coming up that understand local demographics that could specifically fit as the second restaurant in a hotel. First, source local talent. They have a reputation, and the risk associated with a restaurant is lessened, even if they aren’t a celebrity chef. And, in a hotel, people look for experiences. They want a flavor of the city. What better way to do it than with someone who knows how to do it locally?

A foreign import might be a great name, and we’ve done that. We were the first to bring Zuma from London to the United States, and that continues to be very successful. It has a great operating structure and product vision. Since Zuma opened 10 years ago, there have been probably a dozen other restaurants of reputable name in this area that have
failed. At the same time, you’ve got three or four amazing chefs who each started with a single restaurant, and now they’re on to a half dozen restaurants. It’s opportune to embrace that local talent.

Hotel F&B: Is an impressive breakfast experience effective in inspiring guests to return to that venue for dinner, rather than to explore off-property?
Lowenstein: Breakfast in an urban environment is a quick breakfast; breakfast in a resort could be a lengthy ordeal. You have to redo the space and accommodate more capture. It’s harder to redo the physical aspects of a space and make it relevant for dinner.

Hotel F&B: In what ways have you tried to make fine dining more lively at your hotels?
Lowenstein: In Miami, because there’s so much competition in restaurants, you have to stay relevant. Locals and guests alike, after a few years, start to get bored and move on to the next thing. It’s important to be on the cusp of change on a frequent basis. We’re doing an overhaul of our aesthetic concept, and I think it will be well embraced by our loyal guests and also bring in a lot of locals who over the last few years we may have lost. It’s a multi-million-dollar endeavor. We do have an independent branded restaurant, which is Tatel, and it’s been well embraced by our guests and locals. We have three restaurants, all very different, targeting different demographics and attitudes.

Hotel F&B: How do you make dining at the Ritz-Carlton approachable for locals?
Lowenstein: There’s a lot of luxury dining in Miami. It’s a very tight type of client. So, any restaurant that wants to work inside a hotel has to have some value proposition to it. You can’t rake your guest or locals, because they’ll find out immediately. There’s a price point here that we keep. But a local doesn’t particularly look just at pricing per couple or person; they look at other things, like parking. What we see with parking is that it’s gotten so expensive, people just Uber or ride-share. It has an impact on going out. It can lower the frequency of locals going out.
At the Ritz, we do a very significant parking validation for any kind of consumption at the hotel—F&B or something else. If you want locals, you have to treat them fairly.

Hotel F&B: What developments are you seeing lately in the broader scope of hotel F&B that are getting your attention?
Lowenstein: Across the hotel world, you have a little change in attitude brought on by millennials, and there’s a rush- rush-rush everyone’s in. I see more grab-and-gos, which can be very tastefully done with the right kind of product for luxury hotels. We’ll be doing more of those across a number of our new hotels. It’s important because a lot of people, because a lot of potential revenue is being lost to independents who might be a block or a half a block outside our hotel, just because people don’t want to sit and spend an hour of half hour having breakfast. They want something quick and

good so they can go explore the community or do their thing. I see that as something that’s penetrating hotels across
the U.S. and the world, because it’s important to get that capture.

I see a lot of revision in the approach to the honor bar or minibar. It’s ever-evolving. It’s harder and harder to make money as a hotel operator from that, but it’s an amenity that has to be provided to guests. Obviously, given the margin you have in beverage, you look at how to maximize capture of happy hour and late-night by cleverly positioning bar and lounge outlets where people want to be. As we revisited this hotel that we’re renovating, we thought about how it might be interesting to put a bar in a spot where years ago we wouldn’t have thought about it. You have to think about it, because it can be a missed opportunity, particularly when you have to generate mechanicals, plumbing, and electric, and you can’t do it after the fact.

It’s about maximizing capture throughout all day parts, particularly in a hotel in a destination where you know people are going to leave you to explore—that’s why they came to Miami. They’re not going to stay in your hotel for five days. They might give you a shot for one or two days. But that doesn’t mean they won’t have a drink on the way to dinner or coming back at night.