Investing in Hospitality Business: Between the Known and the Unknown

By CHIEF SONNY ODOGWU, CFR

I would like to offer my congratulations to the organizers of this important DSC_1913event. This event has come a long way since 2004, and I believe that previous editions of AKWAABA left indelible impressions on participants and more importantly, produced positive results in the hospitality sector of the African economy. Notwithstanding the challenging economic environment of business operations in many countries in Africa, the organizers have found it imperative to trudge on. For attaining the feat of ten editions in a row, permit to say well done. Based on experience from previous editions, participants in this year’s event, especially stakeholders in the hospitality sector, would have a lot to learn.

The thrust of this year’s event is: “Investing in hospitality business: between the known and unknown”. I intend to illustrate how players in the hospitality industry in the continent can keep their heads well above waters and ahead of competition by raising their standard of operations. When there are low standards, abuse is inevitable and destruction is imminent. My presentation is underscored by my experience as the founder of the Grand Hotel Convention Center and Resort, and I shall be using my experience to shed light on various points.

Hospitality is a very wide field, and attracts a wide range of investments. We can relate the subject to all aspects of human endeavours – business and economy, politics and governance, social, religious and cultural activities, leisure, etc. Making investments in hospitality, therefore, could relate directly to hotels, restaurants, entertainment of various types, theatrical shows, shopping malls, public relations, parks and beaches, etc. We cannot cover all of these in a very short presentation, so I have chosen to focus on hotels.

Talking about hotels, we would concentrate on hotels within Africa South of the Sahara. Our concern is West, East, Central and Southern Africa. In terms of tourism and hotels, North Africa is quite advanced and what obtains in parts of that subregion could be at par with Europe and the United States. The future of hospitality business is in Africa south of the Sahara. Europe and other developed parts of the world are saturated, but Africa is still waiting to be fully discovered.

Hotel development through investments in Africa is still largely unexplored. Most of what we have around are boutique hotels, which are not economically viable in some cases. This type of hotels give two major indications: 1) that individual investors are financially constrained especially DSC_1896because of the fear of the unknown; 2) the precarious nature of the social and business environment in most parts of the continent – poor infrastructure, low levels of education especially as it relates to tourism, poor communication network, etc.

Though countries like Kenya, Ethiopia, South Africa and the Gambia are of primary tourist attraction on the continent and have thus arouse a lot of interest in tourist business, we cannot confidently say that these countries are developed enough. African countries need huge investments in big hotels that offer comfort, convenience and security to customers, and good returns to investors. I classify a big hotel as a one-stop shop with 100 or more rooms.

 Mr. Barry Curran - Area General manager of Starwood Hotels in Nigeria and GM Lagos Sheraton hotel, Speaking at the Hospitality Day event.

Mr. Barry Curran – Area General manager of Starwood Hotels in Nigeria and GM Lagos Sheraton hotel, Speaking at the Hospitality Day event.

It is the type of hotel where you can stay for two or three weeks and concentrate on your business or leisure without stepping out in search of anything. It must have all the facilities you would wish for and be run by a top class management team.

For an investor, if you have a big hotel of 100 rooms or more, if your facilities and services are world class, and you can achieve 60% guest occupancy with competitive room rates, you will break even within a short period though it is possible that you may have to use your capital for operations in your first year. But if you have a small number of rooms – 20, 30, or thereabout, even if you have top quality facilities and services, you will have to really struggle to break even. You actually could be running at a loss. The implication of the foregoing is that there must be optimum investment in every hotel project for it to be worth the while of the investors, the managers and the customers.

The original concept of running it on my own: Typical of many businesspeople, I had thought that I could run the business on my own. I DSC_1931later got to realize that to achieve 60% occupancy, I needed the inputs of professional hoteliers and a top-class management team. We had to enter in to contract agreement with technical partners. Grand Hotel is presently managed by seasoned managers, and we have a 15-year management and technical agreement with Starwood Hotels & Resort Worldwide Inc (“Starwood”), a leading hotel management company with a portfolio of 897 hotels with approximately 275,000 rooms across 100 countries. I can categorically say that with the hands-on experience of our partners, the hotel boasts of virile and efficient sales and marketing team. Hoteliers should be wary of doing it all alone as this may lead to distraction, fatigue and inefficiency in the long run. We should note, however, that the leader does not succeed in isolation, irrespective of how personal and compelling the vision is. You will always have to work with people.

Grand Hotel started as a 5-star hotel with 100 rooms. As at date, the hotel has over 200 rooms. ‘When you create demand, people will patronize you especially when you offer good services.’ This mantra has been our guiding principle at Grand Hotel. I could remember when we started initially, I decided to call the hall a resort because it provides a panoramic view of activities in the commercial city of Onitsha. Hoteliers operating in big cities like Lagos, Accra, Dakar, Nairobi etc. should leverage on the large population and the beautiful scenery environments that the cities provide. When building your hotel, attractive sceneries – both physical and human – should be one of the critical factors to consider.

To run a successful hospitality business, you need to create demand. “When you create demand, people will patronize you especially when you offer good services”. I can confidently say that Grand Hotel re-defined general social and business activities as well as hotel business in Asaba, Delta State. The hotel became a center of intellectual and cultural activities. In order to enliven the cultural life of the city, we brought in musicians, cultural troupes, comedians and other entertainers and artistic performers to the hotel on a regular basis. The hotel also serves as a good venue for intellectual activities like conferences, seminars and workshops. As I speak now, Grand Hotel has become a victim, sort of, of its own success. As we could no longer accommodate the crowd we attracted, new hotels began to spring up to meet the demand that we created. But that is also how colourful success can become. Asaba after the establishment of the Grand Hotel is completely different from Asaba before Grand Hotel. The capital city now has an unprecedented vibrancy; the whole place is full of life. Hotels drive all forms of tourism, and tourism expands the scope of business for hotels.

If the benefits inherent therein are adequately harnessed, tourism could become a strong alternative to crude oil as revenue earner. In a well-organized tourist country, the labour force in the sector alone can constitute more than 50% of the entire national labour force. Tourism is one of the cardinal stones for achieving economic development in Africa, and it also serves as a veritable platform for attracting Foreign Direct Investment (FDI). According to the “Tourism Master Plan” developed in Nigeria in the first decade of this century, while the incidence of domestic leisure travel may be low, the sheer size of Nigeria’s population implies and necessitates a significant contribution to the demand for tourism services. The revenue value of this impact could be speculative, but the sheer number of Nigerians who travel to the UK alone for summer break is a pointer to the lost income from domestic tourism. Holiday destinations in various parts of Nigeria, Ghana, Cameroon and other African countries need to do more to attract domestic holiday makers.

In recent years, there has been a decline in the number of international visitors to the continent. This is not unconnected with factors like stodgy entry visa process, lack of ample information on Africa’s tourist attractions, bad road networks, lack of security, and the dilapidated state of many of Africa’s historical sites. Taking Nigeria as a case study, it should be noted that there has been a huge influx of internationally respected hotel brands into the country in recent years. Lagos is a preferred destination hub. But there are beautiful locations all over the continent that should be explored.

Taking a cue from other regions, hotel patronage is very strong throughout the US, Canada and Latin America. According to a survey report, in the early part of 2014, hotel transactions through the third quarter of 2013 was 49% ahead of the previous year in the USA. Canada fared better than the others during the recent recession, as it witnessed modest growth in operating performance relative to the larger gains seen in other sectors and markets. In Latin America, the hotel market outlook is positive in most countries, and these are driven by strong economic fundamentals resulting in strong revenue per available room. In Peru, specifically, expected economic growth of 5.8% for 2013, as well as the upgrade of the country’s long term local and foreign currency ratings, has offered an attractive option for hotel investment.

China’s outbound tourism industry has grown exponentially in recent years, as discretionary income levels among the rising middle class have increased. Data from the National Bureau of Statistics of China indicated that outbound travel increased at a compound annual growth rate of 18.5% between 2000 and 2010, from approximately 10.5million to 57 million travelers respectively. As a result of steady economic growth in the country, the burgeoning middle class in China has recorded continuous increase in disposable incomes thereby making travels and hotel patronage possible for a larger percentage of the population.

I need to mention at this point that Africa’s quest for foreign tourists will continue to face critical hurdles if the right measures are not put in place by government and stakeholders in the hospitality industry. There are numerous reasons why foreigners are not persuaded to travel to Africa for pleasure. The legion of travel warnings on the internet around African countries will scare even the brave hearted. In simple terms, foreigners are uncertain about spending their hard earned income and long term planned holidays in a continent or country where the security threats are high. But much of these also have to do with how we manage information. (The example of Kenya and the Ebola disease). For the sake of tourism amongst other factors, we need to be very strategic in how we develop our networks of information flow, and how we sieve between exaggerations and half truths. To capture the demand of new and repeat travelers, destinations must effectively implements a sustainable tourism strategy, as well as provide the necessary public infrastructure to ensure the interest of future travelers.

Like Albert Einstein said, ‘one cannot continue to do the same thing in the same way and expect different results.’ It is high time stakeholders in the hospitality industry review their ways of running hotels in order to harness the benefits of superior modern systems. The world is changing every day. Stakeholders in the hospitality industry should endeavour to keep pace with the spate of technological innovations, musical trends, leisure travel demands, excellent customer service, amongst many other factors. There must be constant noticeable improvement in the high quality of food and beverage offerings. The buffet lines of the past have been replaced with high-end restaurants that emphasize well-prepared intercontinental and local cuisines. Additionally, basic liquor offerings are now replaced with upscale bars offering premium liquors and, in some cases, lounges with specialty cocktails. We have to up the scale.

Hotels without customers will be a failure. But the more customers we attract, the more lucrative and rewarding the investment. Hotel investments in the sub-region are still below expectations and the needs of our developing society. Many Africans are beginning to discover the immense benefits inherent in hotel lodging, and they have started inculcating the habit. To attract extra patronage, we must have something to offer aside hotel rates. Hotel must offer good entertainment, good delicacies, beautiful sceneries, appealing human sceneries, good accommodation, and facilities that cannot be easily obtained by the lodger at home. Sporting facilities and night clubs are also paramount for relaxation. If your facilities and services are poor, you can’t recoup your investment or even make significant profit. The security of the hotel premises and the guests and their property should never be compromised in any way. Comfort, convenience and security are key.

Thank you.

 

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