One of the mainstays of the hotel industry in Africa is hosting conferences and other events. The experts once said that video conferencing and other technology spelt the death of the meetings industry – everything would be virtual! Wrong again – a survey by the International Congress and Convention Association (ICCA) of a specific segment of the market, international associations, shows that, whilst Africa only had a 3.8 per cent share of the worldwide associations meeting market in 2009 (314 events out of a total of 3,800 global events), this is more than double the number of events it hosted in the previous record year of 2005 when there 163 meetings across the continent.

South Africa is the most established international meetings destination in Africa.  It has seen significant growth in the number of events from the international association sector in recent years.  In 2009 some 90 international events were held in the country, up from 71 in 2000, and is ranked the 34th highest country worldwide with a 1 per cent share of the market.  This must, in part, be because of the development of major events facilities throughout the country

In Johannesburg there are three large venues: The Sandton Convention Centre, The Expo Centre and the Coca Cola Dome.  Durban’s International Convention Centre opened in the mid 1990s and the World Travel Awards named it ‘Africa’s Leading Conference Centre’ in 2010.  The Cape Town International Convention Centre (CTICC) opened in 2003 and is one of a number of conference venues in the city.  And the East London International Convention Centre opened in early 2010.

Egypt was, in 2009, the second most popular African country, ranked 48th with 32 events.  Morocco has seen significant growth in recent years, largely due to new facilities being developed in the country.  The ranking of other countries varies from year to year.  Nigeria posted a strong performance in 2009 with 15 events, up from just five the previous year.  In other West African countries Ghana and Senegal both hosted 12 events in 2009, an improvement on previous years.  In East Africa, Kenya and Tanzania are the most successful locations for international events.  Cape Town is the most popular city in Africa for international association events, hosting more than double Cairo’s 21 events in 2009.  Marrakech has been growing slowly and is now in third place.  Johannesburg is also popular and in 2009 Abuja, Dakar and Accra also hosted more events than in previous years.

Table 1 details the number of international association events held in African cities over recent years.

Table 1 -Location of African International Meetings by City
  2007 2008 2009
Cape Town 43 42 49
Cairo 17 16 21
Marrakech 12 12 16
Nairobi 10 n/a 14
Johannesburg 13 13 13
Source: ICCA

Many of the large convention centres in Africa were built to host a specific high profile government event, such as the African Union annual meeting, which rotates around African capitals.  Some centres have been built as ‘gifts’ from other nations, particularly China.  Whilst these venues offer competition in the scale of facilities that they offer they are never commercially-inspired, nor market-led, which means that the facilities frequently do not meet the specific requirements of the meetings market, and their effectiveness is diminished.

Many large convention centres worldwide, including in Africa, are operated and developed by governments.  The aim is to attract business travellers to a city and to enjoy the economic benefits that accrue.  In addition the existence of a world class convention centre, and the increased visitation that results, can bring considerable PR value to a city.

Table 2 details of some of the leading convention centres in Africa, along with a summary of their facilities:

Table 2 – Major Convention Centres and Large Conference Venues in Africa
Venue City Largest Room Theatre Style 2nd Largest Room Theatre Style Total Other Conference Rooms Total Conference/Exhibition Space m2 Bedrooms on Site
West Africa  
International Convention Centre Accra 1,600 200 3 n/a Kempinski project
Le Méridien President Hotel Dakar 648 200 60+ 2,000 378
Palais De Congrès Cotonou 1,200 300 4 n/a 305
Grand Theatre Project Dakar 1,800 n/a n/a n/a n/a
South Africa  
Sandton Convention Centre Johannesburg 4,500 4,100 13 22,000 1,000
International Convention Centre (ICC) Durban 5,200 2,250 40+ 51,000 inc exhibition centre 327
International Convention Centre (CTICC) Cape Town 2,400 2,200 33 11,400 483
East London International Conference Centre Eastern Cape 1,400 600 5 3,920 261
North Africa  
Intl. Convention Centre Cairo 2,500 800 11 58,000 close
Palmeraie Golf Palace Marrakech 1,500 500 23 4,000 700
Mazagan Beach Resort El Jadida, Morocco 1,300 270 6 2,000 500
East Africa
United Nations Conference Centre (UNCC-AA) Addis Ababa 850 650 24 5,700
Arusha International Convention Centre (AICC) Arusha 1,350 200 12 5,000
Kenyatta International Conference Centre (KICC) Nairobi 4,000 800 6 7,196
Source: W Hospitality Group research

Nigeria has several large conference venues, as shown in Table 3.

Major Convention Centres and Large Conference Venues in Nigeria
Venue City Largest Room* 2nd Largest Room* Number of Other Conf. Rooms Bedrooms on Site
Expo Centre (Eko Hotel) Lagos 5,000 600 16 654
Lagos Civic Centre Lagos 800 200 3
MUSON Centre Lagos 1,000 250 3
Abuja Intl. Conference Centre Abuja 2,000 600 7
ECOWAS Hall Abuja 1,000 500 6
Transcorp Hilton Abuja 1,200 300 24 670
Sheraton Abuja Abuja 1,500 12 540
Source: W Hospitality Group Research

* Theatre style

Although Nigeria has some of the largest facilities outside of South Africa, the majority of demand at these venues is from the domestic and regional market, rather than from international sources.  This is due to the strong demand from local and regional organisations, and because attracting demand from a greater number of international organisations faces the challenge of the image of the country, and administrative hurdles such as visas.

Dakar is arguably the most established international convention and events destination in West AfricaThis is despite the country having no convention bureau and the tourism authority doing little or nothing to promote to this market.  Following the civil war in Cote d’Ivoire in the early part of this decade, and the more recent unrest there, Abidjan has lost its pre-eminence as West Africa’s preferred meeting point, and Dakar (plus to a lesser extent Accra) has assumed that role.

Dakar is the business, government and NGO centre for Francophone West Africa, and strong demand for conferences and meetings in the city is encouraged by the extensive conference facilities that are located in Dakar, especially the flagship Convention Centre at the Le Méridien President.  Other key success factors are the increasing volume of bedrooms available, good air access, political and economic stability, security, and the strategic location of Dakar in West Africa.

A new entrant to the market will be the 2,600 seat Kigali International Convention Centre being developed by Ultimate Concepts, alongside a five-star hotel with 292 rooms, five office buildings and a museum.  This will be a strong competitor to such facilities in East Africa as the Arusha International Convention Centre (AICC) in northern Tanzania, and

Nairobi’s Kenyatta International Conference Centre.  The AICC hosts an average of 100 meetings a year attracting some 11,000 delegates.  Arusha is a popular location for domestic, regional and international events because of the favourable climate (compared to Dar es Salaam and Nairobi), the availability of good quality conference and hotel facilities, and the exceptional pre- and post-event leisure opportunities available to delegates and accompanying persons, specifically safaris in the Northern Circuit.

Hotel venues in Morocco are also starting to have an impact and have the advantage of a close proximity to Europe and short travel times, in a destination perceived as “exotic”.  However, Moroccan venues are more expensive and offer smaller capacity venues than those in South Africa.  Egypt has been a strong market for conferences and also attracts events from the Middle East as well as Europe.  The recent civil unrest there is likely to reduce Egypt’s success in this market, at least in the short-term.

West Africa is still only a relatively small player in the international meetings market, although various venues have had success in the regional market.  The main exception is

Dakar which has been a favoured conference destination for many years, particularly with Francophone countries.  Dakar has good air connections to Europe and some good quality and professionally managed venues, in particular Le Méridien President Hotel.

In the emerging economies of Africa, there is a greater need than ever for Africans to meet and to share experiences, learn from each other and make plans for the future.  This expert believes that the meetings industry – the real one, not the virtual one – has a very, very bright future.

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

Each year the West Africa-based W Hospitality Group carries out a survey of the main hotel brands’ development activities in Africa.  Based on information supplied by the chains themselves, this research tracks signed and confirmed deals for management contracts and other deals (management contracts are by far the majority of agreements signed) in the 53 countries of Africa.  We are aware that many other deals are being discussed (and are privileged to be working on many of them!), and we will include them in future surveys just as soon as the ink is dry.

We estimate that the hotel chains in the survey currently have over 92,000 rooms operating with their brands in Africa, with around 40,000 in North Africa and 52,000 in sub-Saharan Africa.  But when one considers that there are only five countries in North Africa (Morocco, Algeria, Libya, Tunisia and Egypt), the opportunity in the other 48 countries on the continent is obvious.

At the beginning of 2011, the hotel chains reported a total of 156 hotels, with just over 31,000 rooms, in their development pipelines.  This means signed deals, but as we comment later, not necessarily cement being poured!

2011 Hotel Development in Africa

Regional Summary

  2011 2010 2009
  Hotels Rooms Hotels Rooms Hotels Rooms
North Africa 75 17,038 72 16,909 61 15,611
Sub-Saharan Africa 81 14,101 80 15,223 90 15,753
TOTAL 156 31,139 152 32,132 151 31,364

Compared to the contractions in pipelines in other parts of the world, particularly Europe and the USA, the pipeline has been quite stable for the past three years.  And note, of course, that a reduction in the numbers is not wholly a bad thing – the objective is to get new hotels open and making money, and that has been happening, with several new openings in North Africa, South Africa and Nigeria.

North Africa still dominates the development effort, especially in the hotspots of Morocco and Egypt.  This research data was, however, collected before the turmoil hit the region, particularly in Libya, and we know that there will be delays and cancelled projects.  Two hotels in last year’s pipeline, the JW Marriott and the Four Points by Sheraton, had opened in Tripoli, Libya – and promptly closed again when the conflict erupted there.  And work has

been suspended on many projects in Egypt, pending the elections to be held there later this year

The top brands by number of hotels and rooms in their pipelines are as follows:

Hotel Development in Africa 2011

Top 10 Brands by Number of Planned Hotels and Rooms

Rank by Hotels Rank by Rooms
1 Radisson Blu 16 1 Radisson Blu 3,327
2 Ibis 14 2 Hilton 2,807
3 Novotel 11 3 Ibis 2,150
4 Hilton 10 4 Mövenpick 2,053
5 Etap 9 5 Novotel 1,955
6 Park Inn 7 6 Holiday Inn 1,900
7= Holiday Inn 6 7 InterContinental 1,532
7= Lonrho 6 8 Etap 1,294
7= Mövenpick 6 9 Kempinski 1,000
10 Sofitel 5 10 Le Meridien 965

This analysis tracks only branded hotels, and therefore does not capture all hotel projects in Africa.  But it probably captures the majority – in Lagos, two thirds of the new supply under construction is branded, so one can surmise that at least that proportion of the new hotel pipeline is included.  And in many smaller cities around the continent, the branded hotel under construction is the only serious game in town.

Some companies, like African Sun and Southern Sun, operate with multiple brands, some owned by them (Southern Sun have Stay Easy and Garden Court for example) and others as franchisees (both companies operate hotels under franchise from IHG), as well as managing unbranded hotels, but only those new deals that are confirmed by the brand owner are included.

There are some interesting movements in the rankings when one moves from a consideration of hotels to one of rooms.  Whilst the more hotels the merrier, the economic unit on which profits are made is the letting unit.  Hilton have fewer hotels in the pipeline than Novotel, but they are, on average, larger properties.  And whilst Rezidor have been steaming ahead with their Radisson and Park Inn brands, vying with Accor for first place in the development stakes, the average size of a new Park Inn in Africa, at 137 rooms and suites, is way below Le Meridien’s average size of 320 (in three hotels), and who just pip Park Inn by 6 rooms to take the Number 10 slot.

One thing to be wary about, however, when looking at signed deals, is that not all those rooms are under construction, and therefore their realization, especially in many of the very difficult business environments that typify Africa, cannot be certain.  We have analysed the deals reported by the chains as to whether they are on site or not, and the ranking looks different.

2011 Hotel Development in Africa

Top 10 Brands by Pipeline Status

Rank Brands Hotels Rooms Rank – All Deals
Total Onsite Construction
1 Hilton 10 2,807 2,269 80.8% 2↑
2 Radisson Blu 16 3,327 1,737 52.2% 1↓
3 Ibis 14 2,150 1,310 60.9% 3 ↔
4 InterContinental 5 1,532 1,276 83.3% 7↑
5 Holiday Inn 6 1,900 1,168 61.5% 6↑
6 Novotel 11 1,955 1,005 51.4% 5↓
7 Le Meridien 3 965 965 100.0% 10↑
8 Marriott 4 851 851 100.0% – ↑
9 Sofitel 5 803 708 88.2% – ↑
10 Crowne Plaza 2 693 693 100.0% – ↑

Hilton and Radisson Blu change places, and InterContinental moves up the ranks, closely followed by its stable mate Holiday Inn.  Etap, Kempinski and Mövenpick are replaced by Marriott, Sofitel and Crowne Plaza, with more rooms actually under construction.  Le Meridien and Marriott have 100 per cent of their signed rooms on site – but a relatively small pipeline compared to the other global giants.

The above analysis is of brands – many of the hotel companies are multi-brand players, so it is relevant to look at it per group as well:

Hotel Development in Africa 2011

Top 10 Companies by Number of Planned Hotels and Rooms

Rank by Hotels Rank by Rooms
1 Accor 41 1 Accor 6,371
2 Rezidor 23 2 Rezidor 4,286
3 Marriott 12 3 IHG 4,125
4 IHG 13 4 Hilton 2,967
5= Hilton 11 5 Starwood 2,784
5= Starwood 11 6 Marriott 2,503
7= Lonrho 6 7 Mövenpick 2,053
7= Mövenpick 6 8 Kempinski 1,000
9 Kempinski 5 9 Lonrho 913
10 Rotana 3 10 Rotana 700

2011 Hotel Development in Africa

Top 10 Companies by Pipeline Status

Rank Company Hotels Rooms Rank – All Deals
  Total Onsite Construction
1 Accor 41 6,371 3,728 59% 1↔
2 IHG 13 4,125 3,137 76% 3 ↑
3 Marriott 12 2,503 2,503 100% 6↑
4 Hilton 11 2,967 2,429 82% 4↓
5 Rezidor 23 4,286 2,271 53% 2↓
6 Starwood 11 2,784 1,727 62% 5↓
7 Wyndham 3 676 676 100% – ↑
8 Mövenpick 6 2,053 661 32% 7↓
9 Lonrho 6 913 608 67% 9↔
10 African Sun 2 396 396 100% – ↑

All the majors are there, dominated by Accor, which has such a large pipeline that, although only 59 per cent is on-site, the number of rooms under construction still exceeds IHG’s by around 20 per cent.

Where is all this activity taking place?

2011 Hotel Development in Africa

Top 10 Countries by Number of Rooms

Hotels Rooms
1 Egypt 19 5,967
2 Morocco 30 5,297
3 Nigeria 23 4,811
4 Algeria 14 2,575
5 Libya 6 1,937
6 Ghana 7 1,346
7 South Africa 8 1,009
8 Tunisia 4 762
9 Equatorial Guinea 4 661
10 Ethiopia 3 482

All of the five North African countries feature in the top ten destinations for branded hotel developments – driven either by the booming tourism industries in the likes of Morocco, Tunisia and Egypt, or by the opening up of the oil-based economies in Algeria and Libya.  Over half of Accor’s pipeline is in Morocco and Algeria, underlining their commitment to North Africa.

The availability of finance in North Africa has historically been greater, sourced domestically, from Europe or from the Middle East, with foreign investors perceiving less risk there than in the more volatile sub-Saharan Africa.  How times change!

Nigeria, Africa’s largest country by population and the power house of West Africa, has almost 5,000 rooms under contract, with thousands more in the “almost” category – it seems that every hotel operator is seeking a presence there.  New openings recently have included Radisson Blu and Four Points by Sheraton in Lagos, and many groups have hotels under construction there, including Accor, Legacy, IHG, Protea and Hilton.

As before, signed deals is one thing, actual activity is another:

2011 Hotel Development in Africa

Top 10 Countries by Pipeline Status

Rank Company Hotels Rooms Rank – All Deals
Total Onsite Construction
1 Egypt 19 5,967 4,579 77% 1↔
2 Nigeria 23 4,811 3,086 64% 3 ↑
3 Morocco 30 5,297 2,658 50% 2↓
4 Algeria 14 2,575 2,135 83% 4↔
5 Ghana 7 1,346 1,028 76% 6↑
6 Tunisia 4 762 762 100% 8↑
7 South Africa 8 1,009 754 75% 7↔
8 Equatorial Guinea 4 661 661 100% 9↑
9 Kenya 3 540 540 100% – ↑
10 Rwanda 2 529 529 100% – ↑

Nigeria and Morocco change places, and one of Africa’s brightest stars, Rwanda, joins the list, with a Radisson Blu and a Marriott under construction in Kigali.

Equatorial Guinea, one of Africa’s smallest countries, has 4 hotels under construction, 3 by Accor – a Sofitel (their second) and an Ibis in Malabo, and another Ibis in mainland Bata – and a Hilton close to Malabo airport.  South Africa remains at a surprisingly low 7th position, but with several companies now locating developers there (Hilton, IHG, Accor, Rezidor and more to follow) we can expect more activity there, as well as elsewhere on the continent, in coming years (as this was being written, Hilton announced the opening of their first hotel in Cape Town, included above in their pipeline).

On average, the global hotel brands have less than 2 per cent of their total rooms in sub-Saharan Africa, and with rapid expansion of their existing and upcoming hotels in China, India and other developing and developed countries, this percentage is likely to drop further.  But the rewards in Africa are high, and with growth rates of 6 per cent and above, it is regarded by many as the most profitable place to do business – just oftentimes slower than “normal”.

For those in the know, the opportunities in Africa are as vast as the continent itself.

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

Being in a service industry, it will come as no surprise to learn that the payroll is the largest cost a hotel incurs.  In some environments it could be as much as 30 per cent of revenue, whilst in others below 15 per cent may be the norm.

Hotels need staff in all areas – from the front door to the back door, from the porter to the security guard in the receiving bay.  Some spend all their time with the guests, others may never see one, but each has an important role to play.  Staff are there to ensure the smooth running of the hotel, both “on stage” and behind the scenes, and to meet the customers’ expectations.  And it is the latter that determines the level to which a hotel is staffed-up.

At the top of the quality tree, in deluxe hotels, the customer’s expectation is that every need is catered for – they are met at the airport in a limousine (= driver), the car door is opened for them on arrival (= doorman), their luggage is taken from the car into the hotel (= porter), a refreshing towel is there waiting for them in the lobby (= customer relations), even, in some hotels, a member of staff just to press the lift button for you (= true luxury!) – you can see where this is going, at that level of quality the guest expects and pays for service, and it takes multiple staff members to deliver that.

At the other end of the scale, the budget hotel has reduced everything to a minimum, where they are basically selling “sleep”, to a customer who doesn’t expect much more, and is certainly not prepared to pay for it.  Self-park, self-tote, increasingly even self-service check-in – at the extreme, our budget hotel customer may not even see a member of staff, nor need to.

But if the deluxe hotel customer pays more to get more service, and the budget hotel customer pays and receives less, why the range of cost to the hotel investor?

There are many reasons – natural differences in wages from one country to another, the level of unionisation, housing, transport and other benefits paid, legislation on working hours, the accrual of end-of-service payments – all these can make a difference.  As can the practice of charging service charges to customers – in Nigeria, it is normal practice for hotels to charge 10 per cent on top of the quoted room rate as a service charge, and this is distributed to staff according to complicated points systems, or as a flat rate.

Accordingly, staff in the leading hotels enjoy higher pay than their counterparts in other sectors of the economy, particularly when the hotels are experiencing high occupancies and average room rates.  A waiter with a basic monthly wage of around US$150 per month could see that figure doubled or tripled when the hotel is doing well.

Another factor can be the employment of expatriate staff.  Large hotels may have 10 or more expatriates working there, at a cost per person ranging from around US$50,000 per year, to in excess of US$200,000.  This cost includes the basic salary, but also flights home two or three times per year, housing, schooling, medical benefits, pension and so on.

International management companies will normally want to bring in expatriate staff to any hotel they manage in Africa in order to benefit from their international experience, and their knowledge of the brand’s operating systems and philosophies.  Such skills are not always available locally, but a succession plan needs to be put in place (to comply with the law in some countries) so that the post can be indigenised over time.

Investors need to be aware of and monitor the employment costs associated with the operation, but must also understand that the hospitality business cannot function without well-trained and experienced staff and managers – unless they can invent the “automatic hotel” which, by the way, I will not be staying in!

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

I saw a headline the other day on Huffington Post.com – “Super Efficient Crew Builds 15-Storey Chinese Hotel in Just six days”.  There was a video with it, which showed – well, yes, this steel frame structure did go up in six days, but I think it was a bit of a stunt, and the “six days” is somewhat disingenuous.  The foundations had already been built, and there was no sign of any plumbing or electrical wiring, nor any wall or other finishes.

But let’s not belittle the achievement.  The fact is that the structure, a steel frame with pre-fabricated panels did indeed go up in six days, whilst a normal concrete slab and column method will take months, if not years, to complete.  The quicker you can get a hotel open, the faster you can start receiving income and paying down debt.

That’s why hotel investors have been looking at new technologies for hotel construction.  Steel frame and pre-fabricated panels is not that new.  Sweden’s Top Housing used it to build the Labadi Beach Hotel in Accra some 20 years ago, and the Sheraton Hotel in Ikeja opened in 1985, having been built with the same methodology.  Top Housing effectively provide a pre-manufactured, pre-packaged system.  It is all shipped in in containers, the first part you need is there when you open Container #1, and the corkscrew is at the back of the last container!

Sassi, a South Africa-based company offers a similar system, actually branded “Building in a Box”, currently being looked at for a multi-unit roll out of a mid-market hotel product in Angola.

And taking the concept of a “hotel in a box” that much further one discovers that it is (almost) possible to ship in a hotel that is already built.  Known popularly as a modular building system, it has been used very successfully at the 307-room Travelodge Heathrow Central in the UK.  The supplier of the modules, each of which comprises two bedrooms either side of a “slice” of corridor, was Verbus, which manufactures them in China.  Shipped in on a container vessel, and then trucked to site, the 181 modules were lifted into position by crane, bolted together, and then cladded with glass or aluminium panels.  Inside each module all wall, ceiling and floor finishes are in place, the bathroom and plumbing are all there, as are the electrics.  All that is missing is the furniture and the laundry bag!

At the Heathrow site, put 30 modules in place each day, so that’s about the same 6-day period as the Chinese construction.  Due to the location under the flight path, the modules had to stand up to stringent sound-proofing tests – and passed.

Apart from the time saving – claimed to be 30 per cent less than traditional build – the units come at a fixed price (no variation orders) and factory-controlled quality.  On-site the construction methodology is simplified, and the cost of supervision is reduced.  The overall cost is not claimed to be any less than traditional build, but factoring in the massive reduction in the construction time means that whole life cost is far less.

And then there’s the humble shipping container.  Second-hand containers have little value, as they are expensive to transport empty, that’s why you see so many lying about the place.  But an enterprising Dutch company, Tempo Housing, had the idea of refurbishing containers and using them as hostel and hotel bedrooms.  On the small side, admittedly, but fine for student housing and economy hotels.  There’s a “container hotel” under construction in the south of Nigeria using this very system, and it has been used for student housing in the Netherlands.

Time is money.  The faster one can get to market, the faster the returns.  In territories where logistics and local conditions, including weather, skills shortages and so on, make traditional build a sometimes very drawn out affair (and many African locations fit that description), the modular system can be extremely attractive.  However, those very logistical problems can also hinder the use of the system – one container stuck in the port, or at a land border, can throw the whole programme out of the window.

It is not for every hotel project.  I don’t think the modular system is appropriate for a deluxe hotel, nor is the pre-engineered system such as Top Housing’s suitable for a village property, where low-rise traditional build (using local materials and labour) is likely to be far cheaper, and more suited to the market.  But hotel investors are strongly advised to consider new building technologies for their projects, especially at the economy and mid-market levels – it may well pay off.

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

A recent survey says that Nairobi has some of the highest hotel room rates in the world.  Customers in Lagos and Luanda complain about the “crazy” prices charged there.  Hotel rates in Cape Town and Johannesburg soared by almost 50 per cent in the 12 months to August 2010.

Why does the price of a hotel fluctuate so much, and why can it cost double the amount to stay in a Hilton or Sheraton or any other branded hotel in one country than it does in the same brand in another place?

In simplistic terms, a hotel’s profitability is driven by room occupancy and room rate, so investors are particularly interested in those two metrics.  So what influences a hotelier’s decisions on the price of a room?

Ultimately, of course, the intention is to produce a return on investment to the owners of the hotel.  So there are various models which start with the investment in the hotel, and from that calculate how mush to charge per night, on average, to produce the desired return.  One such model is the “1,000 to 1” rule of thumb, which says that for every one thousand currency units spent per room on building the hotel, one needs to achieve an average price of 1 currency unit in room sales.  Thus a hotel which cost US$10 million for 100 rooms, or US$100,000 per room to build, needs to achieve an average room rate of US$100.

Like any rule of thumb, it’s a little simplistic, but it does, with an acceptable margin of error, work – if the market says that the average customer will only pay US$50 per room at that hotel, it is unlikely that it will be a profitable venture.  If the market is at US$90, then we’re in with a fighting chance.  And if the market is at US$150, then go for it!

But what is “average”?  Because it is on average achieved price (known as average daily rate, ADR) that investors make their decisions, not the advertised rate.  And what does the customer care about the owner’s return on investment?

There is immense confusion regarding the “price” of a hotel room.  In the industry, we talk about “rack rate”, which is the published price that is written on the board behind reception.

In practice, the average city centre hotel charges that rack rate to less than 5% of its guests, and the average resort hotel never charges rack rate.  Because this rate is really a marketing statement – it means “this is where we believe this hotel sits in the market, we’re a US$500 a night stay, better than a hotel that says it is a US$400 a night room”.

These days, most hotels have adopted a yield management approach to pricing, and virtually every transaction on the internet uses this technique.  It is what the airline industry has been doing for many years, with the price of a ticket, or a hotel room, varying according to the actual or anticipated strength of demand.  That is why the answer to the question “how much is a room at your hotel?” is often “when do you want to stay”?

The use of technology in the pricing process is essential, but so is the experience and skill of the hotel management.  A hotel room is the ultimate perishable product, and the aim is to sell all rooms, every night, at the best possible price.  An aeroplane can be shifted from one route to another if demand is low, a hotel cannot be moved – sell that room tonight, or lose it for ever.  Management will be looking at various things when pricing, such as the value of the customer’s business over time, the likely demand on the night of the booking, and of course competitors’ pricing strategies.  What other hotels are doing at any particular time can be the deciding factor, but this tends to be short-term tactics rather than a long-term strategy to maximise shareholders’ returns.

Ultimately, the market decides the price.  Nairobi has witnessed a renaissance since the post-election troubles three years ago, and higher demand means higher prices.  New hotels opening there are will seek to take advantage of the curve.  Prices in Lagos and Luanda are still, however, far higher than those in East African cities, because construction costs are that much higher, with a need for hotel owners to install infrastructure that is normally provided (but isn’t) by government.  There is therefore a dual-pronged push on prices – high demand from the oil and other sectors, and the requirement to make a return on high construction costs.

Supply and demand is supposed to be the final arbiter on pricing, which is why in over-supplied markets – and there are several markets in Africa which are facing a temporary oversupply situation, as investors pile into under-supplied locations – prices tend to drop, as hotel fight for market share.  Purists will tell you that dropping prices is self defeating and there is research to prove that in a competitive market, those hotels that do not succumb to the temptation of heavy discounting to attract customers actually increase

their returns compared to those who do.  But that need to sell tonight, or lose it, means that customers will get deals, and investors will need to have the ability – and the financial strength – to ride through the peaks and the troughs of the hotel world.

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

CASA – not just the Spanish word for “house”, but also an acronym for Conflict Affected States in Africa, a two-year old International Finance Corporation (IFC) programme looking to promote economic recovery in four African countries, namely Central African Republic, the Democratic Republic of Congo, Liberia and Sierra Leone.

It would not be easy to find an African country which has NOT been affected by conflict in one way or another.  Even South Africa, the leading economy on the continent, had its racial conflict under apartheid, whilst the former Rhodesia, and Ethiopia, each split into two separate nations following severe conflict.  Sudan and Somalia still suffer from civil war.  The DRC, one of the IFC’s target countries, is not totally “post conflict”, with the eastern region still occupied by several warring factions but is, all the same, in need of considerable assistance to develop both immediate and long-term solutions to help speed private sector growth and stability.

Hotels are an essential part of the infrastructure of any town and city.  The damage to hotels in conflict-affected countries brings two problems – a shortage of accommodation for visitors essential to the social, political and commercial recovery of the country, such as aid workers and consultants, and a perception from the outside that the destination is not yet suitable for foreign investors.

The focus by the IFC to provide special assistance to these four countries is to be especially welcomed given the organisation’s work in the tourism industry, with investments in over 80 countries.  And another World Bank member, the Multilateral Investment Guarantee Agency (MIGA), is providing political (i.e. non-commercial) risk insurance to investors and lenders, for projects and in locations where private sector insurers are not willing to provide cover.  Rebuilding a country’s economy presents huge opportunities for the local and international private sector, and MIGA cover makes it more likely that a foreign investor will take up the challenge.

MIGA is also working with various national investment promotion agencies to promote projects to foreign investors and to develop national investment strategies.

Alongside the CASA programme and the support provided by MIGA, the IFC is active in the promotion of tourism investment in post-conflict states in other ways.  In Sierra Leone, the IFC’s investment climate team has been working with the government and with the National Social Security and Insurance Trust, the owner of the Cape Sierra hotel in the Aberdeen district of Freetown, providing advisory services for the privatisation of the hotel.  The process is ongoing, with various technical reports undertaken (including a market and financial analysis conducted by W Hospitality Group) and a tendering exercise to attract an investor and management company.

In Mozambique, the IFC has been managing the Anchor Investment Programme, effectively acting as project promoters for a number of resorts there, with the dual aim of attracting foreign investors, whilst at the same time building capacity within government.

The additional support provided to these and other conflict-affected states means, hopefully, that recovery will be that much quicker than without such intervention.  Of course, the risk still remains, and any hotel development in such locations must have a sustainable and proven commercial rationale before proceeding, not a crutch to make it artificially viable in the short-term.  The development or renovation of a hotel creates employment, not just in the hotel itself, but also in the rest of the economy, through indirect and induced multiplier effects in the supply chain and through increased spending in shops and elsewhere by newly-waged and self-employed individuals.

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

After 35 years in the hospitality industry, I still can’t tell you what a five star hotel is.

There. I’ve said it. This so-called expert in the hotel industry doesn’t know something as simple as that!

Think about it, however.  Hotels are really complicated things, selling services (e.g. overnight accommodation), manufactured goods (steak pie and chips) and commodities (a bottle of beer) in multiple outlets, in hundreds, sometimes thousands of transactions per day, between invariably different human beings.  How can you possibly categorise a diverse creature like that using just two words – five star?  Did you know that, until very recently, there was no such thing as a five star hotel in Paris?  The system there used one star to four star, four star deluxe and Palace hotels, for the top properties in heritage buildings.

The star rating system, which varies from place to place, was originally invented for consumer protection.  In the absence of any other sources of information, other than the brochures produced by the hotels themselves (this was, of course, before the advent of the internet), the automobile organisations, such as AAA (in the USA), the RAC (UK) and Michelin (France) produced guidebooks for their members motoring around the country.  Thee organisations gave their own opinion of the quality of each hotel, so that members seeking something of a high quality would know that the “five star” (according to the guide) Grand Hotel was a better quality than the “three star” Very Grand Hotel, before they arrived – because, as we all know, names can be misleading.

These systems of star ratings developed, and they do work to some extent – we all know that a one or two star hotel is likely to be pretty basic, a three star hotel will be kind of average, a four star hotel – well, that’s something better than a three star, and a five star is all about luxury.

But they are still not particularly good definitions, are they?  Basic, average, luxury?  One guest’s luxury is another guest’s average, after all.  Take some of London’s hotels as examples – the Hilton on Park Lane, the Dorchester and the Grosvenor House are all five star hotels, but cater to quite different clientele – a regular guest at one probably would not in his or her lifetime want to stay at one of the others.

This lack of definition may be of little consequence to an investor in the hotel industry – or it may be of fundamental significance.  I am involved in the development of a hotel in Nigeria, which ran into trouble because the owners agreed a joint venture arrangement with a contractor, and it was stated in the contract that the contractor, now part of the ownership of the hotel, would build a “three star hotel”.  It had been assumed by all sides that there was a commonly-held definition of that term, but the quality of work produced by the contractor was far below that expected by the original owner.  The result was, of course, disagreement after disagreement, and the joint venture collapsed, leading to delays and increased costs.

And consider also the developer who wants to create a very high quality, cosy and private boutique hotel in Ghana, with say 50 rooms, a fine dining restaurant and bar – but cannot qualify for a five star rating, as the Ghana grading system stipulates that a five star hotel must have at least two restaurants and a conference room for a minimum of 300 persons.  The impact of this is that our creative hotel developer is unlikely to be able to achieve the required yield from the hotel because, with his four star grading, the perception of the guest will be that he cannot charge as much as the five star hotel across the street.

What’s the solution?  It’s already there.  Two relatively recent developments make star ratings far less relevant.  One is the increased availability of information, from all sources but particularly on the internet, where sites such as TripAdviser.com provide guest feedback on hundreds of thousands of hotels, warts and all.  In addition, hotels and booking agencies can provide pictures of their facilities, so that prospective guests can make a judgement regarding the quality of the hotel pre-arrival.  Of course, the camera can lie, as can blogs, but still a great advance on a subjective assessment of “quality”.

The second solution is hotel branding, a subject which I have commented on before in this column.  The Holiday Ins and Hiltons of this world have no interest in being classified as three, four or five star, they have already classified themselves – as Holiday Inn or Hilton!  These chains commit considerable sums each year to product development and to consumer research, so that what they offer under their brand name is what the guest wants, and what the guest expects.

I mentioned earlier that star rating systems vary from place to place – there is no such thing (contrary to what many people think) as an international star rating system.  The International Hotel & Restaurant Association (IH&RA) argues against any attempt at harmonisation – would it really be appropriate to specify the same level and extent of facilities and services at hotels in New York and Ouagadougou?  Of course not, and travellers would not expect it.  Even in Europe, there would be confusion between the French insistence on having a bidet in the bathroom, and the British not knowing quite what it was for!

The IH&RA doesn’t advocate scrapping the star rating system altogether, as this “common-sense approach” works for some, if not for me.

And no, I have no idea what a “six star” hotel is!

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

Ed: This article aims to examine hotel supply and demand dynamics, advise that hotel markets are cyclical, and therefore a long-term view is essential.

Having enjoyed several years of growth, the worldwide hotel industry is now experiencing a significant downturn, along with every other industry.  Forecasts from PricewaterhouseCoopers are for an 8 per cent decline in both occupancies and prices in the USA in 2009 resulting in a reduction in yield of 16 per cent.  A decline of 12 per cent is forecast for the UK in the same period.  Some commentators say that all regions of the world will experience similar double-digit declines in performance this year.

There are no data available for Africa, but we know that no-one is immune from the global recession.  And we also know, as reported in this column previously, that many markets in Africa are currently witnessing a building boom, so whilst demand is decreasing, supply is increasing – a double-whammy, some would say!

I remember as a young consultant, many years ago, denying that the hotel industry was cyclical.  Well, you live and learn, and 25 years later, I know that, as night follows day, the hotel industry certainly IS cyclical, alongside the wider economy.  Whether it is caused by external shocks like the oil price hikes of the early 1970s, and the terrorist attacks of 2001, or from self-inflicted wounds such as the sub-prime mortgage scandal and civil unrest, there is an inevitability that the economy will ebb and flow over the years, on a 7 to 10 year cycle.

In Nigeria, we not only have our own banking crisis, caused by irresponsible lending, but also the downturn in the global economy has brought a reduction in demand for oil, the country’s main export, and therefore demand for hotel accommodation from these two sectors (banking and the oil industry) is down some 20 per cent on last year in central Lagos.  Interestingly, however, this downturn is not uniform across the country – Ikeja, in the north of Lagos State, and the capital Abuja, are both experiencing high volumes of demand, with occupancies in the former regularly exceeding 90 per cent on a monthly basis.  And Calabar, in Cross River State, is also doing well, where the government has a clear focus on expanding the tourism industry in “the Nation’s Paradise”.

Elsewhere in Africa, Accra’s hotel industry remains extremely strong, buoyed by the nascent oil industry, and the international attention following President Obama’s visit

there, Luanda still presents problems to anyone wanting a hotel room, and Harare’s hotel occupancies are edging higher, as investors seek opportunities there.

But I foresee challenges for the industry ahead, as new hotels finally come on stream – 2010 openings include the Four Points by Sheraton and Radisson Blu in Lagos, the Marriott in Accra, and the Sana in Luanda.  Whilst growth in demand tends to be gradual, growth in supply is a once-off hit – a little bit like the pig swallowed by the python, causing indigestion and an abnormal situation at first, but then slowly being absorbed until equilibrium is once again restored.  So occupancies are likely to be lowered once new supply enters these markets, and there could too be pressure to lower prices – although that is not inevitable, and certainly undesirable for hotel owners with loans to service.

Like the inevitability of cyclicality, periods of oversupply also seem to be inevitable.  But this does not mean that investors should shy away from new development – far from it, because the demand trend is also, inevitably, upwards.  What it does mean is that investors must only invest for the long-term – build in periods of flat or declining demand into your forecasts, to see what impact that has on future debt service obligations.  You will always lose market share to a new entrant to the market, at least in the early days of it being open, because of the curiosity factor, and the offer of introductory rates.  How long that loss of business will last is down to management, and their ability to win back lost clients, and attract new business.

The other impact of this is that investors need to seek their niche in the hotel market.  For reasons which often relate more to ego than economics, entrepreneurs in emerging markets tend typically to want to build luxury hotels in the first instance, “gouging” the market in times of short supply of any acceptable alternative.  That provides opportunities to fill in the gaps between the top of the market and the older, outdated stock, which has little or no future in a modern economy.  Accor and Rezidor are leading the way in sub-Saharan Africa, the former with their Novotel and Ibis brands, and Rezidor with Park Inn.  Others are following, as Hilton start to introduce their Doubletree and Garden Inn products, and Holiday Inn Express is making a comeback in South Africa.

And finally, hotels are not only a long-term investment, they are long-term projects, with a minimum of three years from inception to opening.  So if you are planning a hotel now, or just commencing construction, demand should be back to trend by the time you open.  It’s inevitable, isn’t it?

Trevor Ward

W Hospitality Group, Lagos

[email protected]

Countries fight over it, communities fight over it, and individuals fight over it.  The possession of land is one of the fundamental rights of man, but when contemplating a hotel development, whilst possession mat well be “nine-tenths of the law”, it’s that other 10 per cent that can be the deal breaker.

Generally speaking, land tenure and title in sub-Saharan Africa are a mine field.  Vast tracts of land, nomadic peoples, the imposition of Western ownership concepts (normally intended to benefit settlers and disadvantage the indigenes), civil wars, nationalisation, dictatorships – the combination has led to the situation where, sometimes, the ownership of a piece of land is virtually impossible to determine.  And there is a vicious circle working here, too – according to Peter Hertz of ARD, Inc. “insecure land tenure and property rights and the inequitable access to land and natural assets are two of the leading triggers of violent conflict, population displacement, the over-exploitation of natural resources, and political instability” in Africa.

Add to that the problems of transferring title once proven, and it is no wonder that land issues are one of the main impediments to hotel development (and other forms of physical development, too) in sub-Saharan Africa.

Take the example of Ghana, where there are four different types of land title – State land, Vested Land, Customary/Stool Land, and Family/Private Land.  The method of acquisition varies by type – for state and vested land (which is customary land administered by the government), negotiations for acquisition are with the government, may or may not be straight forward.  Purchasing Stool land, however, means participating in the tribal customs of the specific area, and negotiating with the Chief.  Whilst this is of an inherently local nature, the process is overseen and approved by the State, to avoid exploitation (of either party!).

Negotiating purchase of family/private land does not need the concurrence of the State.  But, as with any purchase of land, it does need registration and, according to the World Bank, Ghana scores well compared to the sub-Saharan African average, requiring five procedures, which take 34 days and cost just over 1 per cent of the value of the land.  The regional average is 6.7 procedures, 81 days and 9.9 per cent of value.  Uganda and Nigeria require 13 procedures, The Gambia takes 371 days to register title, and in Chad it costs an eye-watering 23 per cent of value.  Regularising the law on land title is one thing, but the more difficult and costly it is to register a change of title, the greater the chances that formalized titles will quickly become informal again.

One cannot write about land title and transference in Africa without a reference to Nigeria’s infamous 419 scams.  Everywhere you go you see signs on buildings and fences, stating what must puzzle newcomers “This land/building is not for sale.  Beware 419”.  Adding to the confusion of land title and ownership – and perhaps because of it – fraudsters make a living from selling property they don’t own to unsuspecting purchasers, sometimes several times over!

In addition to the economic and financial aspects of land purchase and usage, hotel developers, particularly (but not only) in resort areas need to be aware of the social implications of their plans.  The lack of land title on the part of the local community may provide an opportunity for perfectly legitimate purchase of a prime beachfront spot – but that may be the best launch point for their fishing boats, used by countless generations.  Or it may exclude the local women from collecting shellfish there, to feed their families and to earn an income.  Or, and as serious as the former problems, it may be a place considered sacred by the local people, which could “curse” any development there, and discourage the local people from working there.

If higher levels of economic growth are to be promoted, and the resultant benefits will include poverty alleviation, ensuring a favourable climate for investors is essential.  Tourism, and the development of hotels and other lodging establishments is one of the largest consumers of capital in the sector, is clearly a contributor to economic growth and poverty alleviation in most Africa countries, and will only be encouraged if access to physical space, i.e. land, is made easier – not only for foreign investors, but also for indigenous entrepreneurs, who own and operate the vast majority of the businesses.

And, instead of the vicious circle described above, a virtuous circle can be created, with secure property rights giving confidence to investors to do business, providing collateral to enable access to credit, and contributing to the development of financial systems – to the benefit of the economy as a whole.

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

Search the web for “Green Hotels Africa”, and you’ll be surprised – at how few hotels there are listed!  One hotel in Egypt, a couple in South Africa, and that tends to be it.  Even responsiblehotelsoftheworld.com, surely an organisation that every hotel in the world would want to be part of, has only two hotels listed in Africa.  And who says they are “green” or “responsible” anyway?!  The website?  The hotel?  Or the customers?  One website says “This property is purported to be ‘green’ but has not been verified”.  You know what? – I reckon that hotel has those little signs in the bathrooms asking you to consider the environment, and to reuse your towels – which are then replaced by the room attendant each day anyway.

That really is as far as most hotels are prepared to go – the towel business – but they’re missing a trick.  Because the experience of hotel developers in the USA shows that the payback on the additional cost of building a sustainable hotel is measured in months, not years.  The new Proximity Hotel in North Carolina spent an additional US$7,000 on water-saving equipment, and in the first year is on track to save more than US$13,000 – and will continue to save in future years.

There are no benchmarks for how much extra “building green” costs, one industry commentator in the USA thinks it needs to be no more than 1 per cent additional, but even if it is 5 per cent, even 10 per cent more, with returns like that, it must make sense, mustn’t it?

And it isn’t only about operational cost savings.  Ten years ago, we didn’t much care about whether a hotel offered internet services, did we?  Today, a hotel that doesn’t have high speed, wireless broadband is at a distinct competitive disadvantage.  And I can see the day in the near future when a hotel that doesn’t have green credentials will also suffer, because the customer has a choice.  And being environmentally aware, being socially responsible, is the right thing to do, isn’t it?

The availability of potable water in some parts of the world, and in many in Africa,  is a huge issue, which is only going to get worse.  Fairmont Hotels reckon that the average water consumption of an occupied hotel room is 825 litres – and according to Infochangeindia.com, the average daily water consumption of a luxury hotel room in Delhi is a staggering 1,600 litres, ten times that of the average city resident.  Such inequality cannot be right.

At the Fairmont hotel in Toronto, under the City of Toronto’s ICI Water Saver Program, businesses are rewarded for demonstrated water savings.  In 2005, the hotel installed a commercial water softener that reduced water use in the laundry to one

wash and one rinse per cycle, saving 476,000 litres of water per day – enough water to supply 500 homes!

Apart from Fairmont, all of the hotel chains are promoting green operational practices.  Rezidor, one of the fastest growing chains in Africa, produces an annual Sustainability Report which in 2008 reported that energy consumption decreased 6 per cent in their Radisson Blu properties and 14 per cent in Park Inn, water per guest night down 3 per cent and 7 per cent respectively, and waste per guest night down 2 per cent for Radisson Blu and 22 per cent for Park Inn.  InterContinental’s new on-line Green Engage system envisages energy savings of up to 25 per cent.  Marriott has developed a five-point strategy in collaboration with Conservation International which includes reducing fuel and water consumption by 25 per cent per available room over the next 10 years, installing solar power at up to 40 hotels by 2017, and expanding existing “reduce, reuse, recycle” programs.  All of these means higher profits for the owners, and increased capital values.

In the USA, there’s a scheme promoted by the Green Building Council called LEED – Leadership in Energy and Environmental Design.  LEED provides certification for “green” buildings, and the Proximity Hotel was the first to obtain a Platinum Award.  In some states in the USA, there are generous tax breaks for being certified, as well as savings on sales tax on recycled materials.

Given the phenomenal activity in the African hospitality business today, as evidenced by the unprecedented number of internationally-branded hotels which are under construction or in advanced stages of planning, shouldn’t Africa be taking a lead?  The triple benefits – cost savings from operations, consumer acceptability, and “doing the right thing” in a continent which still retains much of its natural environment – far outweigh any additional investment required.

And in conclusion, back to those bathroom towels.  Without the right attitude, green initiatives will not work.  Unless the guests, the staff and the management are all thinking “sustainable”, it becomes what the critics call “green wash” – all talk and no real action.  Accor are trialling their Green Shield programme, picking up on a Cornell study which proves that everyone responds best when the payback is clear.  They are calculating how much money can be saved by reusing towels, telling the customers and staff what that is, and donating the money to the UN’s Billion Tree Programme.  At the same time, staff are being trained to implement and communicate the initiative.

According to Kurt Ritter, CEO of Rezidor “We are living in a world which increasingly views green initiatives as a crucial foundation for business.”

For more information about green hotels:

http://www.tourismpartnership.org/

http://www.greenhotels.com/

http://www.responsiblehotelsoftheworld.com/

Katrina, I can add more if you think this works…..

Trevor Ward

W Hospitality Group, Lagos

[email protected]

 

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