There was a time, before the mobile phone, the internet and blogs, when hotels used to put brochures into envelopes and post them to customers who had requested, via a letter, for “further particulars”, and used to place small ads in the classified columns of newspapers, extolling the presence of hot and cold water in every bathroom.
You took that at face value – you had no other way of knowing whether the Miramare Hotel really did overlook the sea until you got there. And then the automobile associations such as AAA (in the USA), the RAC (UK) and Michelin (France) decided that, as a benefit to their touring members, and to provide them with a level of protection from, dare I say it, hoteliers who were somewhat economical with the truth, they would produce guidebooks. These 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 did, and 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 there is no official star rating system. Those hotels that announce themselves to be five five star is all about luxury. However, in Nigeria, with the region’s largest hotel industry, star, four star or whatever star have “self-awarded” – so the system that was supposed to be for consumer protection falls flat on its face when a hotel can decide itself how many stars it would like to have!
And anyway, after nearly 40 years in the international hotel industry, I still can’t tell you what a five star hotel is. 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 (chicken pie and mash) and packaged 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 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.
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 three of London’s hotels as examples, all on Park Lane – the Hilton, 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.
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 ECOWAS region has a rating system, which is half-heartedly applied in some countries and not all in others. And this regional system suggests that to be five star you should have a casino – really?!
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 in Nouakchott? 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!
What’s the solution? It’s already there. Two factors make star ratings far less relevant, and irrelevant to many. One is the increased availability of information 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”. Some websites provide information on every room in a hotel, including the views!
The second solution, which goes hand-in-hand with the huge increase in information available on the internet, is hotel branding. The Hiltons and Sheratons of this world have no interest in being classified as three, four or five star. They have already classified themselves – as Hilton or Sheraton! 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. The brand is instantly recognisable, and in theory provides a much more substantial promise of what’s inside the box than does any generally-applied rating system.
And no, I have no idea what a “six star” hotel is!
Trevor Ward
W Hospitality Group, Lagos
For someone wanting to invest in the hotel industry in Africa, but who wants to mitigate their risk, the emergence of several dedicated funds is worth a close look.
Investing in hotels brings with it all sorts of risks. True, any investment has some risk, even sovereign bonds. Stock markets can go up or down, as can the price of gold and other precious metals. But hotels, as an asset class, bring all sorts of risks. Build an office block, and if you plan it right, you have one financial transaction, the rental payment, every two years of so with a blue chip tenant, in whose interest it is to keep the place in good order. Office blocks are reasonably simple buildings, and it is the tenant who bears the financial burden of specifying and installing all the technical gewgaws they need, the equipment and the furniture.
Now take one of those big hotels you find in Abuja and Abidjan, with 500+ rooms. The development cost is high, because they are complicated buildings, there are several different types of space (lobbies, restaurant, bedrooms, kitchens, offices and others) each with specific requirements, and the skills to get everything right can be very hard to find in emerging markets. And once the construction and completion risk are behind you, there’s the commercial risk. Unlike your office block, with one financial transaction every two years, a large hotel like the Abuja Hilton has thousands each and every day, each customer must be pulled in and kept happy for 24 hours or more, ever supplier delivery needs to be checked and rechecked……..you can see the difference in risk.
But, as is the way of the world, the higher the risk, the higher the reward. Research has shown that as an asset class, hotel real estate has the potential of returning higher rewards than any other type of property, provided it is well managed and maintained. Office blocks tend to get demolished and replaced after a few decades use, but there are plenty of examples of hotels remaining in use for hundreds of years.
It is this risk and reward profile, and the opportunities for growth in the hotel sector in Africa, that has prompted the creation of these industry-specific funds. Before they arrived on the scene, investors had a choice of investing directly into projects, with all the attendant risks, or on quoted stocks – but outside of major centres such as South Africa and Egypt, there are very few such opportunities. In Nigeria, for example, there are only two quoted companies, which have investments in three large hotels in Lagos and Abuja, but the control of those two companies rests with one family.
The benefit that a hospitality fund brings is the opportunity for an investor, including those with only a small amount to invest, to enter the industry, and to reduce their risk. In order to provide returns to investors, the fund managers will spread the portfolio across a variety of types of hotel – deluxe, mid-market, economy, transient and long-stay – and in most cases with a variety of operators (although some funds will commit exclusively to one operator for the economies of scale that they can achieve). Multiple locations can be included in the fund’s investment portfolio, as can hotels at different stages in the development and operational cycle. Whilst many fund managers will prefer to buy existing assets with a proven cash flow and, hopefully, an opportunity for expansion, it is not always possible to achieve that in emerging markets, and therefore development projects will also be considered.
The fund managers will, of course, be controlling their risk at all stages of the game. I mentioned above the hotel operator – it is a rare fund manager that will invest in an asset that does not have professional management in place, in order to mitigate the commercial risk. But a hotel fund will also have considerable expertise in-house, employing asset managers, acquisition teams, project managers and so on. And to supplement the in-house expertise, consultants are brought in as and when appropriate. Promises have been made to investors regarding returns on their investment, and therefore the fund managers have to do everything they can to mitigate risk and produce returns.
I have identified five active funds in Africa which have a hotel focus, three of which are here in Nigeria:
Actif Invest. Based in Casablanca, Actif Invest is part of the Finance Com group, one of the largest companies in Morocco. Through its Maghreb Siyaha Fund (MSF), with a target of €250 million under management, the MSF is investing in hotels, touristic residences and resorts in Morocco, including the Hotel Targa in Agadir, managed by Oasis Resorts (based in Spain), and the Carré Eden Marrakech, which is to be managed by Radisson Blu. Actif Invest is somewhat unusual in that it is prepared to invest in resorts, which have a higher risk profile than “Main Street” business hotels. However, the fund managers are based in Morocco, a country with a well-established tourism industry, and have studied and understood those risks.
ARM Hospitality and Retail Fund. This fund was established by Asset & Resource Management Co. (“ARM”), a leading Nigerian asset management and investment firm with over US$1 billion funds under management. Launched in 2011, the fund already has one major asset completed, the 230-room Four Points by Sheraton hotel in Lagos, which is one of the leaders in the city, and is managed by Starwood, the largest operator in Nigeria by number of rooms. Their second investment is the Trinity Gardens project, also in Lagos, which is to be a mixed-use development, including a 200-room Four Points by Sheraton hotel, a retail mall and an entertainment centre. I
have written before about the benefits of mixed-use developments – another way of spreading and mitigating risk – and ARM have recognised not only that, but the massive opportunities in the retail sector in Nigeria, hence the title and focus of the Fund.
A slight twist to the story with ARM is that, in addition to their projects with Starwood as their technical partner, they also see the potential to develop hotels in Nigeria without an established brand name, creating their own management company and brand. As with Actif Invest and their knowledge of resorts, ARM’s professionals have studied the market, and have the expertise to execute this successfully.
AIQ Hospitality and Retail Fund – based in Lagos, this fund is being established by AIQ Capital, a financial advisory services firm. They are in the early stages of fund-raising for the US$150 million equity target, and intend to build a chain of up to 20 budget and mid-market hotels in Nigeria over the next 10 years with an international brand to operate the hotels. The second tranche of the fund will build small neighbourhood retail malls throughout communities in Nigeria. Like ARM, they have identified the synergies between hotels and retail.
Capital Alliance Property Investment Company. CAPIC is one of the funds of African Capital Alliance, a Lagos based private equity firm, and was established in February 2008 to invest in real estate and real estate-related opportunities in West Africa, with a primary focus on Nigeria. A large proportion of the fund has been devoted to the hotel sector, with a target of six mid-market hotels in Nigeria and Ghana, to be managed by Protea, the largest operator in West Africa by number of hotels. The Protea Benin City opened in February 2013, and others are under development in Lagos and Takoradi, Ghana. The US$165 million fund has a 10 year life. CAPIC is also investing in office, residential and retail developments.
The Hospitality Property Fund. This fund is based in Johannesburg, and is the only specialised listed property fund investing solely in the hospitality and leisure sectors. It is by far the largest hotel fund in Africa, with 26 properties in its portfolio. All have leases in place, the majority with fixed and variable or variable leases, and a very small number with fixed leases. All but one or two are managed by regional or international operators. The fund’s profits are distributed in full as debenture interest, free of tax, due to the structure that has been adopted.
Investors in these funds need an exit, that is to get their money back. The Hospitality Property Fund is quoted on the JSE main market, so there is liquidity in the shares. The other funds are considering either a listing or single asset sales as the exit strategy.
The likelihood is that we will see more hotel funds established, focusing on specific regional markets, or on specific types of hotel. That is good news for the African hotel industry.
Trevor Ward
W Hospitality Group, Lagos
It is so exciting! Hard Rock has chosen Lagos as its second city in sub-Saharan Africa to open one of its iconic Hard Rock Cafes! OK, so Johannesburg beat us to it, but that’s a long way away, and this is right here, in Victoria Island, overlooking the Atlantic Ocean. I went to the opening party of the Café on Friday night, and the place was buzzing, just like any other Hard Rock Café anywhere in the world. I don’t mean to sound surprised, honest, but to see an investor taking the plunge into this market at a time when the economy ain’t what it used to be, is a really welcome surprise!
There’s a couple of small “tweaks” to the operation, to take into account the local environment – the menu has some Nigerian dishes on it, and the music is more hip-hop than New Orleans blues (available by request!), but all in all it is the real deal.
Lagos is a massive city, 20 million people some estimate, but the restaurant scene isn’t that,well, exciting. Take just 1 per cent of the total population as your target market, and that’s a lot of people, who like to eat out. Granted, Lagos has come a long way since I first arrived here25 years ago, when the only “international” restaurants outside of hotels were Chinese or Lebanese. Today, most cuisines can be found in town, many more (good) Chinese restaurants, which the local market really likes, as well as Indian, Japanese, Mexican, steak, fish and the rest. Fast food joints, or in the industry’s jargon quick service restaurants (QSR) abound, with international brands such as KFC, Johnny Rockets, Barcelos, Steers, Spur, Dominos and others competing with local (and well-established) brands such as Mr Biggs, Sweet Sensation, Chicken Republic and Kilimanjaro.
And there are several home delivery services, such as HelloFood.com and NaijaEats.com, which enable us to avoid the traffic! They get pretty good reviews on line, and the delivery charges are typically minimal (1 or 2 dollars on average).
Hard Rock Café is the first global chain to enter the Lagos full-service restaurant market, but we’ve had Rhapsody’s, a South African chain, for some time (they also have a restaurant in Accra). Many independent restaurants come and go, sometimes because the rent shoots up on renewal, and sometimes because they’re not very, well, exciting! I’ve noticed that the menus can be pretty similar, and the prices charged are over the top for what you received, both the food and the experience.
It’s not easy operating in Nigeria, a lot of the food of the quality you need to operate a high-end restaurant cannot be imported, and many items are not made/grown locally. Most are available, at a price, but it is a moot point as to which side of the law you are on if you buy and sell banned imports.Trained staff are hard to find, and tend to be transient, just passing through the industry, constantly on the lookout for a cushy 9 to 5 job. Taxes are high, and there are numerous licences. There is even a Merriment Tax levied by local government’s on anyone holding a party in Lagos State, of about US$50 a time. This is truly a case of “If it moves, tax it. If it doesn’t move, tax it. Otherwise, you’re exempt!”.
But Hard Rock Café have cracked it (gosh, I hope they paid their MT!), with a product quite different from anywhere else, as have all the other international brands mentioned above. Let’s hope for more, we’re ready and waiting for you!
Trevor Ward
W Hospitality Group, Lagos
I’m just back from the International Hotel Investment Forum, held every year in Berlin, just before ITB. I’ve been every year since it started back in 1998, that’s 16 times, and I still wouldn’t be able to find my way around the city – it’s the classic airport-hotel-conference venue-hotel each time! If only life would slow down a bit, but that doesn’t seem likely any more, does it? The older we get, the busier we are. Mobile phones and the e-mail have got a lot to answer for!
Anyway, the point is that the IHIF started out as a European-focused event, but is now very much international, and that includes Africa, which is featuring more and more on the programme, and in the delegate mix. I was proud to be one of 11 attendees from Nigeria at IHIF this year, and I spotted Ghanaians, South Africans and Zimbabweans there as well. That’s not all – no fewer than three African Ministers of Tourism were there, from Burundi, Cote d’Ivoire and Nigeria!
Whilst in Berlin we held the Advisory Board meeting for the Africa Hotel Investment Forum, to be held in Nairobi in September – and two of the Ministers attended that as well! It is seriously pleasing that we are hosting these Ministers, so that the hotel industry gets the attention from government.
We launched our Hotel Chain Development Pipeline Survey 2013 in Berlin, our annual survey which tracks what deals the international and regional chains have signed in Africa. At the Advisory Board we discussed the difficulties faced by hotel developers trying to get new hotels built and open for business, some of which the tourism ministers can solve themselves, and some of which need lobbying at the highest level in government.
Our 2013 Survey shows that, in the sample of 29 chains who contributed this year, the number of hotels is up from 177 signed deals in 2012 to 207 deals at the beginning of this year, and an increase in the number of rooms from 34,000 to almost 40,000, an increase of over 16 per cent. This is at a time when data produced by STR show an increase of just 4 per cent in the European pipeline and 8.6 per cent in Asia-Pacific.
Nigeria and Egypt lead the way in the number of rooms in signed deals, with approximately 7,500 rooms each. However, Egypt has far more rooms actually under construction – 85 per cent of the pipeline, compared to 44 per cent in Nigeria. South Africa has just 1,320 new rooms in eight hotels signed by the international chains – perhaps a reflection that the 2010 hangover is still having a dampening effect on hotel development there.
Hilton Worldwide lead the field, with their Hilton, Doubletree and Garden Inn brands, in terms of the number of rooms in new signed deals, closely followed by Carlson Rezidor, with Radisson Blu, Park Inn by Radisson and Missoni. Hilton also lead in terms of brand, with 5,900 rooms in the pipeline, with Carlson Rezidor’s Radisson Blu second at about 4,200 rooms.
Noticeably, and as discussed in my recent article, the South African chains are still being left behind, and whilst the likes of Protea and Southern Sun may dominate their home market, it is clear that they are not going to be the leaders elsewhere in Africa, where the international chains are forging ahead, at least as far as signed deals are concerned.
Several of the international hotel chains now have business development executives based in Africa, and their efforts are paying off. And not only are they signing agreements, but they are also working harder to get the deals done, by assisting with financing hotel development. Not necessarily totally with their own balance sheets, but through multi-party funds, such as Carson Rezidor’s Afrinord, which can provide mezzanine finance to fill that last, difficult gap in the funding structure. Two other international chains are currently raising their own fund, or committing to funds being established by equity players.
The time has never been better to work in Africa, and it is clear that the international hotel chains are entering the market strongly, not just reacting to enquiries but actively making those deals work, taking advantage of the social and economic metrics that point to massive growth in Africa’s economy.
Those investment conferences, in Berlin, Nairobi and elsewhere in Africa, are contributing to the development of the African hotel industry, by bringing together investors, operators and, yes, Ministers of Tourism, to enhance understanding of the industry, and to encourage new deals.
See you in Nairobi?!
Trevor Ward
W Hospitality Group, Lagos
I drove (my goodness, two words in and I’ve lied already! I don’t drive anymore around Lagos, the colour of my skin is irresistible to our brave boys in blue/black/khaki, even pink sometimes, and it just got too expensive) from Ikoyi to Victoria Island (both districts of Lagos) the other day, a journey of about 15 minutes, and I counted no fewer than 5 new restaurants and bars that had opened up over the Christmas and New Year period, plus two more due to open at any time. Wow! One company, Ebele Enunwa’s Kilimanjaro has opened three restaurants on VI within the space of just two months! That’s confidence in this market for you, big time.
What’s driving this massive investment in eateries? I reckon there are two main factors. First, it’s the hassle and expense of eating at home. Young people living alone (I mean without domestic help) don’t want to cook, and in many instances don’t know how to. Power outages, which necessitate running a generator with increasingly expensive diesel, and the problems of keeping your fridge and freezer cool, having all the necessary ingredients in the cupboard, equipment and so on, and then there’s the washing up! There are some compelling reasons for going out.
Second, and not unconnected with the first, there’s the growth of the middle class. According to the African Development Bank, over one third of the continent’s population are middle class, and 5 per cent are “rich class”. Whilst the definition of “middle class” has a rather low threshold, at around US$4,000 per year in Purchasing Power Parity terms (“rich” is above US$20 per day), the concept holds true, that this segment of the population has been growing rapidly, at a rate of 3.1 per cent per year between 1980 and 2010, compared to 2.6 per cent for the entire population of the continent.
Extrapolating these figures to Lagos’ 15 million+ inhabitants – and it is likely that the proportion of residents of this megacity in the “middle and rich classes” is higher than the continent’s average – means that there is a middle class population out there of around 5 million, and a “rich” class of at least 750,000, with money to spend. That’s quite a market.
Restaurants and bars can be quite profitable, mostly because the staff don’t get paid much as a basic wage, they get most of their remuneration from the 10% service charge that is added to bills, and cash tips. The biggest cost for an owner is energy, due to the “epileptic” nature of the mains supply.
The trouble is, there is a lack of good management and staff, and this translates into bad, bad service. Me, I would rather go somewhere which has good, acceptable food and great, friendly service, than somewhere with great food and lousy service.
Here are three recent examples of restaurants in Lagos. The first is a franchise outlet of a South African fish restaurant chain. The waiter says it wasn’t his fault he had brought us the wrong drinks, as he hadn’t taken the order. Instead of changing the wrong drink, he bitched and moaned, at the staff and then at me, I shouldn’t get cross with him, he was only there to help out the stupid local staff, and was going back home to South Africa soon. And we took our business elsewhere (see example 3 below).
The second is a Chinese-owned and operated hotel in Lagos, which has two or more oriental restaurants. After 15 minutes, and repeated asking, and after I had finished my food, I was told that soy sauce was not available. Soy sauce??!!
A restaurant or bar relies on repeat customers, who go back time and time again, who are loyal to the place. You don’t generate loyalty when the service is bad, when you can’t supply the basics.
And my third? A sports bar on Victoria Island, previously owned by the eponymous (?!) Pat, where they keep it simple, the food is good, won’t win many awards, but the staff are really friendly and attentive, and the manager, an industry professional, walks the floor, talking to his customers – his loyal, repeat customers.
Talk to some of the restaurateurs and bar owners, and they will tell you “no money-o!”. Really? Or is it actually “no know anything about the business-o”?!
Trevor Ward
W Hospitality Group, Lagos
Reports emerging from the Centre of Excellence, aka Lagos, reveal that an alarming shortage of soy sauce has hit the city. Our intrepid resident, Trevor the Ward reports in a state of shock. ” I no lie! It’s a true! The Oriental Hotel, that Chinese built, owned, designed, outfitted, cuisined(?!), get the gist, it’s PRC all over, has NO SOY SAUCE!”. Said the waiter, who said his name was Tunde, but asked not be named “My name is Tunde. I sent for it the soy sauce, then I asked the Chinese kitchen for some, they said ‘we n
o have am’ (bruddy riars), so I sent to the Chinese Restaurant for some (oh yes, I got the smarts, me), they said ‘we no have am’. Mr Trevor said he couldn’t believe me, I should go across to the Four Points Hotel and get some. That’s not funny, Mr Trevor”.
So, the TTT from Yenagoa applies to Lagos too – Bring a Bottle means “tuck a little bottle of soy sauce in your handbag”!
Where will this end! (breaking news – Trevor’s about to ask for Chinese Tea.
Don’t do it, Trevor!)
If I see one more hotel claiming that it is offering “hospitality redefined”, I shall scream. Probably, like the little girl in the rhyme, until I am sick.
It is normally in the “bush-est” of hotels that you see this claim, in hotels which have been built by an owner with a “professional” team who have not a clue what hospitality is all about. Least of all being able to “redefine” it, whatever that means. The architect probably visited a hotel once, may even have stayed in one, and sees what is, to the unpractised eye, a big house with lots of bedrooms. And then proceeds to waste an enormous amount of the owner’s money on a design which just does not work.
Their design principles seem to include the following:
And then they ask me to find them an international operator for this, this …… “redefined” hotel.
Then the hotel opens, and has what is described as “the restaurant”. Typically a most uncomfortable area, with hard floors, metal chair legs, the brightest of lighting (and unpleasant light fixtures), the (staff) TV at full volume, and a tabletop strewn with “amusing” pieces of cheap Chinese plastic masquerading as cruet sets, flowers and toothpick dispensers. Get the menu, pages and pages of “mouth watering” dishes, but there’s nothing available except meat and fish. Or often just meat. That soooooo p*sses me off, you choose something, and it takes ten minutes for the staff to find out they haven’t got it. And then it takes ages to get what you do (can?) order, because the architect didn’t provide a large enough kitchen, there is not enough equipment, and the cook can only do one dish at a time.
I’ll tell you how to “redefine” hospitality in these hotels. It is, first, to build a hotel that follows the basic principles of design that have been developed over many years to ensure that the guests’ needs are met, that he feels comfortable, and both physically and mentally secure. Second, it is to provide a service that has as its core focus the needs of the guest, the guest that is paying for that service, and the guest that you want to come back. Time and time again.
It is curious, methinks, that people who pull out all the stops to provide hospitality when an aged parent comes to visit them at home, these same people change completely when they are in a hotel environment, providing services to guests who pay their wages? A lack of training doesn’t help, of course (I once had an owner tell me that he doesn’t train her staff because if she did, they will be poached by another hotel. Cute, real cute).
After almost 40 years in the industry, I am yet to find any rocket science or brain surgery involved in building hotels and in running them. It really isn’t difficult to get it right. And there really is nothing to “redefine”. Go back to basics. Invest in knowledge, and keep investing in that knowledge for ever. That way your guests will want to come back. Time and time again.
Oh, I nearly forgot, it’s January so a New Year’s resolution is in order, isn’t it? Here’s mine for 2013 – never more assume that a hotel restaurant menu is anything other than a part of the décor! It’s a tough one, I know, people always told me different – “choose something from the menu” – but it might keep down my stress levels.
Trevor Ward
W Hospitality Group, Lagos
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