The current phenomenal performance of many hotels in Dubai and other parts of the Gulf is naturally inspiring more and more investors to get involved in the sector.
Traditionally, at least as regards luxury hotels, investors would build and own hotels, leaving the management to an international or regional operator with established brands, networks and systems.
Now, the region’s market has matured sufficiently for investors to increasingly want to manage as well. Prominent local chains like Rotana, Jumeirah and HMH (behind the Coral brand) have paved the way for scores of other regional start-up operators, many of which have been similarly successful and are also growing strongly.
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The main challenge for these new operators starting from scratch is to secure a first hotel to manage. The easiest route to market is to either own that first hotel, or to have a ‘sugar daddy’ on your board of directors who can give you one to manage.
Of course the prior experience of these new companies’ founders plays a major role in any owner’s decision to choose an unknown over a veteran operator.
If the newbie’s principals have been GMs, or better still VPs or CEOs of some major international chain, then it can provide credibility where there is no corporate track record. This has been the case with many of the local operator start-ups.
The industry generally distinguishes between chain hotels and owner-operated or independent hotels. As Hotelier Middle East readers will be aware, more than half the market (the bottom half) is comprised of the latter.
When an owner or owning company develops multiple independent hotels under the same name, they can begin to develop brand equity that looks to all intents and purposes like that of a chain. I like to call these intermediary companies ‘hotel groups’, as distinct from hotel chains.
A natural progression for such groups is that hotel owners in other locations approach them to manage their properties, just as they would approach a dedicated management company. This provokes the owner of the hotel group to consider the attractiveness of managing third party hotels, and thus a new chain is born. There have been many instances of this natural process taking place on the back of strong market growth in the region.
The transition from a hotel group to a hotel chain is not always smooth, however. If you have managed only superb trophy properties built for you by your local ruler, for example, it may be a challenge to find similarly splendid owners around the world who will offer you comparably magnificent hotels under a management contract.
By contrast, if your success has depended on building to a strict limited service formula that requires guest rooms to be 20m² and no larger, then you may find it hard to find owners who are humble enough to appreciate the excellent returns that such budget units can generate, and more to the point, who are willing to build a hotel to your specific development model.
The result can be that the purity of the original brand strategy becomes diluted, and when you originally planned to specialise in Budget Inns (to invent a name), you end up creating ill-advised variants like Royal Budget Inn Hotels & Resorts or Budget Inn Residences, in the face of the actual offerings available for management in the market.
Equally, if you have built up a group of say, half a dozen properties just because guests have kept knocking on your door, so to speak, then you may find yourself wondering at a relatively late stage in your company’s history, how to define your brand. Do your hotels share any characteristics in common? What are your unique selling propositions in terms of product and service? Indeed, do you actually have any?
Such questions come into greater focus with the more specialised themed and boutique or lifestyle concepts that some local investors are beginning to introduce. But be warned — not all potential owners will be hip to a cool new concept such as ‘Boho loft living,’ for example. You may just find that the owner you are pitching to has a blank expression. Just because it works in New York, doesn’t mean it will work in the Gulf.
About the Author: Guy Wilkinson is a director of Viability, a hospitality and property consulting firm in Dubai. For more information, email: guy@viability.ae
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