Company Update: Citymax's 'manchise contract'

With its new ‘manchise’ concept, Citymax Hotels hopes to offer a flexible franchise model that is beneficial to owners and operators. Landmark Hospitality’s Russel Sharpe tells Hotelier why he believes the concept will work

Earlier this year, UAE-based Citymax Hotels announced the launch of its ‘manchise contract’ concept — a business model that combines traditional hotel management and franchise operations into a tailor-made contract.

As part of the contract, Citymax Hotels will offer its expertise coupled with a traditional management contract for the first three to five years of operations, following which the agreement will revert to a franchise-type arrangement customised for owners in the region for a further 10 to 15 years, thereby giving them the opportunity to benefit from flexible terms and conditions.

“It’s not something new. We are not trying to reinvent the wheel. We own and operate our own hotels and we had a number of owners who said they would like to get the brand and have us operate the hotels in different locations.

“However, they were asking for franchises in some locations; Saudi Arabia in particular. And we realised that for a mid-market brand like ours, there would be an opportunity for us to actually give them what we call a ‘manchise’, which means that we will operate the hotel for a period of time between three to five years under a management contract, and then train and hand over the property to the owners on a franchise contract,” explains Landmark Hospitality COO — hotel division Russel G. H. Sharpe.

Sharpe believes the fact that management contracts weigh heavily in the operator’s favour is also a key factor in the shift toward more owner-managed models.

“You see now that things are changing slowly. Standard management contracts are not so popular now. If you go to some of the hotel consultants, they will tell you they are fed up of negotiating with international operators, where all these contracts are so one-sided. They try to make it equitable, but it never really works,” he states.

Sharpe has also noticed a worrying trend of properties changing hands among operators with little attention to the “DNA” of the brand. “We’ve seen in the past a number of hotels changing brands.
They take the sign down and put up another sign. How does that work? Is it as easy as that? If that’s the case, then why do you need a management contract? A management contract is supposed to put the DNA into the hotel,” he laments.

Sharpe adds that the number of brands in the market further complicates matters, with owners having a variety of choices to try.

“Today, it’s fair to say that Dubai is probably the largest city in the Middle East, with the most brands. The hotel business has become a brand-driven business, which doesn’t necessarily have DNAs that are distinctive — they all overlap. So it’s just a matter of really choosing the right brand for your product and making sure you get the right agreement,” he asserts.

With the option of manchise contracts, Sharpe believes owners have the opportunity to train staff according to a particular brand standard — effectively incorporating the brand DNA into the property — before eventually taking over the franchise.

“I’ve had one owner who told me they had been trying to discuss with other international companies, and they either say you take a management contract, or you take a franchise, but we want to make sure that we are getting the right brand and the right training. That’s where the maturity comes in,” he states.

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SHOW ME THE MONEY
Furthermore, Sharpe is certain the manchise contract offers a higher return on investment for owners. With the manchise contract, the group trains existing team members to run the hotel as per Citymax brand standards, which reduces recruitment costs.

“It’s really important that owners get a return on investment, so for us it’s important that whichever general manager is in the manchise, we don’t move them out. So there’s continuity and there’s also most importantly, a return on investment because by that time, the owner should be comfortable with the general manager and the return he’s getting,” he explains.

Sharpe reveals that interest in the market has been particularly strong from Saudi Arabia, where the group has up to 14 potential partnerships lined up. Citymax is being cautious however, reveals Sharpe, particularly in selecting owners to sign with.

“It’s not as easy as putting ink to paper. There’s a whole series of things that we have to go through. For instance, there are some owners we don’t want to do business with for one reason or another. So you have to do your due diligence.

But yes, the interest has been very good. There are owners who have offered us multiple properties ... up to five or six, and there are other owners who have cherry-picked the properties they want to manchise,” he says.

However, despite the interest from Saudi Arabia, Sharpe is wary of how often hotels in the kingdom are rebranded, stating: “It’s unbelievable; they’ll pull one sign down and put another one up without doing absolutely anything to the property — they just change the management contract.

“You have to get Saudi right, otherwise three years or four years down the road, you end up having to change the brand,” he warns.

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GROWING COMPETITION
The growing number of real-estate companies developing hospitality divisions and launching hotels is another concern for Sharpe.

“We’ve noticed a lot of people jumping on the bandwagon. All of a sudden all these development companies that specialise in real estate are opening hospitality divisions and saying ‘we are now experts in hotels — three-star, four-star, five-star’. There are pros and cons to it,” he says.

“If your core business is real estate, and then you attach a hotel to it, you’ll always look at it as a real estate development, not as a hotel, and you’ll start getting all these spins where they’ll start selling you the bedroom as a real estate product and then putting that room in [the rental pool], and it takes away from what hospitality is all about,” he stresses.

However, Sharpe says he can see why developers would be attracted by the idea, citing Jumeirah Group and Emaar Properties’ successes as examples.

“Jumeirah has done a very good job, a very successful job. I can’t fault Emaar because the Address Hotels has been a success. But are you going to have 10 of these guys running around, doing their own hotels? It’s not just that, it’s about building a brand,” he argues.

With the growing number of brands and hotels in the region — particularly in Dubai, where the number of hotels is set to double in time for Expo 2020 — Sharpe also questions how hotels are filling vacancies in upcoming and existing properties.

At present, there are three Citymax Hotels under construction in the UAE — in Al Barsha and Business Bay in Dubai, and one other in Ras Al Khaimah — that are scheduled for completion by 2016. The new hotels will bring the group’s total inventory to 2000 rooms, while more properties are in final negotiation for agreements in Abu Dhabi and Fujairah.

“The challenge owners face is capital intellect, because where do you get people to run these hotels? Looking at countries like India for example, or Philippines, that have been the cornerstone of hotel labour, there are a lot of people that don’t want to come here anymore because they can earn just as much money there and have a career,” he explains.

To tackle the issue, Citymax has adopted a two-pronged approach by exploring new markets to source staff, and incorporating a more detailed training programme for existing and new staff.

“We are looking at new places like Vietnam, China, Indonesia and Manama for labour, but all of these have challenges. They have their own food, culture, languages, and religions. You can’t mix them up and I think this will be the biggest challenge going forward. Saudi Arabia for example is really struggling.

“Even with Dubai, doubling the number of hotels, means you have to double the number of staff to run those hotels. Where do you train them? How do you train them? Where do you house them? And that’s the other area that we help the owner with. We’ve invested a large sum of money in our training and development.

We have a whole separate department now that does just learning and development and HR. We have training modules for lower grades and then we move it up all the way to senior management and the executive management. But we do all of it in-house,” explains Sharpe.

As much as the group strives to stay ahead of the game, Sharpe acknowledges that in a market like Dubai, where developments are constantly changing, planning ahead is more of a challenge.

“There was a quote I read by a broker in a magazine and he said, ‘the benefit of planning ahead is that you will know your fixed costs and your variable costs. But you don’t have a clear picture in Dubai,’” he laughs.