Hotelier Middle East's Supplier Survey 2016

In 2015, the Hotelier Middle East Supplier Survey revealed that increased competition and wide-spread undercutting was a major concern, following the previous year’s report of corruption and bribery in the procurement market a worry.

This year, bribery is still an issue, revealed the respondents. However, more pressing concerns highlighted by suppliers included the slowdown of the construction market which is affecting hospitality projects, and a client focus on pricing rather than quality of products.

As always, most of the suppliers who responded to the survey were based in the UAE (81.5%), while others also participated from USA, Germany, Oman, and Qatar.

While most also said they supply to the UAE (92.6%), the other countries where a lot of these companies did business included Oman (66.7%), Kuwait (63%), Saudi Arabia (63%), Qatar (59.3%), and Bahrain (55.6%).

Interestingly, 7.4% said they work in Iran, and a similar percentage still operates in Syria. Jordan is also keeping our suppliers busy (nearly 30% supply to hotels). In North Africa, Egypt accounted for 25.9% of our respondents’ business, while Algeria, Morocco and Tunisia trailed slightly behind.

In terms of the kind of suppliers who took part, respondents could pick up to three choices; it revealed that food and beverage suppliers accounted for 37%, 11.1% were revenue management systems suppliers, 11% amenities suppliers, and 18.5% said they were housekeeping suppliers. Other suppliers were made up of architecture and interior fit-out companies, outdoor furniture, lighting, flooring, IT, BMS, engineering, kitchen and restaurant equipment, and laundry.

POSITIVE PREDICTIONS

A quarter of businesses revealed they showed an annual turnover of US $5 million to $10 million in 2014, while nearly 40% said this was their turnover in 2015. Optimistic about 2016, 58.8% of the suppliers said they thought turnover would increase this year.

Nearly 28% posted a net profit of $250,000-500,000 in 2014, compared to 18% who posted similar in 2015. Nearly 30% showed a net profit of $100,000-250,000 in 2015 instead. However, suppliers seem to be a positive bunch, with 65% saying they hoped that in 2016 this would rise. None of our respondents posted a loss in 2015.

While it would be tempting to say these expectations are based on increased sales prices, an overwhelming majority (82.4%) said prices are largely staying the same, with some reporting a ±0-10% change at the extreme. An educated analysis on this would imply that suppliers are hoping for an increase in both net profits and turnover from an increase in volume sales as well as potential lowering of costs.

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In another favourable sentiment, just over half (56.3%) said no redundancies were made in 2015 — one of the reasons included a recruitment freeze (12.5%). However, nearly 70% said they planned to recruit in this year — which is a great sign for the supplier market.

But while suppliers are hoping for a profitable 2016, the three biggest challenges facing suppliers in the current market situation include increased competition (37.5%), market saturation (31.3%), and slowdown of hotel construction (25%).

This year, slowdown of hotel construction makes it to the top three concerns for the first time.

2016 AND BEYOND

We asked respondents to tell us what changes they expected to see in the hotel procurement industry in 2016 and beyond. A few said nothing would change, while others said that with the softening on the market, there would be an “increased scrutiny and pressure on pricing, regardless of quality of product”, with “focus on cost than quality over the next couple of years”.

Speaking to Hotelier Middle East, tableware supplier Steelite VP Stuart Wilkinson disagreed and said: “A quality product will always be able to obtain a good enough price. People do look at pricing, but as long as the quality of the product is good, they will pay the extra that they need to pay.”

Intermetal marketing manager Cathy Di Savino said that while she has felt rumblings across the industry about a focus on cost, suppliers should still pay attention to quality.

She said to Hotelier Middle East: “However, at the end of the day, quality comes into it. Maybe the supplier has to play with the prices, but not go down on the quality. We all have to support each other, because the market is uncertain right now. We want business, they [clients] need to refurbish, for example. So we might have to drop [prices], but they might have to compromise too. Not necessarily buyer cheaper quality though. But they are looking at reduced prices perhaps, not cheaper quality.

“People who buy quality don’t want cheap — they want a lower price, not a cheaper quality product.”

Supplier integration and consolidation is also a trend, said the suppliers. One participant said in the survey: “The trend will be to keep the supply base small and maximise the costs with a select few suppliers with tighter pricing and better payment terms.”

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In general, the overall feeling is of optimism with 43.8% commenting that the luxury hotel sector is one for growth, with 25% citing the resort market as favourable — mirroring similar opinions last year.

A quarter also said standalone F&B outlets offered a market to tap into, reflecting on the region’s current trend to open more independent restaurants and bars compared to a decade ago.

However, only 6.3% said the economy segment was booming — which, again, goes against the number of mid-market hotels going live in the region. A. Ronai LLC managing director Gavin Dodd agreed with the pipeline, rather than the thoughts of the respondents. He told Hotelier: “I think the growth will be in economy hotels, particularly with 2020 and all the visitors coming. The growth is definitely there in the three- and four-star market, which will obviously still be luxury in Dubai.”

In conversation with Hotelier, Boncafé group CEO Tony Billingham said: “I think for us, we’ve got to say luxury [is a growth market] because most of our products are geared towards five-star hotels and five-star operations.”

Pacific Direct Dubai GM Rob Dupree told Hotelier that while Ada Cosmetics tailors for both the three- and four-star market, Pacific Direct is still marketing to the five-star and luxury sector.

Three-quarters of the respondents said UAE poses the biggest opportunity, followed by 12.5% citing Qatar. KSA and Oman trail behind at 6.3% each. The KSA market is booming. With the government focusing on religious as well as domestic tourism, hoteliers have revealed that second tier cities are being developed as tourism and business hubs, offering a chance for suppliers.

There’s a wait-and-watch attitude being taken by hoteliers for 2016, but suppliers are still hopeful for a positive future. Will they finally change their attitudes towards new countries, and the changing demands of travellers? We look forward to seeing the changes in the 2017 Hotelier Supplier Survey.