Dry hotels are losing 30% on the bottom line

The general managers discussed the pros and cons of operating a dry hotel in Dubai.

Operators not serving alcohol must drive revenue through niche F&B and targeted marketing, said general managers of three alcohol-free properties in a Hotelier roundtable

Dry hotels must accept that they will lose 30% on the bottom line, said the general managers of alcohol-free properties in an exclusive roundtable with Hotelier Middle East.

City Seasons Group of Hotels managing director Thomas Tapken explained: “It has an influence. I am running the whole chain, so looking at the different hotels it is clear that I have lost business because we do not serve any alcohol”.

He pinpointed food and beverage as the area where dry hotels were set to lose the most money: “It has a major impact in our food and beverage revenue and this is where we feel it. If we study it, the figures are horrible — it’s clear that you have a loss of approximately 30% of your total revenue without having alcohol.”

Story continues below

Dusit Princess general manager Wolfi Malik stressed that hoteliers must accept that they will not make up the loss on F&B in their profit margins. “Alcohol has a much better profit margin than food, so that most definitely says it all.”

He argued that dry hotels must try to distinguish themselves from their alcohol-serving counterparts by carving out a niche market.

“The majority of [standalone] restaurants here don’t have alcohol so what are their selling points? We are in line with the restaurants by having no alcohol, so I think we have to be more creative and that’s what we are doing in my hotel,” he said.

“We have concentrated on juices — in this hotel you will not find a juice that isn’t freshly squeezed. We take a little extra time, but I don’t know if you will find a hotel that has as many fresh juices as we do — that is our niche. And in this market I have seen people ask for AED 100 (US$ 27) bottles of water, so there is a demand for something other than alcohol here,” Malik observed.

Tapken added: “Your USP is not going to be an expensive glass of wine, so you concentrate on finding your niche market. For me, I look to food which isn’t complemented by alcohol. For example, do you want a glass of wine with spicy Indian food? Of course not, because you won’t taste it. So one of the things I have focused on is Asian food.”

BEING CREATIVE

Taj Palace Hotel Dubai general manager Andreas Mueller said that the key to creating successful non-alcoholic food and beverage offerings in hotels was to carefully consider the market.

“It certainly needs a bit more creativity to get customers into your F&B outlets, but saying that, there is a market for dry hotels — especially in banqueting and there is a strong local market in weddings,” said Mueller.

“It just needs focus, it needs a shift on getting business that is suitable for your property. We all come from an F&B background and it is working,” he added.

Although hotels can do more to push revenue through F&B, Tapken said they would not make up the 30% loss.

“The profit margin on juice, tea, and coffee is relatively high but do we make it up? No. We will never make it up, “he stressed.

“We will lose. We will not make up the profit and the owner knows this from the outset. You can tell him in the beginning about the 30% loss on profit and ask him if he wants this revenue or that one, but he will say ‘no, there is no alcohol’, and so the concept will be a dry hotel.”

THE OWNER’S VIEW

Owners’ representative and chief executive officer of Sharaf Industries, John T Merrigan, agreed that the potential negative impact on profits was to be expected. However, he added that “as owners, we do not see the issue in this way”.

“In fact, we see it that the hotel properties can achieve an acceptable bottom-line performance and offer a differentiated proposition to our target markets. We expect our management teams to work with this market positioning in a positive way and deliver on the objectives that are set,” Merrigan said.

And understanding how to effectively market a dry hotel, and to whom, is an important part of business said Mueller.

“This time of the year, dry hotels are very strong in Saudi Arabia, so I send my sales team over there. Another strong market for dry hotels is Africa. I have [clients in] Nigeria, Somalia, Sudan — they are Muslims and I find that I have a great deal of conference business from there,” Mueller said.

Understanding markets with strong Muslim representation was vitally important, said Tapken.

“I think that it is important to realise that there is a strong Muslim market out there, and that market is largely untapped,” Tapken said.

“The Muslim community around the world is huge, so there is huge potential here,” he added.

GROWING MARKET

Fazal Bahardeen, the chief executive officer of Crescentrating, the Halal-friendly travel and tourism company, agreed that the Muslim travel market has not yet reached its full potential.

“As a market segment, ‘Muslim travellers’ have not been fully tapped by the mainstream industries. This is beginning to change now with many reports by leading research groups and conferences centred around ‘marketing to the Muslim world’. Although the food and banking industries have begun to take this market seriously, the mainstream travel industry has been much slower to react to this trend,” said Bahardeen.

“The potential for hotels in particular and destinations in general to gain from attracting this market will continue to grow. Some of the predictions are that this market segment will outperform other travel market segments,” he added.

Recent figures published by Jones Lang LaSalle in its June 2010 report entitled ‘Holy Cities: Saudi’s Unique Real Estate Market’ show that 7.8 million Muslims per year currently travel to the Holy Cities, and suggest that this figure will increase by almost double to 13.75 million by 2019.

The predicted increase in Muslim travellers visiting Saudi Arabia would have a knock-on effect in the surrounding countries such as the UAE, said Tapken.

“If you see the predicted increase in Muslim travellers to Saudi Arabia, how many people will want to do the pilgrimage and then stay a certain amount of time in this part of the world, or have a stop-over here? It will lead to more dry hotels in the Middle East,” he said.

Bahardeen added that the increasing Halal consciousness amongst the Muslim community — reflected in the demand for Halal food and the Islamic banking industry —could also contribute to an increase in the number of dry hotels in the future.

“During the last few years this growing consciousness has also been reflected in the lifestyle choices of this market segment. Travel in particular has been one the areas which has seen this impact and since early 2006, there has been a trend by Muslim travellers to look for travel services which are Halal friendly. The consequence of this has been the launch of many ‘Halal friendly’ hotels,” he concluded.