Travel and population will continue to drive growth in the hospitality industry – Hotelier

Senior Director, Development (Africa), Radisson Hotel Group, Erwan Garnier, speaks with EDIDIONG IKPOTO about the impact of COVID-19 on the hospitality industry and how the African market is responding to various developments in the world economy, among others

How would you rate the hospitality industry in Nigeria and Africa?

First, Nigeria is a priority country in our growth plan for Africa. Let me give you an overview before going into details. Radisson, as a group, has more than 1,500 hotels worldwide. In Africa, we have 100 hotels. Our goal and plan for Africa is to have 150 hotels by 2025. As part of our growth plan, we have a very focused expansion strategy and we have decided where we are going to expand first.

Africa has 54 countries. Today, Raddison is present in 32 countries, so we still have room for growth in terms of countries. Some countries are not a priority for us, others are. Among the key countries in Africa, Nigeria is among the four countries where we are seeing major expansion. Egypt and South Africa are among them. Nigeria is important because it is the biggest economy on the continent and it has a lot of metrics that show we can have a lot of hotels in this country. Today we have 10 hotels, we have five hotels open and five hotels under construction.

Our strategy for Nigeria is to develop Lagos first, then Abuja and Port Harcourt. We have nine leading brands: from economy and luxury to premium and lifestyle. Our plan is to expand into different market segments knowing that Raddison primarily targets business segments, but we have also positioned ourselves for service apartments and for resorts.

So growing in Nigeria, I think, for all operators, has been difficult. It’s a market that needs hotels. You have a market that has too many hotels and you have a market that doesn’t have enough hotels. Nigeria is in a situation where the economy is big, the population is big, but there are not enough hotels if we talk about good quality international hotels. To give you an example, most of our properties are currently doing extremely well and I’m talking about 85-85% capacity all year round, which means you have four days out of seven with 100% occupancy each day. If you look at the reports for the past two years, you will find that we have two hotels in Lagos that have opened with international standards – two hotels in Africa’s largest city.

What is the specific impact of currency challenges on the hotel industry?

You should keep in mind that in a country like Nigeria, when you build a hotel, you also need mechanical and electrical plumbing. One hundred percent of that is imported. Nothing is built in Nigeria. So if you need elevators, elevators are not built in Nigeria. This means you need to import them. To import them, you must pay in US dollars. We know that overall, whatever the cost of the hotel, 90 p. 100 of the total cost of a hotel is imported. So if you have a challenge with forex, you have a challenge with your entire property, and that’s one of the biggest issues or challenges for any hotel developer, including Radisson.

How has COVID-19 affected the hospitality industry?

COVID-19 played a role in delaying projects as borders were closed. So importing products took longer, paying people was more difficult. Obviously COVID-19 must have had an impact, but if you look at the last 20 years without COVID, you can see you’ve had the same hotel for 30 years in Abuja, nothing through COVID-19. For five or six years, we have seen that it takes a long time to develop hotels. I think it’s a macroeconomic situation that got even worse with COVID-19, but the reality was long before COVID-19.

The macroeconomic situation is more difficult, but at the same time there are huge opportunities because of the size of the market, because of the size of the economy. So Radisson remains very committed to the development of Nigeria and we are very aware of the challenges knowing that we have been here for some time.

What are your plans to make the Radisson brand more popular in the country?

First, Radisson Hotel Group has nine leading brands, not just one. It ranges from economy to premium luxury or lifestyle luxury. All of these brands have an international reach. Our plan is to have 2500 hotels in the next five years. In Africa, we have 100 hotels. We plan to have 150 hotels, and our brands have been enriched and adapted to the market.

As such, we have transformed many of our brands and the business itself, creating best-in-class results, ensuring more revenue, more profit and a better customer experience. We have adapted our branding standards to ensure that the brands are relevant to the needs of our consumers and we ensure that we do not add unnecessary things or forget things that are, in fact, really necessary. Today, Radisson Blu is the fastest growing brand in Africa. We sign more hotels than any other brand.

There are 111 brands in Africa competing against each other. Raddison Blu is number one. If you look globally, Radisson is owned by a Chinese group, Jin Jiang, which is the number one hotel group in Asia and China. We are the fastest growing brand in India. We are therefore very active in our expansion plan and have restructured the business to ensure that we achieve better results for our stakeholders and better service to our customers and consumers.

The World Bank and the IMF have made moderate projections on Nigeria’s economic growth. What impact do you think this will have on hotel growth in the next two or three years?

I think the dynamic is not going to change tomorrow. This is Nigeria, I think the fundamental macroeconomic situation will still be the same for now because they have been here for a while. Interest rates have risen, so debt financing is more expensive. There is strong consumer demand as business continues to grow, the population continues to grow, and regional travel continues. So you need hotels, and there aren’t enough hotels, and the macro economy in terms of cash flow is always tough. Those who know the market best; those with the most access to equity (cash); those who have the best relations with the government are the ones who will succeed. Those who are not strong and not locally connected and who do not understand trends in hotel development will not succeed.

Do you think some hotels might die?

No. I don’t think they will die. I think projects in their early stages can die. Existing hotels will work well, and if they don’t work well, someone else will take them over. I think it’s going to be now, you’re going to see more and more brands hitting the market. I think there will be more competition and you can see it happening slowly. I think macroeconomics for now will create opportunities.

You said mergers and acquisitions could happen. How will they go?

It makes sense because, in a market like this, it’s so long and expensive to build a new hotel. Thus, investors would prefer to take over existing assets, as they would not want to run the risk of delays in the construction of hotels. In fact, we currently have investors who would like to buy assets in key countries in Africa, including Lagos, while Radisson will manage on their behalf. So looking at the opportunity, I think mergers and acquisitions are the logical options.

How do you compare the cost of running hotels in Africa to that of developed economies like Europe and America?

Managing an installation in Africa is different from Europe and developed countries. First of all, the cost of developing a hotel in Africa is much more expensive than in Europe or the United States. The first reason is that you import most of the products whereas in Europe and the United States you do not. So there are no freight and duty charges.

Second, it takes a lot of people to build a hotel like this. Obviously, you need consultants, architects, designers, computer scientists, engineers, surveyors, etc. You may need 12-15 different types of consultants to work on a project like this. I would say that 80 to 90% in Africa come from abroad. The engineers, most of them don’t come from the country. So these qualified people are obviously more expensive.

They have to get on the plane, stay here. So what I’m trying to say is that the overall development cost is much higher here. And then, when it’s over, we are in a situation where it becomes interesting, because here we have high rates. If you look at America or Europe, the rates are lower. You can go to Europe and go to a five star, but when you go to a five star here the prices sometimes double or triple. Here, the cost of running a hotel is more expensive. Why? Electricity is very expensive. You run the air conditioning all the time. Your maintenance costs are much higher because you live in very unique countries. Overall, what I’m trying to say is that your cost structure is very different and higher. At the same time, you have different incomes. Revenues are better due to the market situation. But overall, when comparing profit and return on investment, African hotels have a better return on investment than European hotels. As an investor, people look for opportunities here because of the return on investment, which is really interesting.

Do you see room prices going up given all these macro factors you talked about?

The room rate is still going up due to inflation, but you won’t see a drastic increase. In fact, if you look at the last few years, rates have fallen because of the currency. If you look at our price in dollars and convert it to naira, there is a drop. It is a macroeconomic decline.

Where do you see Radisson in the next five years in Nigeria?

We would like to see Radisson in Nigeria present in Abuja, Port Harcourt and stronger in Lagos. Right now we have 10 hotels open and under development and we would like in the next five years to double that, and I think we can achieve that. If you think about 10 hotels in five years, that’s two hotels a year. We look at different market segments. If you look at Lagos right now, we really focus on Ikoyi, Ikeja, VI and Lekki. So we’re really talking with different partners about what we can do. Frankly, our priority right now is that we want to go to Abuja. There is a big push into Abuja because we think there is a big market opportunity.

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All rights reserved. This material and any other digital content on this website may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without the prior express written permission of PUNCH.

Contact: [email protected]

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