African cities, as opposed to countries, are increasingly
becoming the focus for investors looking at entering new markets. For the
Carlson Rezidor Hotel Group, with brands such as Radisson Blu and Park Inn, 28
African cities have been identified as having strong potential for their
business growth and hotel expansion.
The group currently
has 23 hotels open in Africa and 27 under development, across 21 countries.
Andrew McLachlan, the group’s vice president of business development for Africa
and the Indian Ocean Islands, said that they have also started to focus their
attention on emerging towns and cities that are developing around mining or oil and gas discoveries. These ‘boom towns’ are
particularly good for their mid-market hotel brand, Park Inn.
“We definitely see
that brand going into locations where we actually follow this natural resource
growth,” McLachlan told How we
made it in Africa. “For instance we opened a Park Inn in Tete inMozambique in the third quarter of last year and
that was primarily following the growth of Tete, where Tete was recorded as
being one of the fastest growing towns in Africa. It has one of the largest
coal reserves in Africa.”
While the group’s
hotel growth strategy – when entering a new country – is to typically open in
the capital city and financial hub first, before looking at secondary
cities, this was not the case in Mozambique. “And we are looking to do the same
type of thing in other parts of Africa where we will have identified where
there is a recent finding of new natural resources… where there is no
accommodation at all and where you can come in and have a first mover advantage
in these new sort of industrial towns.”
He added that hotels
in these areas will essentially offer different forms of accommodation for the
business people visiting, with the option for extended stay as well as the
traditional hotel accommodation. “You will have certain types of customers who
are going to be there for two or three days and some that are going to be there
for two or three months,” explained McLachlan. “So it’s almost an apartment
style hotel, sort of merged with a traditional hotel.”
Maputo in Mozambique
and Addis Ababa in Ethiopia are
examples of other cities that are proving to be strong markets for the group.
“And then Lagos in Nigeria has
obviously been a very strong city for us. Our ramp-up periods have been very,
very good and our profit margins have also been exceptional.”
McLachlan said it
usually takes a hotel 1,000 days from when it first opens in a market to
stabilise, gain a good market share and see good profit margins.
“What is often happening
in these emerging African cities is we are getting to a stabilised period
within the first six to eight months,” he explained. “So opposed to taking
1,000 days, it’s taking us less than 300 days to get to that same period, and
that’s obviously very exciting for us and for our hotel owners in those
locations.”
Business driving
growth and expansion
Currently, 80% of the
group’s hotels are geared towards business stay and travel in Africa, as
opposed to leisure hotels for tourism. Alongside this, they have also
noticed a demand for meeting and conference facilities, and a lot of their new
hotel development plans have conference facilities included in the design.
“There is huge demand
for meeting and conferences to take place in cities… In Kigali [in Rwanda] we will open a Radisson Blu with
the largest meeting and conference facility in East Africa… At the moment, in
East Africa, people are forced to go to the Nairobi convention centre, which is
really quite an old and outdated product, and there isn’t really anywhere
else – or anything else – in that region.”
According to
McLachlan, business hotels in Africa are not just in demand, but they are also
less vulnerable to the effects of political or environmental instability.
Tourism orientated hotels, he explained, work with tour operators that work in
12 month segments, and political instability or an outbreak of a virus in a
region can hurt their tourism accommodation business for 12 to 18 months.
“Whereas if it’s a
business hotel and there is political instability or an outbreak of a virus,
its only really going to slow a businessman down by probably 30 days,” stated
McLachlan. “He is just going to postpone his business trip until the situation
has calmed down before he has to go in and conduct his business. He needs to do
business in that city so he is going to be prepared to go back into that market
a lot quicker than a tour operator who is going to wait and see that everything
is 100% fine and wait for the following 12 month segment before they actually
put business back into the hotel.”
“So at the moment it’s
more important for us to focus on business travel and that’s where there is
actually a much higher demand,” he continued. “With the increase of natural
resources in Africa, the increase in airlift, telecommunications; people are able to do
a lot of business in different locations in Africa, a lot more than they were
[doing] a couple of years ago.”
Advice to foreign
companies
According to
McLachlan, one of the best decisions the group made concerning their African
expansion, was to set up a local African office. When Carlson Rezidor first
entered Africa in 2000 with the opening of their first hotel in Cape Town, they
were conducting their business from outside the continent.
“Between 2000 and 2006
we tried to develop Africa from Europe. The company during 2006 realised that
if they wanted to be serious about Africa, we actually needed to be on the
ground permanently and we established an office in Africa at the beginning of
2007 and since then we have added 42 hotels to the African market,” highlighted
McLachlan. “So it took us six years to do eight hotels and then basically
another six years to do another 42 hotels. So obviously having a presence on
the ground in Africa was sort of instrumental in us being able to grow at the
pace we have been able to grow.”
He added that this,
alongside having their Africa development office operated by mostly Africans,
meant that the group was able to react to opportunities quicker.
“The fact that you are
on the ground and you sort of put your finger to the pulse, you actually pick
up and hear things sooner than your competitors would,” said McLachlan. “And
for people who are looking to develop hotels and they are wanting to approach a
hotel company… you give yourself a sort of better head start than some of your
international competitors and it puts you onto exactly the same playing field
as your domestic competitors.”
Despite the African
market being described as having “huge potential”, McLachlan said that it is
not without its challenges. “I think our biggest challenge at the moment is the
time it takes from when we sign a deal to when we actually open a hotel… So at
the moment we are really trying to find ways to shorten that period, because
often it takes four years on average for a hotel to be built, which is twice as
long as it would take in South Africa or Europe.”
He added that there
are a number of reasons for this, but generally a major cause has to do with
the challenge of finding or training local talent and imports being delayed in
ports or at border posts. “The challenge that we are having in a lot of these
markets is you have to virtually import everything,” he explained. “You are not
able to have the same sort of products sourced locally… So you got to try and
work locally with your government and your local partners to try and make it as
smooth and as easy as possible when you are bringing products into the
country.”
In terms of markets
with investor potential, McLachlan advises foreign companies to keep Nairobi (Kenya), Lagos (Nigeria), and Accra (Ghana) in their sights.
http://www.howwemadeitinafrica.com/
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