Choose your operator wisely


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Viability's Guy Wilkinson writes a monthly column for Hotelier Middle East Magazine. This article originally appeared in May 2009.
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Choose your operator wisely

  1. 1. 32COMMENT Choose your operator wisely Viability director Guy Wilkinson explains the factors owners must consider when selecting a hotel operator but says that ultimately, it all boils down to the chemistry of the partners the hotel. Such companies are usu- large chains have people with invalu- pre-opening budget of one, two or ally prepared to lease the hotel from able experience and well thought-out three million dollars. the owner. manuals for handling every stage Sobering stuff, to which the opera- A typical annual lease for a three- of setting up and operating a hotel, tor will naturally then counter that or four-star hotel in Dubai with 100 which can save a first-time owner the the annual revenues will be some- rooms, say, can cost up to AED 10 pain and grief of having to learn it all thing like $30 million, but you can’t million (US $2.7 million), payable in from scratch. get to that point without some work- advance with four cheques. Most international chains operate ing capital! This is good for the owner, because under the terms of a management all the risk of fluctuating perfor- contract, but a few also offer fran- CLASH OR CHEMISTRY mance is borne by the operator — chise opportunities. Knowing which chain to choose is by effectively, the tenant. The basic difference is that with no means straightforward and best a management contract, all the achieved with the advice of an expe- COLUMNIST CHAIN REACTION staff are hired and controlled by the rienced hospitality consultant. But to go with an ‘own name’ hotel chain, but employed by the owner; Investors tend to see their own ecession or no recession, it has its disadvantages too, when com- whereas under a franchise, the staff hotels through rose-tinted spectacles R seems that every day there’s a new investor willing to try his or her hand at hotel development. Often, the investor is totally new to the game, and has no pared with the plus points a big chain can bring, which can most succinctly be summarised as branding, net- works and systems. The larger chains have brands that are hired, employed and managed by the owner, using the franchise guidebook. The price of hiring a chain is relatively minimal, amount- ing to around 8% of the total rev- and can fail to understand the care- fully developed ‘pecking order’ of multi-brand chains, for example. A good adviser can help owners have realistic expectations according more grasp of the challenges of estab- once applied to a hotel, convey all enues earned by the hotel each year to their budget, plot location, build- lishing and running a hotel than the sorts of subliminal messages about on average, under a management ing design, etc, while still making average hotel guest. consistent high standards, as well as contract (less under a franchise). Not sure that their legal and commercial One of his first decisions will be to suggesting how special you will feel a bad deal, you might think, assum- rights are protected at every stage. decide whether he is going to run the if you stay there. These brands are ing that a chain hotel can earn more The operator selection process hotel himself, so to speak, or to con- supported by extensive sales and money than an unbranded one, but should ideally involve benchmark- tract the management out to a spe- marketing networks. In some owners don’t see it that ing the chains under consideration cialist operator. some Gulf hotels, up to way. The main reason against each other in twin qualitative The first option typically means 25% of bookings for their reluctance and quantitative analyses. finding an experienced hotel general come through the is the shocking The first compares aspects like the manager, who can then be entrusted chain’s propri- realisation that the experience and spread of the chain, with performing a panoply of roles etary reserva- operator expects and the latter tots up the relative cost from owner’s representative dur- tion system. the owner to pay of the management fees requested by ing construction and fit-out, to chief And then, of for everything, the short-listed operators. recruiter, trainer and strategist dur- course, the starting with a But for all this science, there is a ing pre-opening, and finally GM third aspect that is probably more once operations have commenced. important, namely, the chemistry This option works best when the between the principals of the own- investor is a group of companies ing and operating companies — the that already has resources and a ‘click/clash’ formula. head office team, for example. Such Many a hotel chain that looked groups may contain component com- ideal on paper has been rejected panies that can logically supply to or because the investor simply failed to support the hotel. Banks, contract- take a shine to the operator’s boss or ing companies, furnishing or food the main negotiator. HME suppliers, travel agencies and tour operators are particularly useful. An alternative that is com- monly adopted in the mid-mar- ket segment is to contract a Guy Wilkinson is a director of Viability, a hospitality and property consulting firm in Dubai. ‘white label’ operator that will For more information, email: take on the management of May 2009 • Hotelier Middle East