It is no longer the case that dry hotels have missed a revenue trick. Today, it is more important to provide experiences to guests, follow their travel trends and focus on returns to owners.
ABU DHABI, United Arab Emirates—The presence of alcohol in a hotel has no relevance when it comes to profitability and the guest experience, a statement that panelists at this week’s Gulf & Indian Ocean Hotel Investors’ Summit said is as true in other regions as it is in the Middle East.
One argument that was refuted by the panel was that if you cannot have a hotel that serves alcohol, having a serviced apartment is the better bet.
Mohamed Awadalla, CEO of Time Hotels Management, which has four brands, said in his experience dry hotels make good money.
“They are profitable. The (food and beverage profits) might be lower than 25%, but other than that we have seen no discernible difference across our hotels, and we have between 82% to 88% occupancy,” he said.
“If the price is right, and value can be seen, it will work. Our hotels receive a lot of Americans, Chinese and Germans through tour operators. We have draft non-alcoholic beer and non-alcoholic wine. It’s great juice.”
Awadalla said it’s more important in the current economy to have an accurate profile of your guests. “You have to know your market in order to provide the relevant returns to owners,” he said.
Douglas Martell, EVP and COO of Onyx Hospitality Group, which has 42 properties across six brands, agreed.
“Initially we were worried, so we ran the numbers, which were conservative, but when we were up and running, not having alcohol was never a problem. Only 7% to 8% of guests said they would not stay at a hotel because there was no alcohol. That said, one of our best feeder markets is KSA (Saudi Arabia), so it is swings and roundabouts,” he said.
Simon Coombs, president and CEO of Shaza Hotels, which has 11 branded hotels in five Middle Eastern nations, said the decision to have a dry hotel “should be based on concrete analysis,” but once made, that decision should not drive everything at the hotel.
“You are not talking about an experience built around this principle. You are in competition with non-dry hotels, so be the best,” he said. “Dry hotels are not a distractor, and you are seeing non-dry hotels scaling back on F&B.”
Panelists underlined the three pillars of the Islamic hotel market—Halal (a term which refers to an action being permissible according to the Islamic law), finance, and lifestyle and culture.
“They all form core (gross domestic product) drivers, and you cannot ignore that fact. It is a clearly definable market. Real estate is a natural outlet for Islamic finance, so decisions have to be driven by what the market wants in any location. There is space for both (dry and non-dry). The problem is that many developers develop without an operator in mind and without a clear idea of who they are opening for,” Coombs said.
“Shaza builds brands that appeal to Middle Eastern clients and builds where our markets want to travel to,” he added.
Dry revenue stream
The panelists said this location-by-location approach will be kept in mind as their groups and brands move or expand into other geographies.
They added that a better degree of marketing and storytelling will be key to their pipeline strategies.
“The image of the dry hotel historically has not been good. Not because there was no alcohol, but just because they were generally bad hotels,” Coombs said.
“And bad marketing,” added Awadalla.
Coombs said his ambition is to keep Shaza as a distinct brand, and move into Europe and Southeast Asia.
Awadalla said he is looking to add one of Time’s brands into the United Kingdom. “I would love to open in London. Yes, there is a market,” he said.
Martell said Onyx has its sights on Australia, Malaysia, Sri Lanka and Vietnam.
The dry hotel market is growing at between 4.5% and 5% per annum, the panelists said, and will be worth $200 billion in the next three years.
“In any business, you’d say those numbers equaled opportunity,” Coombs said.