• Tuesday, March 19, 2024
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Hoteliers may abandon franchise, agreement as business declines

Hoteliers

Considering the high exchange rate and persisting lull in business occasioned by the coronavirus (COVID-19) pandemic, many Nigerian hoteliers are now struggling more to pay franchise and management fees, which are dollar denominated, to their foreign brand managers.

Due to the development, some are already defaulting in fulfilling the management agreements they signed with their foreign managers, and are considering abandoning the brands for self-management.

While their inability to host their managers may be due to the persisting impact of the pandemic on the hospitality industry, which is yet to receive palliatives from the government, some industry experts think the affected hoteliers may be putting up the action to prevent their managers from increasing franchise and management fees the managers claimed have been lowered by inflation and high risk of working in Nigeria.

At present, the least franchise fee goes from $50,000 per year for regional brands, while top brands’ charges are often double that amount. Aside paying the exorbitant fees, some hoteliers decry that most foreign brands who undertake management agreement insist on sourcing key management staff, which are often paid excessive expatriate fees.

“The allowances I am asked to pay are often more than the salaries of a bulk of my Nigerian staff who are doing the job,” an aggrieved hotelier who pleaded anonymity, says.

He further discloses that some hotels that are self-managed are doing well in terms of maintenance, revenue per available room (REVPAR) and gross operating profit (GOP), which are usually the brand proposition and deliveries of foreign brands.

However, the self-management style seems to be trending in the Nigerian hospitality industry now as many once foreign-branded hotels are now independent brands.

Recently, the Akwa Ibom State government refused to renew the franchise and management agreement with Le Meridien brand, which left afterwards. Since then, Le Meridien Ibom Hotel and Golf Resort became self-managed and rebranded as Ibom Hotel and Golf Resort.

As well, Golden Tulip Hotel in Amuwo Odofin is now Festival Hotel and independently managed. The 88-room Golden Tulip Enugu is now operating as Golden Royale Hotel, as well as, the once Golden Tulip brand in Ajao Estate Lagos, is now Woodridge Hotel Lagos, while Continental Hotel Lagos, which has capacity to attract bigger international brands since it stopped operating as Intercontinental Hotel Lagos, still prefers to be self-managed.

It would be recalled that when Marriott International acquired Protea Hotel Group in 2014, only two of the 12 hotels in Nigeria (Protea Kuramo Waters and Protea Select Ikeja) met its standards, the rest rebranded and became independent hotels.

Speaking on the development, Bode Oyeneyi, a former rooms’ division manager of Protea Oakwood Park, notes that other foreign brands approached some of the former Protea hotels but they refused because of the cost of franchise and trouble with fulfilling management agreements.

“The likes of then Protea Leadway Hotel, which is now Leadway Hotel Maryland, Protea Hotel Oakwood Park Lagos, which is now Oakwood Park Hotel, among others, had quality standards other international brands were looking for, but they prefer self-management, which I think has worked because they are still in business,” Oyeneyi states.

Oyeneyi also decries that some foreign brands do not live up to their promises, especially overflowing volume of business and maintenance, noting, “There was a time Best Western Hotel was trending for hoteliers and every new hotel wants to wear the Best Western logo.

“But when the brand felt it has arrived and started neglecting its side of the agreement, virtually all the hotels abandoned the brands, amid paying severance fees.”

Following same line, Mike Ochimana, an Abuja-based hotelier, notes that most hoteliers are not fronts for politicians, and they often build their projects with bank loans.

“A lot of us are under pressure to repay bank loans, adding management and franchise fees now will put us under more pressure. I will rather run my hotel with indigenous hands now than pay expatriate fees to someone who will jump to a juicy offer next door,” he says.

Considering the reality of our time, Preye Hart, an economist and hotel director, notes that it is better to suspend anything that will bring additional burden to hoteliers now, including franchise, which can always be re-engaged when things get better.

“I am a hotel director, and we are struggling to stay afloat because of the persisting impact of the pandemic. The board has decided to stop our foreign managers until the economy gets better. It is a management and business decision, which I think is wise for now,” Hart says.

But Olumide Fakaye, another hotelier, thinks foreign brands have a lot of mileage to offer and should not be abandoned, rather scale down operation including their services and fees and still retain them.

“Foreign brands come with a lot of mileage for hotels. Imagine removing Hilton logo or Transcorp and Sheraton logos on properties in Lagos and Abuja, they will be faceless and value for offerings will drop. So, we still need them, but have to renegotiate with them in accordance with the economic reality of our time because hotel business has been down since February this year,” Fakaye advises.

But many foreign brands anticipated the development not only in Nigeria, but in other markets because of the global economic crisis occasioned by the pandemic.

“About 80 percent of our hotels were shutdown globally for four months at the peak of the pandemic. Over 20 percent of the hotels are not going to engage us back because of the impact of the pandemic on their business. But we hope to engage more hotels in coming years. The pandemic will not stop our expansion plans,” Jose Andre, Starwood senior manager, expresses hope.

Meanwhile, an anonymous source at Marriott International Nigeria notes that most Nigerian hoteliers want all the profit without investing back in maintenance and also renege on management agreement, hence a brand like Marriott will not compromise its standard or fees because of what the hoteliers want.