It is based on leasing property and quickly converting it into business-style hotels. The starting-off point for the initiative was Rwanda, which is working on establishing itself as a strong business and conference centre in Eastern Africa. Report by Nadim Shariff.
Jameel Verjee, a former lawyer now based in Dubai, shared the frustration of many travellers at the lack of decent but reasonably priced hotels in Africa. Verjee had set up Diar Capital, a private investment company, after leaving the law and decided to focus its investments on sub-Saharan Africa in the aftermath of the global financial crisis, when the region’s rally went undetected by many. But when he returned to the region of his ancestry, he ran the gamut of finding decent places to stay without having to break the bank.
It was during this time that he met an executive team of Home Inns, the fastest-growing mid-level hotel chain in China. Following more research in other emerging markets, he concluded that a similar model would work well in Africa. The idea is fairly simple – locate a suitable site and get a leasehold on it, rapidly build a mid-size hotel complete with amenities geared for the business traveller and you are in business.
This model has made China’s Home Inns the fastest-growing hotel brand in that country. “I saw that the Tata Group was looking at doing the same with their Ginger Hotels brand and also the rapid rise of the Peppermint and Lemon Tree hotel groups in India,” recalls Verjee.
“I saw an opportunity to create a brand, and that for me is the most important opportunity because there aren’t many Africa-born brands that are crisscrossing African jurisdictions.”
He decided to start his venture in Rwanda with his own brand, CityBlue Hotels. Rwanda might not seem the most obvious choice to start a venture in Africa but
Verjee says, “I can honestly say that never was I asked for a bribe and all administrative processes have been straightforward and totally transparent.”
In only 18 months, he had opened three hotels in Kigali and in April 2014, a fourth opened in neighbouring Uganda, in the prime location of Nakasero in Kampala.
The only aspect that has slowed him down, he says, is capacity building and having to develop the local skills to his required specifications. “Human resource development in the hotel industry in a place like Rwanda can be challenging. I think the people are really very hardworking, they have very strong work ethic but they didn’t have much hospitality training, This is unlike Kenya which has been in the business much longer and which has good hospitality schools. So we’ve had to spend more time bringing the workforce up to speed.”
Kigali wants to become a tourist centre catering for business tourism and conferences. The hospitality market is growing fast with the building of the first five-star Marriott hotel in Africa, and also the expected opening of Radisson Blu and Kempinski hotels.
“I think now that we’ve established a brand, it gives us a lot more credibility when we go into Nairobi or Kampala. You can make a lot more noise in a smaller city whereas if we’d opened in Nairobi, we’d probably not have been able to make much of an impact so quickly.” He argues that the model adopted is the right fit for Africa. “The likes of Marriott or the Radisson have very strict specifications – in terms of room size, where the furniture must be sourced from, how big the back areas must be relative to the front, etc: whereas these new brands are much more flexible and can focus on delivering value for the customer and strong returns for the investors. In Kampala, the Hilton has been under construction for seven years!”
The way this model operates, he claims, is very efficient (see box). The most important aspect is securing a property which the company can rapidly transform to their standards incorporating the mod cons and open quickly. “In general, Africans invest in property and gold and they never really want to ever sell. So for them, the leasing arm of CityBlue Hotels makes an ideal fit because we’ll put investment into their asset, we’ll upgrade it, we’ll take a long lease, and we’ll pay them a rent.” Verjee won’t enter a lease for less than 10 years in general.
Catering for the locals
While the hotel business generally caters to international business travellers, mostly from outside the region, Verjee has noticed that there has been a considerable take-up of food and beverages by locals.
“It’s still early days, we’re just over one year into the trading cycle in Kigali and only several months into trading in Kampala but the thing that’s been very surprising, in a positive sense, has been the food and beverage side of the business which has been driven by local consumption.
“We didn’t actually anticipate that being a particularly strong arm of the business but I think that taps more into the African middle-class consumption aspect – you see people drinking wine and people wanting to eat good food. They enjoy it, they spend money on it because there are few alternatives for recreation.”
The rise of the indigenous brands is something Verjee is proud of. “We’re probably the first to create a brand in the three-star space. The next step is about getting into more and more jurisdictions so we can show that we’re a regional player. We are now in Uganda, we are looking closely at all the East African countries, plus Ethiopia, Ghana, Mozambique and Zambia. The Nigerians are also calling us to come over.”
“What is interesting today is if you ask somebody where to stay in Nairobi, they’re not going to say the Hilton or the Intercontinental; they’re going to tell you to stay at Sankara or Tribe [both local brands]. We’re seeing a mentality shift and we’re seeing local brands take a lead on the international hotel chains.“
Verjee’s management company, which is independent of the leasing company, is Dubai-based and it operates to send expatriate staff to train the locals who make up the vast majority of their workers at their locations.
As well as in the hotel trade, Diar Capital has invested in real estate and other businesses in sub-Saharan Africa and is now looking at investing in the agribusiness sector, primarily to serve local needs.
The group has also set up an acquisition and development arm of its own, for hotels in Africa, which will in turn, be able to offer leasing and management opportunities to CityBlue. “Our future should allow us to have a mixed, yet balanced approach, to be able to take leasing deals, management deals and acquisition opportunities and maximise value for each arm of the business as we develop. As we mature, we feel more confident to take wider risks and ownership of the assets may well form part of our diversified approach even though the quick growth will come from leasing and managing and ultimately, franchising.
We have now signed two management contracts for further openings in Uganda in 2015 and we have a pipeline of eight to 10 more properties. ” It is likely that future funding for growth will be from private equity or a listing, although recent developments for CityBlue hotels have been from their existing operating cash flow. Which, like his hotels, allows him to sleep well at night!