MADRID — Franchising with global brands has yet to catch on with hotel owners in Africa.
Hotel companies with portfolios in Europe have looked to expand to Africa, but the road to find financing, set development timelines and eventually open those hotels has been a long one.
Instead, a quicker route to add scale in Africa involves striking hotel management agreements. About 81% of last year’s development pipeline in Africa was signed via a hotel management agreement, Trevor Ward, managing director of W Hospitality Group and director at Hotel Partners Africa, said.
“Owners primarily, very few leases,” he said on a hotel ownership panel at the Atlantic Ocean Hotel Investors’ Summit.
Hotel ownership throughout Africa remains quite fragmented and single-hotel owners are common.
José Maria Torras Mercader, group financial director at Senegal-based Mangalis Hotel Group, said he can count on one hand the number of hotel owners in Africa with multiple properties.
Mangalis, which started as a mobile-phone company, began with one hotel, the Radisson Blu Dakar. Today, it's now the 241-room Noom Hotel Dakar Sea Plaza, which is affiliated with the Radisson Individuals brand. Mangalis now has three in-house brands — Noom, Seen and Yaas.
Torras Mercader said as an owner, Mangalis Hotel Group “believe[s] in real estate.”
“We then founded a chain. We did not want to pay fees to a third party,” he said. “We started in 2012 and now have seven hotels, with five of them owned, two with third-party management contracts and five in the pipeline, two to open this year in [The Democratic Republic of] Congo and Senegal.”
Third-party operators and white-label management companies have increased in Africa in the past five years, in part due to the increased development and operational costs since the pandemic.
Federico Holzmann Perez-Portabella, global head of real estate, investment and development at Catalonia Hotels & Resorts, said Spanish hotel firms have used their balance sheets to get a foothold in the African continent. Zanzibar, Tanzania, has proved to be a good entry point as a hotel market.
Catalonia plans to open the Catalonia Grand Zanzibar All Suites & Spa this year, its first property in Africa. The hotel firm has almost all of its hotels in Spain, with a few also in Mexico, Jamaica and the Dominican Republic.
Normally, it takes twice as long or even longer to develop a hotel in African markets than in European markets, he said. But the process of getting the Catalonia Grand Zanzibar resort to the ground-breaking ceremony took only six months, he added.
“We had been looking at existing hotels, but then COVID-19 happened, so we had to then restart the process, but by then prices had increased 15% to 20% higher,” Holzmann Perez-Portabella said. “We said to ourselves, OK, if we do it, let’s do it from scratch with our own standards, and then we bought the land, and we plan that in one year’s time we are in operation.”
German hotel owner 12.18. Investment Management is moving into Africa, too. Johann Kerkhofs, the company's head of business development, spent 14 years working in Africa and the Middle East and owned companies in South Africa and Mauritius.
Even with such a tenure and familiarity with Africa, Kerkhofs said persuading lenders and investors to come to the continent remains tricky.
“We did convince our shareholders that Africa is a market that will grow, markets such as South Africa, Kenya, Tanzania, Namibia. We are now exploring management agreements, and when we have a foot in the market, with a stake of 15% to 20% or so, we can then invest,” he said. “Initially, we want to be asset-light, but we have two investors we will bring with us.”
Branding
Why franchising hasn't caught on throughout Africa's hotel industry is up for debate. Holzmann Perez-Portabella said he's been asked about franchising before.
“Catalonia is about repositioning and differentiating. We have 80 hotels, so we believe we can create our own niche, and that we are of the size where we can still put 100% effort in each opening,” he said.
Tour operators are very active in Africa and have proven to be the biggest competition for hotel companies. Even in Zanzibar, tour operators package trips to align stays there with safaris in mainland Tanzania, Ward said.
The ease of booking such trips is attractive to tourists from all sorts of countries.
“From Italy, Poland and the United Kingdom. There was a moment when it was all Russians,” Holzmann Perez-Portabella said.
Torras Mercader said he is open to the idea of hotel franchising, but the success of Mangalis Hotel Group's own brands has put those plans on hold for now.
“We felt we were very brave to launch our own brands, so why not a franchise?” he said. “Most growth capacity is with Noom. Maybe franchising is an option in the future, we are not disregarding it, but now we are reinforcing our own brands and differentiating them.”
Partnerships with global hotel brands are an option, too. Kerkhofs said 12.18. Investment Management has a relationship with Hyatt Hotels Corp., and while that increases the opportunities for joint ventures, selling to investors the idea of a soft brand remains a very hard sell.
Having launched domestic hotel brands in Africa has brought an advantage to attracting local owners, Torras Mercader said, but in the short term he predicted growth would be via hotel management agreements.
“It is difficult to attract an investor in, for example, Lagos, but we have African brands, and there are not so many African brands for local investors,” he said.
Executives expressed optimism that African hotel markets will open to new models.
“We’ve done our analysis in East and West Africa. Traditionally, we were very conservative in solid markets in Spain and Europe, but Africa is a main strategy,” Holzmann Perez-Portabella said.