Indigenous hoteliers dump foreign brands on high management; franchise fees
by OBINNA EMELIKE
March 9, 2018 | 12:20 am| | | Start Conversation
Indigenous investors in the Nigerian hospitality industry are dumping international brands over high management fees and soaring franchise charges that is making it difficult for them to refinance loans obtained from banks for the hotel projects.
Despite an impressive performance of over 50 percent occupancy and 15 percent revenue growth between November and December 2017, the best in the industry since recession, hospitality investors did not see reasons to continue in the payment of high fees to foreign brands, which they accused of being only interested in their fees.
Since January 2018, three international brands (Le Meridien, Intercontinental and Renaissance) have pulled out of the hotels they hitherto managed.
While the Intercontinental Hotels Group (IHG) pulled out on the allegation of breach of contract by Messrs Kunle Ogunba, the Skye Bank appointed receiver/manager of Intercontinental Hotel Lagos, the reality is that the hotel can no longer afford the high management fees monthly while under receivership.
Explaining further on the rationale for dumping the Intercontinental brand, the Skye Bank appointed receiver noted that, “The hotel’s revenue cannot sustain the IHG’s charges of almost N40 million monthly without further borrowing. Further borrowing based on the peculiar circumstance of the hotel is foolhardy as the hotel is currently indebted to two banks in excess of aggregate of over $100 million.”
In same vein, the Akwa Ibom State government terminated the management contract of Le Meridien for Ibom Golf Resort on December 31, 2017 on the ground that the resort was not profitably operated by Le Meridien, a brand under Starwood Group.
“Considering the high management fee and the growing cost of operation, we decided to terminate Le Meridien’s contract. For two months and running, the hotel is doing well under a seasoned manager and we are saving the huge amount we hitherto pay for management fees, expatriate allowances and branding for other projects,” said an anonymous source from Akwa Ibom State Tourism Commission.
Avalon Intercontinental Nigeria Limited, an indigenous hotel group, and owners of Protea Hotel Ikeja GRA, Protea Hotel Victoria Island and Avalon Hotel, Offa, Kwara State, toed the same line when it terminated the management contract of Marriot International for its Renaissance Hotel Ikeja and engaged Carlson Rezidor Hotel Group, which rebranded the hotel as a Radisson Blu.
Although Olaitan Tajudeen Salaudeen, director of Legal, Avalon Intercontinental, noted that the termination of Renaissance contract was after a mutual agreement to part ways, the reality is that Avalon Intercontinental may not be able to refinance loans it obtained for the construction of the hotel if it continues to pay the very high management fees of Marriot, which is acclaimed the number one hotel brand in the world.
With the new contract, Tajudeen Owoyemi, chairman, Avalon Intercontinental and avid hotelier, hopes to safeguard his investment, especially from going under receivership like some hotels across the country.
Speaking on development, Daramola Oni, a hotelier, noted that the new trend is positive as most hoteliers are beginning to learn how to ensure financial probity in their business in order to be able to refinance loans from banks and also to expand their investments in the case of those who did not source fund from banks.
But Ikedi Onyia, a hotel expert, said the development may cause Nigeria to lose appeal for foreign brands that are beginning to see Nigerian partners and investors breaching contracts at will. He also noted that some brands are cancelling deals in Nigeria already and hotels in pipeline may wait longer to be delivered as international brands may not be eager to berth in the country like before.
“Of course, you don’t expect Intercontinental Group or Marriot International to just sign any agreement in Nigeria without more huddles for the local investors. Many may resort to building unbranded hotels from now because interest rate for loans is still high from 23 percent and banks cannot spare anyone with their investors’ fund,” Onyia concluded.
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