Owners and operators split on franchising in ME

Joe Sita argues case for third party operators in Middle East

Panellists at AHIC.
Panellists at AHIC.

Owners and operators in the Middle East disagree on whether the market is ready for third party operators to take over the day-to-day running of hotels.

Speaking about management contracts at the Arabian Hotel Investment Conference, IFA Hotel Investments CEO Joe Sita said: “In this market, it’s predominantly a standard management. There has been talk about franchising licensing, but that model isn’t very prevalent in this part of the world.”

Sita, however, strongly advocated for third-party operators who are more focused on the bottom line, saying: “I think the US model actually works best where brands focus on the brand and the delivery of the business and the positioning of the brand, and delivering the customer. And then you use third party operators who are more specialised and focused on the bottom line to actually manage the business and they work across a range of brands and properties.”

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“It’s worked with properties we have acquired in the US and I found there’s a much better alignment of interests when you do that. So to me that’s a model that needs to develop here. I think there is room for getting people to focus on what they’re good at,” he explained.

Hilton Worldwide president Middle East & Africa Rudi Jagersbacher, however, argued the Middle East was not ready for franchise and third-party agreements to be the norm.

“The franchise model I think would certainly work with the right product in the right location. I don’t think we are necessarily ready for that in the Middle East or Africa. I think it’s an emerging market, we want to be in control of the brand, we want to make sure that we are successful, we want to make sure our brand standards are fully implemented. And I think it’s really important to show our investors that before you go into a franchise agreement, you want to see what is happening with the local market, how are the brands operating within the local market,” he said.

Jagersbacher also said the owner-operator model had changed over the years, and the group’s corporate office is heavily involved in hotel operations.

“Over the years, the model has changed – we very much believe we are a partner with the investor. We want to make sure that the investor makes money. When they make money, we make money. our role is brand equity, how are going to separate the hotels from the rest.

“We have an office here with 110 people specifically to support the hotels. So you have e-commerce, human resources, the infrastructure for IT. Without that kind of infrastructure you will not be able to support the pipelines that everybody is talking about and I think we, Hilton, have certainly invested our own money to make sure that we have a very successful partnership,” he explained.

Sita also pointed to success with third-party operators in hotel F&B saying: “Depending on the segment that you're working in, whether it’s luxury or upscale or midscale you can bring on celebrity chefs or well experience and established food and beverage operators. I've been on the operator side and operators say they would like to control the room service and all day dining and so forth but I've seen hotels that are being very successfully operated with all the F&B contracted out and I think that model is the way of the future.”

Jumeirah Group CEO – group operations Nicholas Clayton, disputed Sita’s suggestion by using Jumeirah’s F&B division as an example of operators running their own F&B operation.

“We are heavily into the F&B operations in Dubai and we created a separate restaurant group that philosophically approaches our restaurants on a free-standing basis," he said. "We've had tremendous success over the last many, many years.”

Clayton, however, admitted the practice was market-specific, saying: “I think that we remain open to specific markets where the pressure on margins is very thin and a partner can be identified more hand in hand with the operator for synergistic benefits. In places like New York City, F&B is very tricky and a lot of developers just choose to outsource that and it serves them very well from a net profit position. So it’s market specific, but generally in Asia Pacific, the Middle East – these are the places where operators can do a good job in F&B."

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