The business model for a successful hotel
Burj Al Arab Hotel Dubai.   Source: Cédric Dhaenens via Unsplash

Room revenue. Guests per night.  

These are the main measures used by experts in the hotel industry to understand how well the sector is performing. In PwC’s latest hospitality report, Nigeria is labelled as the “fastest-growing market” among five countries in Africa due to the incoming number of new hotels and growth in guests nights. 

The focus on rooms makes sense, “hotels,” a name originated from the old French word “hostels,” are establishments known for providing accommodation. 

However, look closely, and you realise that this is only one part of the story. 

Over the years, hotels have evolved into destinations, providing more than a place to rest your head. Take the Atlantis Palm Hotel in Dubai. It boasts over 20 restaurants and bars, 33 retail stores ranging from Cold Stone to Versace, a waterpark, an aquarium, and a range of experiences including swimming with dolphins. 

Many of its visitors don’t actually stay at the hotel. Yet, it generates revenue —a situation familiar to many Lagosians who have visited Eko hotel more times than they have slept there.  

For hotels, having more income streams in addition to room revenue is vital for survival, and business models have been changing to reflect this. You may not find many hotels with aquariums just yet, but the focus on “out of room” revenue or on creating an attraction/experience is a prevalent theme in the industry. 

Thinking of innovative ways to make revenue is a must for operators in Nigeria, where the hotel business has dragged many through the mud.

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Nigerian hotels have had it tough

Renaissance hotel, owned by Marriott, debuted with a 155 room establishment back in 2017. A year later, they left the business, attributing their departure to issues related to debt and operational challenges.

Radisson Blu, another international conglomerate, acquired the former Renaissance building and started running its second hotel in Lagos. Radisson has also gone through its times of hardship. Back in 2015, it sacked 450 of its staff, blaming Nigeria’s ‘harsh operating environment’.

And then more recently, Intercontinental was the next hotel to go through the storm. It exited from Nigeria in December last year after facing operational challenges and running into a debt crisis. They spent only five years on Nigerian soil. 

 

Generators, the bane of the hotel industry. 

What exactly are the operational issues Nigerian hotels struggle with? A fundamental challenge is electricity. Hotels must operate 24/7 and so having a generator is as vital as duvets and pillows. 

But it comes at a high price. 

In 2012, the National Bureau of Statistics (NBS) estimated the cost of fueling generators at ₦117 billion annually. This was the highest cost incurred by hotel operators, accounting for 30% of their total expenses. Still, on electricity provision, the PHCN total annual cost was ₦45 billion (11%).

Hotel operators carry the burden of Nigeria’s core economic problems on their backs. 

“In a state like Ekiti where power generation from the national grid is abysmal, we rely heavily on generators,” says Yemi Ayeni, owner of Pathfinder Hotel in Ekiti state. “Even when we have just two guests in a hotel of 62 rooms, we would be required to put on our generators. It’s so bad that we have three generators to cater to the number of guests we have.”

In Abuja, where you’d expect to have better electricity conditions for hotel businesses, hotel operators also go through similar challenges. “Maintenance, and of course, electricity; which is a national problem, are the high costs that we bear,” says Ruth Onwuka, Hotel Manager of Atelier Hotel in Abuja. 

Going by the NBS numbers, if hoteliers were to rely entirely on the revenue generated from room spaces, they would struggle to break-even. Total costs came to ₦390 billion vs accommodation income of ₦360 billion.  

 

 

So where can real revenues come from?

More than half of the hotels' total income wasn't from the accommodation. Of course, additional revenue streams come with costs as well, but they have significantly higher margins. Have you ever had to purchase a bottle of water that generally costs ₦100 at a supermarket, for ₦1000 in a hotel? Well, there you have it.

Income from “bar” (beverages) came to a total of ₦182 billion (27% of total revenue). 

“Room revenue gets wiped off by the services of the rooms itself. You must have a multi-hospitality centre,” a former regulator in the tourism industry tells Stears Business. “Food and beverage (F&B) is what drives profitability. You need to have clubs, bars, restaurants, concert halls. These are the streams that hotels make so much money from because the profit margin is large. This is what you can use to balance the high costs.”

 

 

 

 

Eko Hotel is one of the best examples to learn from. With its 825 rooms, it is the largest and one of the oldest hotels in Nigeria; and has stood the test of time and economic downturns. 

Clues to its success can be found in its multi-hospitality approach to hoteling. It started with three restaurants and has grown to its reputable nine today, ranging from an English pub to a Chinese restaurant. 

And then there’s the famously known Convention Centre, which has a capacity of 6,000 people, used for many music concerts and weddings for the wealthy. Renting the hall costs around ₦13 million but can double in price depending on additional requirements, the season, or type of event. 

What Eko Hotel has created is a constant stream of visitors to the establishment, be it for spending the night or not. For them, even income from car parking does its fair share to boost their financials. 

 

Selling an experience

Apart from actively searching for multiple revenue streams, hotels are now rebranding themselves to be more like experience centres, highlighting that they are more than just a place to sleep.

A sensible move to attract more customers and also fight off competition from the likes of Airbnb, which strictly provides accommodation for guests that are looking beyond traditional hotel stays. For Airbnb, Lagos has quickly become one of the fastest-growing markets globally with listings doubling between 2018 and 2019.  

With this threat, it's no surprise hotels are going further to differentiate themselves. 

Atelier hotel in Abuja is a fitting case in point. 

Atelier is located in the residential district of Asokoro; so to an unknowing passer-by, it’s just another house along the street. 

But guests in Atelier sleep inside art galleries. 

In one of the hotel’s spaces, there’s an elaborate but minimalist art installation hanging from the ceiling like a chandelier —an inverted bowl of paint hangs above, giving the illusion that the paint is going to pour on an observer’s head.

Like this, various art installations and paintings burst out of walls, ceilings, and room corners, boosting the overall feeling of staying in the hotel. When you walk into a room, you too become an element of the art.

This aesthetic service is part of the value offered by the hotel. With just four rooms, a night at Atelier is priced at $175 (₦63,000) for its signature room.

Atelier is more than nice looks for hotel guests. It is generating revenue from art exhibitions, artist residencies, and, of course, it has a restaurant in the backyard, known separately as The Pavilion. In essence, showing that even for smaller hotels, a multi-hospitality business is also key.

“A boutique hotel isn’t just about giving a tailored experience, but it is also about the novelty of that experience as well,” says the general manager at Villa Monument, another boutique hotel in Lagos, which launched this year.

At Villa Monument hotel, each room is designed with the aesthetic of cities from different countries around the world. “It is for people looking for a different experience to hospitality in Nigeria,” the manager says. “It is more than just a room and breakfast, with nice leather and your name on the card when you go in. There is a novelty aspect that is attached to that. Things like these help the boutique hotels to compete better with the top brand hotels because they are offering something different.”

 

Villa Monument Hotel, Lagos

 

Hotels taking over hospitality 

Right opposite Eko hotel in Victoria Island, EbonyLife Place is taking the hospitality business model game to another level. 

White Orchid, a boutique hotel under the EbonyLife flagship brand, sits comfortably next to a range of services offered by its parent brand. Guests can watch a movie in one of the theatres, visit its restaurant, cafe, or bar, all operating in the same space. This creates a unique facility for different customer segments to experience.

On Valentine’s Day this year, EbonyLife released a slew of packages, an interconnected system of services that included a three-day stay at the White Orchid hotel and services at its restaurants and cinema, thereby maximising the potential to generate revenue at that given time.

They didn’t offer room-stays at the hotel, but a curated experience, which attracted high-end customers. All 20 rooms were allocated under two ‘experience’ packages and sold out for prices high as ₦450,000 per couple.

As this and the other hotels discussed show, it's more than just rooms.

For Atelier, survival in the industry may mean balancing art and its Pavilion restaurant with financial realities, for Transcorp Hilton in Abuja, it might mean enhancing its services like conference rooms to benefit from business travellers. While the Oriental Hotel in Lagos may find it more profitable targeting wedding planners to use its spaces.

Ultimately, hotel operators can either find "out of room" revenue streams or create a unique experience to entice customers.  

Despite leaving the market after their experience with Renaissance, Marriott is currently building two new hotels in Lagos. A 250-room building in Victoria Island and another 200-room one in Ikeja GRA. They are looking to make a comeback, perhaps this time, they will remember to create experiences, not hotel rooms. 

 

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Fisayo Okare

Fisayo Okare

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