Talking hospitality: Rotana CEO Omer Kaddouri

When UAE hotel group Rotana opened its first property in 1993, a year after its founding, the Gulf hotel market was unrecognisable from the glittering towers and tens of thousands of rooms seen today.

As a Rotana veteran of 19 years, Omer Kaddouri recalls that the company was not “too fussy” in terms of its first openings, which started with the Beach Rotana Abu Dhabi, and there was no shortage
of opportunity.

Now, 25 years on, the company has grown from a small operation to a major regional hospitality player with 56 operating hotels in 21 cities across the Middle East, Africa and Turkey as of July, and a portfolio of more than 15,000 rooms.

But the attractive room rates and occupancies in key Middle Eastern markets have also not gone unnoticed by the firm’s international competitors.

“We came in at the right time but of course in the past 25 years we’ve also been seeing a lot of competition coming into this region and that’s really what our biggest challenge is today,” Kaddouri explains.

Indications of the new competitive landscape are obvious in Rotana’s home market of Abu Dhabi where 20 or more brands are now present, as opposed to three when the firm first started operations.

And in recent years this competition has only intensified in conjunction with a perfect storm of factors including geopolitical instability, expensive Gulf currencies due to their peg to the strong US dollar, new room supply and dampened demand linked to the low oil price.

“It’s probably been the three most difficult years that the region in our business and our industry has ever experienced,” says the president and CEO.

“Three years ago we thought things couldn’t get any worse, then the next year things did get worse and even into this year things haven’t improved greatly.”

Kaddouri’s comments are no understatement as regional hotel markets continue to face tough conditions, with double-digit declines in rates seen across most markets over the last three years.

As a sign of this trend, market research firm STR said most major hotel markets in the Gulf Cooperation Council reported worse performance during this year’s Ramadan period than in 2016. Revenue per available room (RevPAR) was down 9 per cent in Makkah, 9 per cent in Kuwait City, 7 per cent in Abu Dhabi, 7 per cent in Manama, 7 per cent in Madinah and remained flat in Dubai, according to the firm.

While the key first quarter sales period saw reductions ranging from 30 per cent in Jeddah to 22 per cent in Riyadh, 17 per cent in Manama, 15 per cent in Muscat, 8 per cent in Abu Dhabi and 4 per cent in Dubai.

To adjust to this difficult period, hotel groups have been forced to seek efficiency savings and cut costs.

Rotana has placed a greater emphasis on sales and marketing through online channels, including its own website and travel agencies like Expedia to boost foot traffic, while adopting a more cautious approach to spending, according to Kaddouri.

“We’ve had to really pull a lot of rabbits out of the hat to keep our hotels in profit and we’ve learned from every single one of those experiences,” the CEO suggests.

This has also translated into workforce restructuring, although Kaddouri insists the firm has focussed on shifting staff to new properties, unlike some competitors he says have cut up to 10 per cent of their workers.

“We had a close look at our labour force last year and we put something into play where we had to relook at some of the positions we had in our hotel. There was a stage where we needed to reduce our manning.”

And now the usually stagnant summer period is over, the CEO says the company will carry many of these lessons forward amid signs of light at the end of the tunnel into next year.

Despite some delays, Rotana expects to open 17 hotels by the end of 2018, adding 3,877 keys to its inventory. This comes as part of a broader pipeline of as many as 49 properties across 26 cities in the Middle East, Africa and Turkey.

“We were meant to be opening up – as we speak – about three of our Centros, which have been pushed towards the first few weeks of January,” Kaddouri explains.

Centro, which is Rotana’s affordable lifestyle brand, will be key to the firm’s expansion efforts going forward amid an increasing emphasis on the mid and lower tiers of the hospitality market in the Gulf and wider region.

The company has six Centros in operation today, with a further three expected to open by Q1 of next year and another 15 in various stages of development. On top of this, the firm could use the brand to break into other continents including Western Europe, where the Rotana chief says discussions are taking place and the company has “close opportunities” that are not yet final.

These come in addition to expansion opportunities for the firm’s wider brand portfolio in Africa, where it has been present in the Sudanese capital Khartoum for more than a decade. In December, Rotana opened a hotel in the Democratic Republic of Congo’s capital Kinshasa and following this it expects to open a new five-star hotel with 250 rooms in the Tanzanian capital Dar Es Salaam in Q1 or Q2 of 2018. Management deals for other properties in Luanda, Angola and Lagos, Nigeria will also add to this footprint in the coming years.

Kaddouri says this business has come to the company rather than an active campaign to lure owners, but he is hoping to expand more proactively on the continent in the future.

The CEO also sees opportunities in Asian markets including Indonesia, Malaysia, Vietnam and Cambodia once Rotana has had the time to look at the region more closely.

But as he eyes these markets, the CEO is well aware that he faces tough competition from international firms with significantly larger footprints and capabilities.

This has been particularly apparent in the Gulf region where last year’s mergers of Marriott International and Starwood Hotels and Resorts and AccorHotels and FRHI Hotels and Resorts, have placed a significant number of rooms in the hands of just two operators.

Accor is planning to double its Middle Eastern footprint to more than 150 properties in the coming years, while Marriott expects to reach 80 hotels by 2021 from more than 50 today.

“I’d been lying to you if I’m saying its business as usual,” he says.

“When the larger companies combine they create huge abilities to save money, the economies of scale, they have a lot more opportunity to be more competitive.

“They can go to owners and offer them deals that we can’t. They can spend a lot more money on research and development they can create bigger websites and do a lot of things.”

But he insists Rotana as a regional company has its own “strengths” due to its local market knowledge and a following of loyal owners.

As testament to these strengths, Kaddouri says the company will sign 12 hotels this year despite the downturn – a company record. He also believes the merger deals have not necessarily gone down well with the owners affected in the region, who question whether the larger groups are acting in their interests or those of their shareholders.

But this isn’t to say he is against hotel group listings altogether.

The CEO admits the company has been talking internally about a potential IPO “for a long time” and it may just be a case of market conditions improving before it decides to take the plunge.

“We have weighed the pros and cons of becoming a public listed company. We’re not there yet – we’re in discussions at board level on how we want to take this forward.

“The time has got to be right, the dynamics have to be right, and at the moment in terms of the IPO market there has been very little action in this region for quite a long time.”

For now, he says the company is satisfied with fully controlling its own destiny but in “10 or 20 or 30 hotels it might be the right direction” to consider a listing, indicating a timeframe of up to three years given Rotana’s current pace of expansion.

Until the time is right, the company is focussing on opening more and more hotels with a goal of 100 properties by 2020 still very much in place.

Kaddouri reveals he would not turn down joint venture partnerships or a potential acquisition of a smaller chain to get there, but he also admits it is likely a larger firm may come calling given the current period of consolidation taking place in the industry.

“There is definitely going to be someone knocking on the door saying we want you, we want to buy you, we want you to be part of us,” he says. “But so far we’re very happy to grow organically and I think we can be a major player if we stay true to ourselves.”

Given these comments, it is clear the CEO has not allowed the past three years to dampen his spirits and he believes the next 25 could see Rotana “double or triple” its footprint and become a major player in its own right with properties across Europe, Australia, Asia and Africa.

“I don’t think there is any reason why we can’t be even more successful and a bigger player in the world,” he concludes.

Clearly we can expect to see the Rotana name on a lot more hotels as the company looks towards even more milestones in the years to come.

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“Don’t tell me about robots”

New technology adoption has been somewhat of a mixed bag in the hotel industry, with recent innovations including the ability to unlock your room with a smartphone and checkout online not really taking off.

But could robots be the future of hospitality? Kaddouri is clearly not convinced.

“It’s a pet hate of mine, I was just about to tell you please don’t tell me about robots,” he says jokingly when asked the question.

“I really think hospitality is about people, people want to talk to people and relate to people.”

The CEO says he is “on-board” with hotel price comparison sites and online review portals like TripAdvisor but he also believes keeping the human element of hospitality is imperative.

“Robots will be expensive, impersonal and nobody could ever afford 300 robots instead of 300 staff, so I think the robot issue is something completely outrageous. I’m not a believer in it and I’m not a traditionalist – I’m looking at the future and I know where the future is, but definitely not robots.

“We need to remain to be a people business. That’s why I joined the business and that’s why I’m going to stay in the business. The minute it’s just going to be robots telling me what to do I’m out of there.”

It seems the Rotana chief will be in no rush to book at the world’s first hotel staffed by robots, Henn-na hotel, which opened to a mixed reception near Nagasaki, Japan in 2015.