Issue No 03

January - May 2012

rettelswenHospitality Management & Consultancy

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Prospects on the Lebanese pipeline

Investments in the hotel industry in Lebanon within the last three years havegone bullish, with over 60 hotels applications for license acquisition. As themajority of the projects being planned far in advance, faced two majorobstacles that tackled some of those projects. The first was the economicalcrisis and its rippling effects on all economical sectors and the second wasthe tense political situation. While hotel business is a real estate investmentas mush as it is a sector of services and since real estate prices have beenhiking since 2007, enforcing trust to keep projects from being labeled aspending.

The Lebanese capital is targeted by upper-tier ultra-luxurious 5 star projectslike the Four Seasons and the Grand Hyatt expected open in 2012 fall intothis category. Middle-tier and lower-tier properties are certainly a less viablebusiness models due to the phenomenal land prices making any ROIfeasibility very difficult if not impossible. This is why even category (A)properties have to achieve a very challenging occupancy % which certainly

has to exceed the 65th Percentile while sustaining a respectable ADR throughout theyear. While property value and ranking are positively correlated, some projects are targetingareas outside the city center for lower target markets or even in rural areas with resortsand eco-concepts with a lot more affordable lands but with lower rates as well.Increased capacity and availability triggers demand, so, there is no market saturationand oversupply has not been reached yet as the capital’s occupancy is at 75 – 76percentile. Especially the branded hotel rooms with an expected increase in this segmentof 2,000 keys before 2014. Branded operators are aggressive international marketers;

have more competitive edge usingall kinds of sales and marketingpractices as well as push/pullstrategies from GRS to opaquedistribution and loyalty programs.Not to mention the brand saliencyof such properties. By marketingthemselves they also market thecountry and Beirut as a destinationand help to regain the capital’simage as the region’s luxury hub.

Middle class market is stillneglected with a serious marketgap in this segment with moreneed for the middle-tier descentservices with affordable priceswhich can be achieved especiallybecause of the relativelyreasonable land prices outside thecapital peripheries and the primelocations where sky rocketingprices make such properties lessfeasible with lower chances ofviability. The average price perroom for this kind of operationsknown by the 3 to 4 star hotelshould not exceed the $150 to$160 compared to an averageroom rate for the high end five starproperties of $257. One of thenewest projects which managed tospring up in central locations is the35 Rooms the newly openedboutique hotel in Hamra, anaffordable luxury with extremelycompetitive prices charging

around $90 per room in lowseason with $130 in high season. Branded hotels seem to target theniche by developing 3 star hotels,a more affordable version of theirhigh-end establishments. One ofthe players who noticed the marketgap and now capturing a share ofthis market is Rotana hotel with itsnew 200 keys budget hotel brandCentro located in Gemmayzehand willing to open in 2013.Other emerging trends in thissector including condos, mixed-useprojects as well long-stay resortsare looking for out-of-townlocations to build their massivegetaway heavens. Heading northwhere Natour Development, Maliagroup’s brainchild, an impressiveproject located in Anfeh includinga 5 star hotel, villas andapartments, retails and shoppingoutlets as well as food andbeverage operations,entertainment and outdoorfacilities extended through 450square meters of shoreline and810,000 square meters of land.Beirut will have its share of resortsprojects as well but surely on asmaller scale like the 26,000square meters KempinskiSummerland which will include a5 star hotel, furnished apartmentsand a marina with an expectedopening date in 2013. More rooms and more beds arerequired to fill the country’s gap indemand of all market segments bydiverging into high, middle andlow-tier properties since thecountry is operating at anencouraging occupancypercentages meaning saturation isnot reached yet.

By Chadi Chidiac from Protocol

Hospitality Management & Consultancy

Gedco Center - 3rd Floor - Hayek Roundabout

Sin El-Fil - Telefax 961 1 510016/7 P.O.Box 55-358 Beirut-Lebanon

E-mail: protocol@protocollb.com

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Photographies by Riad Chlela

Our Projects

Lebanon

Protocol undertook “The Professional Bartending Training Program” sponsored by Eastern Importand coached by one of the best recognized bar tenders in the region. The program consisted of 5days with full exposure on beverage knowledge, drinks mixology and methodologies with the grandfinale day 5 five and the flaring techniques session.

UAE

Protocol undertook hospitality formation programs and training seminars for a high-end hospitality and tourism management company in Abu Dhabi. Theprograms were based on the latest and most professional hospitality practices in management and operations. Lebanon

Protocol has been working on the formulation of a franchise project for a fast-food chain in Beirut. A full development of the venture’s business structure hasbeen elaborated and implemented with a complete market scanning and brand acceptance ratios. Lebanon

Protocol has accomplished a 3 months mentoring program for the cost control department of a mid-end restaurant with private off-job intensive sessions aswell as on-job shadowing practices where the department’s team has been informed and instructed on the most professional costing an pricing methods.Lebanon

Protocol implemented a feasibility study for a high-end pizzeria in Beirut. The study displayed a full market survey with SWOT analysis and businessrecommendations considering product suitability, USP and funding sources.Lebanon

Protocol developed a turnkey project for a restaurant coffee-shop at Jounieh old souks. Protocol assessed the location before the full development of theconcept as well as all design and architectural perspectives, menu and food presentation. Protocol will be supervising all construction activities as well asassisting in pre, soft and grand-opening action plan.

According to Deloitte, the Lebanese tourism sector contribution is 22% of GDP while only 0.4% of the Lebanesepublic budget goes for the ministry of tourism.According to the World Travel & Tourism Council, hotel brands have been able to expand their global room capacityby 78% between 1995 and 2011.Al Ghouna resort owned by Orascom Hotels & Development, El Gouna’s parent company, headed by SamihSawiris founder and chairman. This resort is located on the red sea Riviera includes 14 existing hotels and another4 on the pipeline with 2,707 rooms, 100 restaurants along 10 kilometers of beachfront and spreads across islandsinterlinked by lagoons.Marriott International reached 3,700 lodging properties in 72 countries approximately 1,100 are managed andthe rest are franchised properties. Marriott has 129,000 employees with reported sales exceeding $12 billion.The leading country in number of McDonalds chain outlets is the United States with 12,804 outlets followed byJapan and Canada with 3,598 and 1,154 outlets respectively knowing that the fiscal year ending 31st of December2011 resulted in $24.6 Billion in revenue (25.37 per share) with a profit margin of 20.34%, an operating marginof 30.49% and an EBITDA equaling $9.34 Billion.According to Jean Mark Groosford, Development Manager of Marriott Hotels, the famous hotel group is aiming onexpanding with 15 new hotels targeting the African continent in South Africa, Nigeria, Morocco and Algeria. The renting costs for restaurants and pubs in Beirut (BCD) swings between $1,000/m2 and $3,000/m2 instandalone centers and $1,500/m2 to $2,500/m2 in malls.In the last 11 years and since the year 2000, investments in food and beverage outlets in Lebanon have reachedthe $1 Billion.Subway, the ubiquitous sandwich chain, has taken over as the world’s biggest restaurant chain by the number ofestablishments, according to Wall Street Journal Subway has exceeded McDonald’s Corp. in the number of storesas of last year. Subway had 33,749 restaurants globally, while McDonald’s, in a filing with regulators, said that ithad 32,727 store However, McDonald’s remains the world’s biggest by sales in dollar terms, with annual revenuesof $24.6 billion in 2011. While Subway made sales of more than $15 billion. Subway, which is privately ownedby Doctor’s Associates, does not disclose profits. Like McDonald’s Subway operates a franchise business modeland has establishments in all major markets. It is currently attempting to increase its foothold in Asia, especially inChina. Subway is known for the “$5 Footlong” submarine sandwiches. According to the company, Subway hasrestaurants in Afghanistan and Tanzania, countries in which McDonald’s currently does not have any presence.The world's number 1 specialty coffee retailer, Starbucks has more than 17,000 coffee shops in about 40 countries.Starbucks operates more than 9,000 of its shops, which are located in about 10 countries (mostly in the US), whilelicensees and franchisees operate almost 8,000 units worldwide (primarily in shopping centers and airports). Thecompany also owns the Seattle's Best Coffee and Torrefazione Italia coffee brands. In addition, Starbucks marketsits coffee through grocery stores and licenses its brand for other food and beverage products.

Starbucks sales for fiscal year ending September, 2011 reached $11,700.4M with a growth of 9.3% YOY, a netincome of $1,245.7M and an income growth of 31.7%.

In Figures

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Protocol Interviewed Mr. Marc Moudabber

Marc Moudabber, 42, is a Concordia University, Montreal, graduate in Economics and International Business.In 1992 he returned to Lebanon and launched his hospitality career. His achievements, along with his brotherJoseph, include the Century Park Hotel, Kaslik, (1994), the operation of La Marina Club, Dbayeh (2000) aswell as the creation of several food and beverage concepts in Lebanon and the region - Lord Of The Wings isthe latest of these concepts.

What are your current projects and what are your future plans?

We are the franchisor of the Lord Of The Wings in Lebanon and abroad. There are already two franchise branchesin Lebanon: in Mtayleb and in Hamra. Two other outlets in Gemmayzeh and CityMall are company-owned and operated by us.Our plans for 2012 include the opening of two new outlets in Lebanon and the support of our franchisees to develop the brand outside Lebanon, namely inKuwait and Egypt. We are also considering a joint venture in KSA.Our aim is to be a multi-concept franchisor. In addition to promoting Lord of the Wings as a regional player, we will progressively unveil the creation of otherequally interesting concepts.7 major issues affecting the Lebanese Hospitality Market trend this year?

• Promoting the stability of the Lebanese (and regional) political and security conditions• Increasing bilateral agreements focusing on visa-free inbounds• Reactivating the port of Jounieh aiming at placing it on the cruise ships circuit• Instituting stable and comprehensive employment laws, structures and regulations• Decreasing custom fees now that the value added tax (VAT) is firmly in place• Eliminating dealership exclusivity to promote competitiveness and lower import costs• Improving and reducing infrastructural costs (transportation and utilities of all kinds)What are your perceptions for the Hospitality Industry in Lebanon and the region?

The general panorama isn’t favorable enough for Lebanon. There are two major threats to the hospitality industry here.First, the political chaos in the region will negatively impact hotel occupancy in the country. Whereas hotels depend heavily on foreign visitors, restaurants’feeder market is local. In order for tourism to prosper in Lebanon, we need both external and internal tourism. Internal tourism on its own isn’t sufficient.Second, globalization has already painfully hit Lebanon in one of its core economic elements: tourism in all its components. Admittedly, foreign investments inLebanon are essential for job creation; however, there is practically little chance for Lebanese to stand up to regional conglomerates, which huge financialcapabilities are big enough to take over most prime locations that are crucial in our industry, and prevent Lebanese from asserting themselves on the market.

Final Word

Strategically, Lebanese hospitality has proved itself worldwide because of its distinctive human element. I proudly subscribe to the adage that hospitality serviceis characteristically Lebanese. This is a treasure we must all value, cherish and nurture. In order to achieve this, Lebanon has to continuously invest in and perfectits professional training programs. This is how we can maintain our leading role in regional hospitality.

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Lebanon has tocontinuously invest in andperfect its professionaltraining programs. This ishow we can maintain ourleading role in regionalhospitality.

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Marc Moudabber

Personality of the Issue

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Investors News

New Concept Creation of a Turnkey Project

Protocol finalized its latestturnkey concept which will beadded on its portfolio ofmodulated franchise projectswith a complete packageincluding the main project’sbusiness plan, drawings,perspectives, renderings andmaster plan as well as the veryessential operational manual.Protocol undertakes on behalf ofits franchisee all the constructionand development stages, staffrecruitment and training as wellas pre-opening and openingactivities in all areas.

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Management Solutions in Brief - Postures of Complaint HandlingDeveloping New Hospitality Product/Services

It is clear by now that the development of new product or service should start with customers’ needs and wantsand problems. It does not necessarily mean that finding new ideas comes from asking customers what they want.

When the bathroom amenities “war” started, no one asked customers what amenities they wanted; managementmade that decision. Since then, it is true; customers have been surveyed as to which ones they use. (Soap is themost frequently used bathroom amenity.)

When frequent traveler plans were developed, how often were customers asked what should be included? Howoften is the market asked what items it would like to see on a menu or how it would prefer the seating and lightingin a restaurant?

The point of all these questions is to emphasize that too many new hospitality products originate from the mind ofsomeone other than the customer – yet their purpose is usually to enhance the product, increase satisfaction, createand keep a customer, and generally to fulfill the customer’s needs and wants. With these objectives, the customershould be consulted more often. More and more companies are conducting consumer research.

No-smoking sections came from an obvious consumer problem. All-suite hotels came from consumers’ problems of where to stay on extended stays. Directories in hotel roomscame from problems of wanting information, and keyless door locks came from consumers’ problems with security.But mints on pillows, turndown service, and TV in bathrooms were ideas that originated from management.Products and services should be developed for the purpose of creating and keeping a customer and that, if you are in the new product development game, the best place to startis with customers needs.What Succeeds?

Hereafter are the factors most likely to be associated with successful new product(s):

• The ability to identify customers needs• Use of existing company know-how and resources• Development of new products in the company’s core markets• Measurement of performance during the development stage• Screening and testing of ideas before money is spent on development• Coordination between R&D and marketing• An organizational environment that encourages entrepreneurship and risk taking• Linking new product development to corporate goals

Successful new products very often come from the bottom up rather than the top down because it is the bottom line of employees that is closest to the customer.

Industrial Catering Business Structuring

Industrial Catering Business StructuringProtocol will undertake its third seminar on catering business structuring for offshore oil rigs andplatforms. A one of a kind seminar will be taking place in Abuja - Nigeria going in depth and indetails in this extremely demanding business.

For more imformation about our services, projects and all upcoming seminars Visit www.protocollb.com

Hospitality Management & Consultancy

Gedco Center - 3rd Floor - Hayek Roundabout

Sin El-Fil - Telefax 961 1 510016/7 P.O.Box 55-358 Beirut-Lebanon

E-mail: protocol@protocollb.com

MegaprojectsBeirut’s New LandmarkThe world renowned architect Jean Nouvel who is famous in the Arab world for his design of the Institute duMonde Arabe (IMA) in Paris has handed in the final blueprint for the Landmark project that will be costing$270 million, including the $60 million purchase of the land, the development of this mixed-use project willconsist of three buildings. The highest, 168 meters tower, containing 27 floors for a 5 stars luxury hotel (34,400m2), 15 floors of luxury apartments (16,300 m2), four commercial floors (20,400 m2), lobbies, services areasand a health club and spa. The 9 basement floors contain the entertainment center with cinemas (5,900 m2),and 8 underground parking levels (37,500 m2). a five-star hotel, furnished apartments for rent, luxuriousapartments for sale, an 18,000 square meter mall, a cinema complex that can accommodate up to 1,500people, an amusement center, a health club, a spa and a large underground parking lot. The total built-uparea of the future landmark will reach 120,000 square meters. The Landmark project is expected to createapproximately 500 new jobs.

The Landmark is a 75 percent Kuwaiti and 25 percent Lebanese owned company. The prime Kuwaitishareholders of Landmark are Hamad Al-Wazzan and Sheikha Souad Al-Homaidi and the Lebaneseshareholders are Ahmed Baadarani and Nassif Karam. expected to create approximately 500 new jobs.

The Landmark is a 75 percent Kuwaiti and 25 percent Lebanese owned company. The prime Kuwaitishareholders of Landmark are Hamad Al-Wazzan and Sheikha Souad Al-Homaidi and the Lebaneseshareholders are Ahmed Baadarani and Nassif Karam.

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