Surviving in Nairobi’s competitive hotel industry

Kenya’s tourism industry has in recent years been handicapped by a wave of terror attacks and the resultant rising insecurity in the East Africa nation. At the coast where tourism activities are concentrated, more than 40 hotels have shut down temporarily and some 28,000 workers laid off.

The Heron Portico hotel

The Heron Portico hotel

Those tourist hotels still open have downsized their operations and slashed their rates.

But in contrast, hotels in the capital Nairobi continue to thrive and new investments are being made by local and foreign investors.

“While holiday tourism has taken a huge hit, business tourism continues to grow because of the potential for business growth. So what is driving our hotel sector now is business tourism,” says Karim Teja, managing director of The Heron Portico hotel, a Nairobi-based four-star business hotel established in 1975.

Teja adds international firms setting up, and the country’s elite and emerging middle class are contributing to rising demand for accommodation and hotel services.

“One has only got to take a look at the increasing number of cars on our roads. They are being purchased and driven by the growing middle class, and that just points to further business growth in Kenya. You may not see the Nairobi middle class stay in city hotel rooms, but they certainly use hotel facilities. For example, growth in conferencing and restaurants has been tremendous.”

A number of internationally branded hotels have opened in Nairobi in recent years and more are in the pipeline. Mid-range hotels targeted at business travellers who don’t want to spend too much money are also increasing. Teja says there is heightened competition in the industry and players risk losing business if they don’t up their game.

“There is going to be significant overcapacity, and it will have implications,” he says.

Fight back, or close shop

The Heron Portico hotel, for instance, was set up 40 years ago, but faced “huge reputation issues” a decade ago. “We fell by the wayside, lost vision and converted to an accommodation shop – a room with no frills – and now we’re reverting back to being a hotel,” says Teja.

In 2012 the family-run hotel brought in a professional hotel management company, Sarovar Hotels & Resorts from India, to help reposition itself in the market and improve the guest experience.

“We made that decision after much consideration and evaluating what we stood to lose. We could see the big number of hotels coming into this market. With that kind of competition, either you are going to shut shop or you’re going to fight and compete. I think it has been a good move for the hotel.”

Trip Advisor now ranks The Heron Portico number 16 out of 124 hotels in Nairobi.

Earlier this year The Heron Portico acquired the 56-room Zehneria Hotel in Nairobi for a reported $10.5m.

“This is the other consequence of what’s happening with all these new hotels coming in. A significant number of existing hotels will either close, convert to offices, or be sold to people who do want to run them or change what they do,” predicts Teja.

But after 40 years of running a single hotel, he says having a second operation “is testing the water”.

“It’s a good thing the hotels are now being professionally managed. As a family business there is a tendency to manage what you can and therefore don’t take advantage of opportunities. Whereas if you are more of a corporate type person you have to meet budgets, you have to look at growth.

“I think risk-taking ability is sometimes diminished within family concerns whereas corporate-run operations are looking for avenues for growth and the next area in which to invest in to create further wealth.”

Teja has been involved in his family’s business for 18 years and says he has “seen it all”. The industry has been through many trying times including the 1998 US Embassy bombing in Nairobi, the 2007/08 post-election violence, and global economic meltdown.

“There was a time following a terror attack where we went from having bookings for three months solid to just four people staying in the hotel. It was the first time in our history we had to lay off our people, and that was very painful.”

“I have learned if something can go wrong, it will. You need to plan and keep your overheads as flexible and as easy as possible. Cash management is also key. We are probably going to have a few more surprises in the years to come. I hope not, but we’ve got to be prepared for it.”

Despite the many hurdles Teja concludes his family stayed put with the hotel business because it is potentially “lucrative”, and they have built decades of experience in it.

“It’s a challenging industry. It’s a stimulating industry. It’s a fun industry. And there is a market for our services.”