Dur Hospitality is ahead of its schedule to invest $400 million in 20 new hotels in Saudi Arabia. Formerly Saudi Hotels & Resorts Co (Sharaco), the company rebranded in 2014 and refocused its efforts to represent the epitome of Saudi hospitality. For example Makarem, its chain of spirituality-focused hotels, has been designed to help Hajj and Umra pilgrims get the most out of their experience in the holy cities of Makkah and Madinah. Dur Hospitality’s CEO Dr Badr al Badr explains the company’s rebranding, what constitutes quintessential Saudi hospitality, and the tourism opportunities in Saudi Arabia for foreign investors.
How important is diversification for the transformation of Saudi’s economy?
The need to diversify the economy has been raised and on the kingdom’s agenda for the last 20-25 years, being an integral part of several five-year economic plans. Yet it appears that the goals are yet to be met. And now, with the oil prices going lower, the need becomes higher to find other sources of income for the country. Probably the increased oil prices over the last few years didn’t put a big pressure on the diversification efforts. And with the current prices I think the efforts will be more serious now and it’s likely that we will achieve faster diversification this time around.
One of the sectors that have been identified with great potential for growth, and the one that concerns our company, is tourism and we, as a hospitality company, are one of the pillars of such growth. There are many reasons why tourism has been selected as key industry. First, it has the potential to generate employment growth. Secondly, we are a natural magnet for religious tourists due to the location of Makkah and Madinah. And thirdly, the immense business opportunities in the kingdom attract more and more business travelers. Saudi Arabia has a big population and is a vast country with different terrains, climates, and scenes, which make it also viable for domestic tourism.
From your experience, which are the most attractive areas within the hospitality sector that international investors could tap?
International investors are present in the form of international operators and international chains operating in Saudi Arabia. The growth has been huge in the past years, with investors continuing to invest in real estate as the kingdom improves regulations for land ownership. In the supporting areas, such as design or construction, many opportunities rise for foreigners. It is true that the construction volume will go down as the government adjusts its national budget, but if you see the overall numbers, in absolute terms, we have a flourishing and respectable on-going construction sector.
If you take Dur as an example, we are going forward with all our construction projects; nothing is going to be delayed or put on hold. We are benefiting from improved costs and better terms with contractors and suppliers. So to us this is a golden opportunity to complete our projects and provide better returns to our shareholders once the economy picks up.
A positive image about the country is always good for business and attracts investment. How do you think both private and public sectors can join their forces to communicate better, and how do you feel Dur is supporting the image of Saudi Arabia?
Dur Hospitality is a publicly listed company, and last June the authorities opened up the Saudi stock market to foreign investors, so I believe now Dur stands as an attractive target for them. We are strengthening our investor relations department making it more efficient and providing our key information to investors in several foreign languages. We intend to be present in the right places where investors are expected to be, and in consequence we will bring FDI into the country and generate growth.
In terms of the image of the country as a whole, I would say we play a small part, but our part is very important. We focus on providing the best service possible to our guests so that when they go back they will have the best memories of their visit. We have re-launched our brand, Makarem, improving the services for international travelers and being a key brand in Makkah and Madinah to host and support the pilgrims.
Visitors to Makkah and Madinah are expected to reach an average of 30 million by 2025, compared to 17.5 million in 2014. Could you tell us more about Makarem? What special services do you offer in this spiritual hospitality concept?
Makarem has been around for about the last 15-20 years under different names, but in 2013 we reviewed our strategy and decided to unify the brand focusing on the holy cities of Makkah and Madinah. We differentiate ourselves against other operators by supporting the whole journey and the total spiritual experience. A visitor who is coming to the kingdom to perform the Hajj and Umra is not a regular business traveler. The whole trip is a spiritual experience and international brands have a hard time understanding it, therefore are unable to cater the same way we do. We understand the needs and we add to that some spices, which is the Saudi touch, the Saudi hospitality. That’s something that the international brands that we compete with are unable to do.
International operators are very consistent in offering the same experience and quality in all markets, but the people who come to perform Hajj and Umra want to feel the country, they want to feel and discover the elements of the Saudi hospitality. So we integrate those elements, the local elements plus the spiritual elements in the mix to differentiate ourselves
The rebranding of the company to Dur Hospitality was made on November 2014, announcing a $400 million investment for the next seven years to increase the portfolio with 20 new hotels. What was the reason behind that re-branding?
Our company turns 40 this year. It’s one of the oldest listed companies in Saudi Arabia, definitely the first one in hospitality. As we reached a certain age it was wise of us to examine our past, our strengths, weaknesses, market opportunities, and see how to capitalize on them. We found some areas where we needed to stop investing and some other areas where it was mandatory to invest more. The new name, Dur, is a short Arabic word which is the plural of homes. We decided to focus on hospitality and compounds, which are all places to accommodate people, and that’s where the name comes in place.
The new name reflects our new strategies. We moved away and we shut down our operations in recreation, and anything else that does not fit into the hospitality sector or high-end compounds. We have announced a big investment plan of $400 million. Now, two years into execution, we are ahead of our schedule, and we feel we will be able to achieve the goal sooner than expected; even with the current economic conditions in the country, we will achieve the goal.
How important is it for Dur to keep attracting foreign operators? You have been working with Marriott since the beginning of your operations and you recently signed a successful agreement with Intercontinental. Is Dur looking to expand partnerships?
We believe in strategic relationships, that’s why we have decided to work within a few strategic relationships rather than to open up and be opportunistic. Each method has its advantage. Being opportunistic, you could go for each particular hotel or property and find the best operator and maybe get the best terms. But one of our brand values is trust and long-term relationships. We are a firm believer in the value of relationships; we have a 40-year-long relationship with Marriott that went through ups and downs in the economy, and even withstood different management in both companies. We are very proud of such a relationship and we’d like to continue to have these kinds of relationships, and that can only happen when you have a handful, not many. For that reason, we are focusing on these two relationships. We might start maybe one more, but are not looking currently into that, and if it happens it will be because we find a quality operator with the prospect of a long-term partnership.
One example of such partnerships would be the expansion of the Marriott hotel at Riyadh’s airport, recently signed with GACA. What impact will it have on the airport?
The aviation authority expects big growth in the number of visitors. They have not just expected the numbers but invested heavily in preparing for increasing passenger traffic. They are now building Terminal 5 and once they are done they will start renovations in the four old terminals to increase capacity.
So increased traveler traffic at the airport definitely opens up opportunities for support services. One of them is definitely hospitality and hotels. Right now we’re the only hotel in the airport area. We’ve been enjoying very high occupancy rates, which led us and the authority to look at expanding it. And that’s where the expansion idea was born. It’s a fast-track project; we hope to be able to open the doors of the expansion in two years.
You have targets of 35% Saudization for this year. How important is tourism for generating employment and how challenging can it be to find Saudis with the right skills?
Tourism is one of the sectors that has traditionally been a high employer. If you look at the number of employees per dollar of capital, you would find that tourism is on the higher side. For example, compared to oil and gas and some of the petrochemical manufacturing. So this made tourism as a natural area to employ Saudis. The government target for hospitality is 25%. We at Dur focus a lot and are a firm believer that our national workforce should be the ones, or a main component of the associates that serve our customers. Right now our Saudization is 33% reaching to 35%. This makes us one of the hospitality companies with higher Saudization ratios and we’re proud of that. And we’ll continue on that path.
This puts a big burden on the shoulders from the point of view of preparing the workforce. Modern hospitality is very recent in Saudi Arabia. Even though hospitality is part of our culture, it is not in an institutionalized form. Hospitality, meaning Bedouin hospitality, is part of our culture. When we see a visitor coming through town, we invite them to our house. We invite them for lunch, for dinner. And we really insist to the point of sometimes people are annoyed. But it’s part of the culture. But projecting that into a hotel environment and working in a hotel, that’s a transition that we need to make. I think if you make that transition successfully, then we can capitalize on this hospitality instinct that Saudis usually have and have them project it in their daily work in hospitality.
Right now Saudis, if you look at the distribution of the Saudi workforce, many of them go into government, many of them like to work in the military, many of them work in banks. So hospitality has not been naturally one of their first choices and we aim to change that to make hospitality more attractive.
In terms of including women in the workforce, do you think tourism can also be a magnet or an industry attractive for them?
That is one area of growth. In our company we hire ladies in different sectors in our hotels and even in the headquarters. Probably you might have met a few on your way in here. In hotels, they don’t work in all the different positions but they are very effective in event sales, event management, as telephone operators, in sales, marketing and finance. In the headquarters, we are proud to have ladies as engineers in the interior design, architects, plus other analysts, financial analysts and so on. We are one of the companies that firmly believe in the role that women can take to benefit the economy.
It’s also an area for us to improve our nationalization ratios. We have embarked on an experiment to use teleworkers, ladies as teleworkers, with the coordination of the Ministry of Labor. We are now evaluating the results of this experiment, but if this is to work then this is another area to expand. You know, the mobility of ladies here is low. For example, it’s difficult to employ a woman from one of the towns outside of Riyadh. Commuting in and out is difficult. There’s high unemployment in these towns outside Riyadh. If teleworking works nicely, then you could offer employment easily to those people. I’m sure you could find many eager ladies and probably even gentlemen in those cities that don’t want to relocate or commute but can be employed.
This year is the 40th anniversary of Dur: a long story in the kingdom. What is your vision for Dur, and how would you like Dur to be recognized abroad and in the kingdom?
Dur Hospitality is one of the pillars of hospitality in Saudi Arabia. We are an established name and one of the biggest institutions specialized in hotel development in Saudi Arabia, if not the biggest. So that’s how we compete. We are looking at innovative products to suit the Saudi market. We have not launched them yet but we definitely have a few we are studying. We feel that being successful in Saudi Arabia is to be mindful of the products that people appreciate and need. And they’re not necessarily the same products that you find in other markets. So we’re looking at either customizing or innovating new products for the Saudi market, whether in the living compounds or on the hospitality side.