The rise of the middle market

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Crawford: “absolutely and unquestionably the demand is there”.

Hotelier Middle East talks to Premier Inn managing director Darroch Crawford about the company's big plans to roll out budget accommodation properties across the Middle East.

What are the plans for Premier Inn across the Middle East?

We are extremely ambitious. Premier Inn is the dominant brand in this sector in the UK by a huge margin, and our aim is to become the dominant brand in every market that we enter.

Our business plan predicts 30 hotels in the region by 2012, and more than 70 hotels by 2016. That covers the whole of the region from Turkey to Oman.

What key locations are you looking at for Premier Inn across the region?

Our key target areas are the GCC countries, starting with the United Arab Emirates, but quickly moving into Saudi Arabia and Turkey in a big way. We are very keen also to develop in Oman, Qatar, Bahrain and Kuwait.

We are looking at all the primary and secondary cities in those countries. We don't just look at the major cities, we will be going into the smaller ones as well. And in fact in the UAE we are close to concluding negotiations for sites in Ras Al Khaimah and Fujairah.

Within each of those cities where do you want to build?

Finding affordable sites to build is a big challenge - it's one of our biggest challenges. For this reason we tend not to be in the city centres, we tend to be on the outskirts of cities, perhaps on a major motorway or near the airport. But where we can find land to make it work in the city centre, we will.

The brand is very well represented in the centre of London, for example, so if it can be done there it can certainly be done here.

What are we going to see from Premier Inn in the short term?

Our first hotel opens in March at Dubai Investment Park, and then we have a rush of properties opening in early 2009. They are predominantly in the UAE, in Dubai, Abu Dhabi, and Ras Al Khaimah, but also in Oman, Saudi Arabia and Turkey.

What is the attraction of developing budget hotels?

Well, budget hotels is what we do, of course, but there are two reasons why Emirates has entered into this joint venture with Premier Inn.

I believe that Dubai in particular is currently losing events because of the lack of affordable accommodation, and from Emirates' point of view, for it to achieve its growth target, it believes Dubai needs to attract a much wider customer base than it currently does.

The potential market for visitors to Dubai within a two or three hour travelling distance is enormous, and Dubai is only really scratching the surface of that potential at the moment.

The second reason is that budget hotels offer an extremely good return on investment, because they tend to be much more efficient to build and operate.

From a guest perspective do you see the demand is there?

Absolutely and unquestionably the demand is there. We were at the Business Travel Show in Dubai just over a week ago, and we were overwhelmed with the level of interest from the corporate sector in particular, particularly when they saw the quality of rooms we were offering for as low as AED 450 (US $122).

Are you making any changes between the UK Premier Inn product and your planned Middle East-based properties?

The Premier Inn room in the GCC will be larger than that which we have in the UK, at 24m2. It's about 10% bigger.

There will also be additional features such as a laptop and valuables safe, a refrigerator, and bathrooms will have baths, showers and bidets. We will also be providing a swimming pool in almost every location.

What sort of guests do you expect to see booking the properties?

The brand is primarily aimed at the commercial market, however the value for money is such that we attract a huge number of leisure customers too. And in fact, the business mix in the UK is almost 50% business, 50% leisure.

I wouldn't be surprised [if that pattern were repeated in the Middle East], we do expect it to be more popular with international travellers, but it wouldn't surprise me at all - the value for money factor speaks for itself.

I think another factor is that each of our properties here will have very high quality outlets, and Costa Coffee, and there will be a number of high quality restaurants. I think this will really set us apart from our competition.

What sort of return on investment do you expect to see?

Premier Inn is in this for the long term, and we have a very good policy of value for money pricing. For example, when there are major events on in Dubai, our maximum price in the first year will be AED 650 ($177). What we want to do is build more rooms rather than raise the rates that we charge - and I think that is something new for this market.

Corporate customers are telling me that they are absolutely fed up with paying double the normal corporate rate when there are events on. I think budget hotels will be good for Dubai as well as good for the investor.

The other thing that we are doing that is different is that our ideal business model is to buy freehold land where we can build and operate our hotels. We don't franchise the brand, and ideally we avoid management contracts. We only undertake management contracts when we have no other way of operating.

Where have you got the capital from to develop these properties? Have you had outside investment?

Those parent companies, such as Emirates and Premier Inn, are cash rich, but we have arranged some funding through local banks.

It makes commercial business sense to borrow to fund some of the construction, but we are not looking for investors.

Which other companies or brands do you see as being your major competitors?

[InterContinental Hotels Group's] Express by Holiday Inn, Centro by Rotana - while they are not an international brands yet, I think their local heritage will give them a big advantage in this market place - and to some extent Ibis [by Accor].

Will easyHotels be a competitor?

I don't think they would count themselves as a competitor. We are not competing with them, we have a completely different room product. Essentially, we are offering a four-star room product to guests at a two-star price.

What will your rates go be for the initial opening at Dubai Investment Park?

Our initial rate will be AED 450 ($122), inclusive of taxes and services, rising up to a maximum of AED 650 ($177) during major events. We expect to be extremely busy.

We don't yet have rates for our other locations, but it will be similar. In prime locations such as opposite the airport, it will be slightly more, but it won't be significantly more.

With the properties being developed as a joint venture between Emirates and Whitbread, how are you going to leverage the close relationship with Emirates to your advantage?

Obviously it is a big advantage to have Emirates' interest in the business, clearly they have a lot of influence locally and they have been extremely supportive in helping us with recruitment, training, and in the not too distant future, marketing.

We hope to take advantage of the huge Emirates marketing machine to market our hotels both in the UAE and internationally.

Finally, what do you see as the potential for the budget sector in the regional hotel market?

In the west, the budget sector is often in excess of 30% of the available market or room supply, and it will be a long time before the limited services sector achieves that level in this market - and it may never reach that level.

But it could easily get 10%, which is a huge number of rooms.

With the majority of supply coming in at the top end of the market, I'm pleased to be doing something very different. I've no concerns about our business plan in the future, given the unique nature of our offer.

And I am also very confident in the vision of Dubai becoming a reality. I think Dubai could become one of the key centres in the world for tourism, sport, healthcare and business, within a very short space of time.

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