There are exciting times ahead for Saudi Arabia’s hoteliers.
Tourism and hospitality is central to Riyadh’s 2030 economic vision, which describes the kingdom’s underdeveloped tourism sector as a golden asset in the drive to create jobs for young Saudis, and in stimulating private sector investment in the country’s non-oil economy.
For the region’s hotel investors, there is no greater opportunity than that presented by Saudi Arabia.
“All our plans are in Saudi Arabia,” says Badr al-Badr, CEO of Riyadh-based Dur Hospitality. “We at Dur are believers in the Saudi Arabian economy, which is why we keep investing in Saudi Arabia and why we are not going outside.”
But while Vision 2030 sets out ambitious aspirations for Saudi tourism, it also demands deep-rooted changes in the way the Saudi economy works – changes that are raising many challenges for companies in the kingdom.
“If you look at the long-term objectives of Vision 2030, it is a summary of the new direction we are going,” says Al-Badr. “The 2030 vision is built on increasing foreign investment, on increasing domestic and religious tourism, and also local employment. All of these are factors that will enlarge business for us.
“But in the short term, we have austerity measures in place, the introduction of VAT, hospitality tax and expatriate fees,” he continues. “Business and consumer demand is down and visa costs are increasing.
“We must adapt to the new normal,” he says. “We are very keen to centralise, consolidating by brand, for example, cutting costs and being more efficient in using utilities, and having buildings that are efficient. For example, our Marriott hotel in Riyadh’s diplomatic quarter is LEED Gold rated.”
Few people are better placed than Al-Badr to assess the opportunities and challenges in the Saudi hospitality sector. With more than 20 properties in the kingdom, and a long list of new projects under development, Dur Hospitality is one of the country’s biggest and most influential home-grown hotel companies.
Established in 1976 as the Saudi Hotels & Resorts Company (Sharaco), Dur is one of very few local hotel firms that both owns and operates hospitality properties in the kingdom, operating hotels under its own brand, as well as under the Marriott brand. Today, the company has 14 subsidiaries operating in the country.
In the 42 years since it was established, Dur has developed a reputation as a pioneer in the kingdom’s hospitality sector. It was one of the first companies to introduce five-star hospitality services in the kingdom. And it has designed its own hospitality brand, Makarem Hotels, dedicated to accommodating pilgrims travelling to the holy cities of Mecca and Medina.
With digital disruption reshaping modern life, the firm is seeking to continue its tradition of innovation by digitalising its processes and services. “We have gone through phases of digitalisation,” Al-Badr says. “We are studying Big Data; we started with enterprise resource planning and human resources systems and are now moving to the cloud. The next area will be customer-facing technologies.
“But we need to do more,” he says. “The population is evolving and the young generation is more digitally engaged and has different expectations – their priorities have changed. They want wifi and streaming rather than plush solutions.”
The generational change is a constant theme throughout Al-Badr’s analysis of the Saudi hospitality sector, recurring in all areas of business. The most important of these is the area of creating employment for local young people.
“Right now, the dynamics are changing,” he says. “The government is giving no alternative but to focus on Saudis, which is good for the country. The government has made the expatriate labour market more expensive. That has made local workers more competitive. But we still need to train and retain like any other place.
“It is more difficult in Saudi Arabia than in other places. Our graduates are not used to part-time jobs flipping burgers. It will take time to adjust. We must try to explain about the advantage of part-time work, and encourage them to think of it as a good career move.”
Part of the government’s economic plan is to drive growth and job creation in Saudi Arabia’s less developed areas by stimulating investment in the country’s smaller cities.
Al-Badr says this policy presents good opportunities for the hospitality sector. Dur’s strategy is to focus on expanding its presence in Mecca and Medina and targeting promising cities such as Tabuk, Hofuf, Yanbu and Jubail.
“In 2014, we set our strategy to focus on the mid-tier market – three and four-star hotels – especially in Saudi Arabia’s secondary cities,” he says. “The markets we are targeting are undersupplied.”
Since the launch of Vision 2030 in April 2015, Saudi Arabia’s state-run sovereign wealth fund, the Public Investment Fund (PIF), has emerged as a key player in the delivery of major Vision 2030 projects such as the $500bn Neom city project, the Red Sea tourism project to develop 50 luxury islands, and Qidiya entertainment city.
Al-Badr says these projects are also creating new opportunities for Dur. “We are thinking about the PIF megaprojects,” he says. “One of our largest shareholders is PIF and they are represented on the board, so we see cooperation between us and them in these new projects. We seek a place, but the details are still being developed.”