EAHQ Issue 6, April 2016

E A HQ April 2016 | Edition 06

The Best Luxury Services are Customised, not Standardised!

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elcome to the 6th Edition of the EAHQ. In this edition I would like to share with you some thoughts on a very topical subject for the 5 star hotel industry in Dubai, the concept of luxury service. In my most recent Harvard Business Review article I argue that many any of us are familiar with the debate on whether the hotel industry should provide customised or standardised services to our consumers. There are many arguments both for and against standardisation but at Dorchester Collection we feel that when it comes to providing luxury experiences the best services are those that are customised. Let’s look at the following scenario: You check into your $1,000-a-night luxury suite. Your bathroom is lovely, stocked with shampoo, body wash, lotions, soaps. Your towels are plush, plentiful, neatly folded. This is great. But where’s the hair spray? You have a meeting in an hour. You need hair spray. You call the front desk. The front desk says, “We sell that in the gift shop, madame.”

That’s not good enough. Why isn’t there hair spray in your bathroom?

It’s not there because: a) it most likely wasn’t on the mystery shopper checklist from a ratings agency — such as AAA or Forbes Travel Guide – engaged by the hotel company to help it guarantee the consistency of its service, and b) the hotel has neither developed nor leveraged customer data at a level of granularity required to know that you are 1) a woman and 2) in town on business.

To do that, the hotel needs to know you on a much deeper level by leveraging data and turning that data into information it can use to deliver a customized experience.

It can’t rely on a checklist.

Mystery shopper checklists are used not only in the hospitality industry, but also in automobile, restaurant, and retail businesses, among others. Businesses design standard processes to make sure they get good ratings by

Angela Anthonisz, Editor Rohit Srivatsa, Research Associate

checking all the boxes on the agencies’ lists. These ratings are then used by company marketing departments to impress customers, thereby driving volume and revenue.

These ratings cannot be ignored. Get a bad one, and your competition will use it to sell against you.

However, trying to provide luxury service by implementing standardized processes that will ensure compliance, with checklists designed by third parties that do not know your business as you do, will inevitably fail to address individual customer needs. These kinds of checklists address the fundamentals of good service — but meeting the requirements of the ratings agencies with standardized processes will inevitably disappoint the individual that you, as a luxury business, most need.

Catering to the individual is what defines luxury; in the luxury segment, it is the critical competitive differentiator.

The challenge for any business seeking to deliver a luxury experience is to be knowledgeable enough to go beyond the standard, to have hair spray for the person who needs it whether or not it’s on a checklist.

It’s not easy, and it may not be appropriate for businesses catering to a mass audience. However, it is the challenge that Dorchester Collection has set for itself as a luxury service company, and as global director of guest experience and innovation for our iconic hotels, it’s my challenge.

Ana Brant, Director of Global Guest Experience & Innovation for the London-based, Dorchester Collection.

In this Edition WELCOME MESSAGE

BY ANA BRANT IN FOCUS: INDIA HITS THE NO.1 SPOT ECONOMIC OUTLOOK INNOVATION, INNOVATION, INNOVATION! IS DUBAI READY FOR A MICHELIN GUIDE? VAT - IMPLICATIONS FOR THE HOTEL INDUSTRY IN THE UAE MEGA PROJECTS IN THE UAE

April 2016 | Edition 6

In Focus: India hits the no. 1 Spot

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n 2015 Dubai received 14.2 million overnight visitors showing a rise of 7.5% compared to 2014. This is above the WTO global average of 4% per annum. In the top source markets the surprise for 2015 was the growth in the Indian market. 1.6 million visitors came from India, overtaking both the UK at 1.2 million and Saudi Arabia at 1.56 million, to become the largest source market for the first time ever.

India was the second fastest growing inbound tourist market overall with a 26% y-o-y increase. Pakistan also came in the top 5 source markets, accounting for 513,000 visitor arrivals, an increase of 11% compared to 2014. The 2015 figures have helped to offset the negative trends in the consolidated Russia, CIS and Eastern European region which showed a drop in travelers of 22.5% (DTCM).

The growth in Indian visitors can in part be attributed to the volatility of the market with global currency fluctuations impacting on many key source markets for Dubai but it is also a reflection of the booming outbound tourist numbers from India which are predicted to grow to a value of US$40 billion globally by 2020. This was consolidated by last years visit to the UAE of the Indian prime minister and by the increasing growth in trade between the two countries. While Dubai does not yet appear in the top 20 destinations for the Indian traveler the DTCM is keen to leverage the connections with India, via advertising, MICE events, the imminent opening of Dubai Parks and Resorts’ Bollywood Park and the growth in budget hotels.

A recent article in the Economic Times highlighted that efforts to communicate highly segment-specific messaging in cities with the highest connectivity and latent capacity, as well as building stronger trade ties in markets with digital travel intermediaries, have yielded results and will continue to enable Dubai to capture a share of the growing Indian upper middle-class family and business segments.

Economic Outlook

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n a macro scale the year 2015 was one of the worst in recent times for the GCC economies. Falling oil prices, the draining of liquidity and the slowdown in the Chinese economy are all risks that need to be factored into the economic picture as the year progresses. With so many global uncertainties it is not surprising that many companies are thinking short term and are holding back on investments but this does not allow countries to build future prosperity and break the existing mood of pessimism that seems to prevail at the moment.

The IMF has again cut the UAE’s growth forecast for this year as collapsing oil prices, a worsening Chinese economy and looming regional public spending cuts impact on growth. The UAE’s economy will grow at 2.6% this year which is down by 0.5% on last years projection of 3.1%. For the hotel industry the latest STR figures in US Dollars for Q1 of 2016 highlight the economic downturn across the Middle East as a whole. Overall occupancy is down by 5.3% on the same time last year with ADR and RevPAR down by 10.5% and 15.3% respectively.

Figure 1 - Bottom five markets in the GCC region

Both Dubai and Abu Dhabi are suffering during the downturn with Abu Dhabi falling into the bottom 5 markets in terms of RevPAR percentage change (See Figure 1). Other Emirates in the region such as Ras al Khaimah and Fujairah on the other hand continue to demonstrate slow but steady growth which is largely attributed to strong leisure demand from UAE residents and emerging markets such as India.

While the initial start to the year for Dubai has not been in line with previous expectations average occupancy was 82.5% with ADR and RevPAR at $227 and $187.22 respectively. Dubai also led the pack in the 2016 Guest Experience rankings for the MENA region. (Colliers International 2016)

Angela Anthonisz, Editor Rohit Srivatsa, Research Associate

April 2016 | Edition 6

Innovation, Innovation, Innovation!

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he hotel industry in Dubai is dynamic, diverse and becoming more and more difficult to negotiate as competition increases, hotel offerings expand and consumer preferences shift. Additional pressures such as technological advances, price discounting and new distribution channels are changing the competitive landscape in which we operate and innovation and the development of an entrepreneurial mindset are increasingly being championed as a way to cope with these changes.

2015 was the year of innovation in Dubai with a number of government initiatives aimed at building and fostering an entrepreneurial ecosystem that will allow Dubai to become the preferred place to live and work by 2021. For the hotel industry, which has historically been criticized for lacking innovation, this is a unique opportunity to integrate innovation into the firms’ strategy and to move away from the ‘copy paste’ attitude which seems to be the dominant approach to business development across the industry.

Innovation is generally conceived as the creation of value for the customer which can be achieved by creating new combinations of resources.

Innovation is not necessarily about radical new ideas or developing robotic staff with artificial intelligence as they have done in Japan. It can be about more incremental measures such as developing new processes, new products, new services and new business models. The trick in many cases is knowing how to convert an idea into a service or product that the consumer wants and then figure out how to commercialise it. We are probably all familiar with the Starwood ‘Heavenly Bed’ which was developed as an ‘all white’ product range consisting of pillows, linen, mattress toppers etc.

This was not a radical product innovation but the successful marketing and promotions campaign that followed was. Inviting commuters at New York’s Grand Central Station to try out one of the twenty beds lined up on the platform is a sure fire way to get the customers attention, especially when this is teamed up with similar stunts across multiple locations.

Studies on fostering innovation appear to indicate that success is an outcome of developing an innovation-orientation framework that is driven by management and articulated through the company mission and vision. It requires decentralized decision making processes, excellent communication and a focus on learning. Developing a culture of innovation is about encouraging employees and managers to challenge old ideas by instilling a commitment to continuous learning and strategic change.

Sadly the consolidation and standardized operations of many hotels serve only to stifle the potential of hotel innovations, and where innovation does exist it tends to be relegated to small project teams, rather than in the development of an organizational culture. Innovation is not a quick fix – it involves major investment, long term decision making, and time, but when integrated into a company strategy it is likely to yield a competitive advantage that is hard to ‘copy paste’!

Angela Anthonisz, Editor Rohit Srivatsa, Research Associate

Is Dubai ready for a Michelin Guide?

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n 2015 EAHQ reported on several food related trends including growth of the gastro tourist and the rapid increase in F & B outlets across the UAE, and particularly in Dubai. Since then it has been impossible to miss the growth in Michelin starred restaurants opening across the city with several big names hitting the media including •Greg Malouf’s Clé at DIFC with a contemporary take on Middle Easter cuisine; •Gary Rhodes with Rhodes W1 at Grosvenor House, Dubai Marina, described as ‘quintessentially British’; •Pierre Gagnaire’s Reflets par Pierre Gagnaire at the Intercontinental, Festival City showcasing French cuisine; •and Vikas Khanna’s Junoon at the Shangri La Hotel on Sheik Zayed Road which is an Indian restaurant concept that first showcased in New York in 2010.

The list of celebrity chefs from Michelin starred restaurants opening in the region is of course, much longer and has prompted many to question whether Dubai is ready for its own edition of the Michelin guide. With Michelin’s sponsorship of the Global Restaurant Investment Forum in 2016 it may not be too long before the question becomes a reality but will this have a positive impact on the reputation of Dubai as a destination and is Dubai ready to be included?

The value of Michelin stars has, over the years been called into question by a number of chefs including the likes of Marco Pierre White who famously gave his stars back in 1999 on the basis that he was being judged by people with less culinary knowledge than himself and that it is not fine dining, but casual dining experiences that consumers are looking for. Colin Clague, the Executive Chef of Jean-Georges, Dubai recently expressed a similar sentiment in terms of the fact that many diners in Dubai are not looking for fine dining experiences. Michelin has also been criticized in terms of reliability in countries outside of Europe and also in lacking understanding of food concepts that are not French in origin. An article in the Khaleej Times at the end of 2015 pointed out that there are no Indian restaurants in the world with more than 1 star.

However, the benefits of being awarded 1, 2 or possibly even 3 Michelin stars in many instances has a significant impact on a restaurant’s reputation and also its ability to charge a premium price for its menu. By implication, the reputation for Dubai as a culinary city would also be enhanced which would be in line with DTCM’s aim of positioning Dubai as a gastro tourist hotspot. With new guides launching in locations such as Singapore and Seoul in South Korea it may only be a matter of time before we see a Michelin guide for Dubai.

April 2016 | Edition 6

VAT - Implications for the Hotel Industry in the UAE

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ollowing the recent drop in oil prices the government has made its first ever proposal to introduce direct taxation. With effect from January 2018, the UAE government is expected to implement a 5% Value Added Tax on a number of items including food and possibly health and education. During the first year of implementation this is expected to generate up to AED 12 billion in tax revenues, which according to the International Monetary Fund could raise revenues equivalent to as much as 2% of GDP. Many companies have expressed concerns that the introduction of VAT will limit visitor spending power or may influence tourists to choose cheaper alternatives or even cancel their visit if VAT is added to their costs. An article in Hotelier Middle East commented that this may only be a short-term perspective and that 5% VAT will have a negligible impact on the behaviour of consumers. In order to maintain demand, hotels will need to be more judicial in terms of their pricing and will need to decide on how they will absorb the VAT in their pricing structure.

But it isn’t just a question of deciding whether or not to pass this tax on to the consumer. The ramifications are a little more complex than that given that it is estimated that businesses will need 12-18 months to prepare and be ready for VAT. Systems will need to be in place to incorporate VAT, property management systems need to be equipped to charge VAT and will also have to ensure that the suppliers to the hotels are also VAT registered and get all the certifications. The organisational mind-set will need to change in order to adapt to the new changes and a lot of data will need to be captured internally with VAT impacting on procurement, payments and agreement terms.

While the introduction of VAT may provide a major boost for government revenues, one of the selling points for Dubai is that it is a tax free haven and the knock on effect for the hotel industry may be less positive given existing concerns about rising prices and the increasing cost of living. Imposing VAT will impact on both local residents and tourists in terms of placing additional constraints on levels of disposable income. This comes at a time when the hotel industry is already suffering from declining ADR and RevPAR and has added to concerns that VAT will be followed by the introduction of income tax and corporate tax as the UAE attempts to diversify its revenues and strengthen its fiscal systems.

Angela Anthonisz, Editor Rohit Srivatsa, Research Associate

Mega Projects in the UAE

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ere is this edition’s update on the latest UAE mega projects planned and already under construction New Tower by Emaar to surpass Burj Khalifa Emaar has recently announced plans to build a tower that will stand a “notch” taller than the world’s tallest skyscraper, The Burj Khalifa. At a cost of $ 1 billion Emaar said it would like to present the tower as a “gift to the city before 2020”, the year Dubai hosts the world Expo trading fair. The tower will have observation decks, in addition to 18 to 20 mixed-use floors that will host restaurants and a boutique hotel.

The World’s first ‘7-star airport’ now open in Dubai As part of the Emirate’s Expo 2020 plan, the newly built VIP Terminal at Dubai South’s Aviation District marked the beginning of operations with its first flight departure. The 5,600 m2 stand-alone terminal, which will operate 24 hours a day, 7 days a week, is located midway between Dubai and Abu Dhabi. Equipped with the finest luxurious interiors, the terminal will feature top-of-the-range facilities and lounges, as well as specialty services for VIP guests. The VIP terminal will not only serve to bridge a definite gap in the market but will also redefine standards of success in the aviation industry, worldwide.

Jabal Jais mountain to be home to the first five-star camp in the region The country’s highest mountain peak at 1910 metres above sea level is frequented by local residents and expats over the weekend, throughout the year. An adventure park is being built in the Jais mountain range like a Via Ferrata and will be the first of the three developments and will be uncovered sometime in April. The second development will be a five-star camp in the mountains and there is no such camp in the region. The third development will be a viewing deck which overlooks the port and sea.

The viewing deck will also have a few food and beverage offerings, with a picnic area.

DWC Airport Expansion A major expansion plan has been announced at Al Maktoum International Airport. The deal which was signed will see the airport increase passenger numbers to 26.5 million by the year 2025. The first stage of the agreement will increase the passenger terminal building to 145,926 sqm. and is expected to be completed by June 2017. the expansion is aimed at increasing capacity and significantly enriching the airport experience, it will become an attractive proposition for airlines as well as passengers. It will also feature a new immigration hall for 55 control counters.

April 2016 | Edition 6