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Top 5 things Phuket hotel developers should know

Bill Barnett

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by Bill Barnett from c9hotelworks.com

Taking a 2020 view of Phuket’s hotel development pipeline that has now surpassed 15,000 new keys it’s hard not to be apprehensive. From a macro standpoint, the destination’s airlift and location are key success factors.

But for the myriad cast of new and inexperienced hotel developers out there, perhaps a visit down Alice’s rabbit hole is necessary to see just how to measure success in a crowded playing field. Here is our Top 5:

Bed Factories

As beachfront land and ocean views disappear in an urbanising trend, hotel development is seeing an unprecedented push inland. Big, medium and small box properties are springing up in locations where owners only explanation for a hotel, is that they already owned the land. Typically, these hotels have limited views or curb appeal, are located away from key demand generators and are undisguisable in design and character. Hash tag them as vanilla.

These bed factories are totally geared on volume and tourism as a commodity. This set is the most influenced by market volatility and ultimately the only reaction to occupancy fluctuations is to drop rates, while relying on high-commission OTA’s (online travel agents) to dole out business. In a supply demand imbalance these hotels are most at risk. An industrial approach to tourism rarely works, as there are always other destinations who will undercut you on price. Avoid the factory syndrome if you can.

Having A Brand Is Not Enough

Common wisdom is that brands outperform independent hotels. In Phuket there are many striking examples of independents trading above their branded cohorts, but more telling is the bottom line. They call this the hotel business for a reason and only the bottom line goes to the bank. Certainly, bank lending requirements, and hotel residences are driving a strong amount of branding.

One key market impact is hotel consolidation of global chains, with ACCOR and Marriott properties being scattered across the island and again commoditization comes into play. When we analyse costs of chain management, reality bites when the total absolute cost including system fees, annual assessments, sales and marketing etc. often equate to 8-10% of revenue.

When hotels have scale, this works. When they do not, the bottom line suffers. Likewise, as we look at performance of the brands in Phuket, the reality is that well-managed hotels with key aspects and location win, while for others having the name game not an assurance of success given you are just one of many in playing field that is continually stretched. Brands in many cases are a good choice but it’s not always a given.

Top 5 things Phuket hotel developers should know | News by The Thaiger

One Size Does Not Fit All

I’m a lifelong hotelier and one thing I can assure you is generally speaking hospitality lags many other industries in terms of innovation and change. Hotel developers are slow to understand the dynamic change the smartphone and technology have created in opening up a new world to hotel guests. We have ubiquitous coffee shops which are filled to the brim at breakfast, and the rest of the day mimics one of those movies where aliens have taken all of earths inhabitants to outer space. Dead, empty space.

In Phuket with the thousands of spas, hotels still develop large resort spaces that remain empty for most of the day as guests march out the door with a smartphone in hand.

While hotel chains shout out brand standards and must haves, hotel owners have not taken a similar approach to real estate developers and measure returns in space efficiency. My best example is look at a full-service restaurant in a mall where an operator is paying expensive rent and look at operating efficiency and footprint and compare that to a hotel outlet which typically would have a larger space by 50-100%.

Hotel design, spaces and facilities have to come full circle as a business decision that caters to current and forward demand, and not just reciting the way things used to be done. Less can be more.

Sheep Syndrome (aka copy/paste)

Developer motivation is always an interesting case for hotels. Often times, inexperienced developers want to own a hotel as their friends have one too. They find an architect, look at other hotels nearby, perhaps check an online OTA to see what rates are being charged and that pretty much sums up their entire business development process. They follow their friends or their perceived market competitors just like a flock of sheep being led off a cliff into the surging ocean of hoteldom. Some will sink and some will swim.

All too often the process is not unlike the endless procession of Phuket tourist restaurants with the infamous taglines proclaiming Thai food, western food, seafood and of course pizza. The rationale of the business is to follow the mass, copy and paste, unwilling to ask the hard questions, develop an understanding of the market and commit or be bold enough to walk alone with a product that cannot be classified as ‘same same’.

Top 5 things Phuket hotel developers should know | News by The Thaiger

Don’t Be Afraid To Be Niche

As many destinations in the world have seen success with best in class innovative products, Phuket has seen its share of products that attract a wider international audience. Thanyapura with their wellness and sports offering and Twinpalms paired with Catch Beach Club are just two examples. Another emerging trend is complexed hotels with two brands and tiers with a single set of management and back of house.

In Bangkok the Erawan group has done two of these with more under development. Looking at the business model, operating profit is often 8-10% higher with economies of scale and development or investment cost 10-12% lower due to not replicating areas twice.

My final words on how to be a successful hospitality developer is doing exactly that. Take the lead, don’t expect your hotel operator, architect, muse or friend to magically direct you down Alice’s rabbit hole to success. Innovate, take risks and look to the future, not just the present and past. Teams need leadership as do successful businesses and after all that’s why we call it the hotel business.

Top 5 things Phuket hotel developers should know | News by The Thaiger

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Read more headlines, reports & breaking news in Phuket. Or catch up on your Thailand news.

Bill Barnett has over 30 years of experience in the Asian hospitality and property markets. He is considered to be a leading authority on real estate trends across Asia, and has sat at almost every seat around the hospitality and real estate table. Bill promotes industry insight through regular conference speaking engagements and is continually gathering market intelligence. Over the past few years he has released four books on Asian property topics.

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Business

PETA reveals ‘abused’ monkeys used to pick coconuts in Thailand

The Thaiger

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PHOTO: PETA

A boycott is in full swing amongst western retailers to pull Thai coconut products off their shelves following allegations that the coconuts have been picked by monkeys who were ‘abused’ to learn how to pick coconuts. People for the Ethical Treatment of Animals director, Elisa Allen, claims the macaque monkeys are “snatched from the wild” and cruelly trained to climb up coconut trees and pick up to 1,000 coconuts a day.

“These curious, highly intelligent animals are denied psychological stimulation, companionship, freedom, and everything else that would make their lives worth living, all so that they can be used to gather coconuts.”

PETA says that the Thai pigtailed macaques are treated like “coconut-picking machines”. A new investigation into Thailand’s coconut industry reveals the monkeys are confined to cramped cages, chained, and forced to work. PETA reports that the monkeys are used by commercial farms that supply 2 of Thailand’s best-known coconut milk brands, Aroy-D and Chaokoh. Both brands are exported EU countries and the US.

In the UK, Waitrose, Ocado, Co-op and Boots have now announced they will stop selling some coconut products from Thailand. A spokesperson for Tesco told the BBC… “Our own-brand coconut milk and coconut water does not use monkey labour in its production and we don’t sell any of the branded products identified by PETA”.

“Following PETA’s Asia’s investigation, more than 15,000 stores will no longer purchase these brands’ products, with the majority also no longer buying any coconut products sourced from Thailand monkey labour.”

PETA has shared a video narrated by Downton Abbey star Peter Egan. According to PETA, the video shows ‘monkeys pacing and circling endlessly on chains… confined to cramped cages with no shelter from the rain… forced to climb trees and pick coconuts for milk sold by major brands’.

PETE claims it had found 8 farms in Thailand where monkeys were forced to pick coconuts for export around the world. Male monkeys can pick up to 1,000 coconuts in a day. It’s thought that a human can pick about 80.

“Other coconut-growing regions, including Brazil, Colombia and Hawaii, harvest coconuts using humane methods such as tractor-mounted hydraulic elevators, willing human tree-climbers, rope or platform systems, or ladders, or they plant dwarf coconut trees.”

The group said it has uncovered “monkey schools”, where the macaque species monkeys are trained to pick coconuts, fruit, as well as ride bikes or play basketball for the entertainment of tourists.

“The animals at these facilities, many of whom are illegally captured as babies, displayed stereotypic behaviour indicative of extreme stress.”

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Crime

Prohibition activist criticises unequal enforcement of Thai alcohol laws

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Prohibition activist criticises unequal enforcement of Thai alcohol laws | The Thaiger
PHOTO: The Thaiger

The head of the prohibitionist Alcohol Watch Network is criticising the Office of Alcohol Beverage Control and police for looking the other way after ML Piyapas Bhirombhakdi posted a photo of herself showing off a branded bottle of an alcoholic drink on her Instagram profile (the picture has since been deleted). Piyapas is not only a great-granddaughter of HRH Prince Nares Varariddhi, a son of HM King Rama IV, but is the wife of Chutinant Bhirombhakdi, an heir to the Boon Rawd Brewery fortune and executive vice president of Singha Corp. Her post showed her holding a new Boon Rawd product.

Kamron Choodecha argues that the bottle and brand were clearly visible and, given that Piyapas has a vested interest in Boon Rawd’s sales, her post must be construed as sales or marketing, violating the Alcohol Beverage Control Act, which prohibits any sort of alcohol marketing online. He claims the fact she has not been fined, even as police extract hundreds of thousands of baht in fines from ordinary people posting harmless photos of themselves enjoying alcoholic beverages, shows the inequality in Thai society and the privilege elites are given when it comes to the law.

Others may argue, however, that the hypocrisy of the incident illustrates only how ludicrous the law is. Sporadically enforced over the years, the law again made headlines this year when foreign-managed alcohol distributor Beervana was fined 50,000 baht for an online post describing one of its products as “refreshing,” which contravened a ban on adjectives in marketing copy.

In the days that followed reports surfaced across the country of the OABC and police summoning people and slapping them with huge fines for posts that had no connection to sales or marketing.

Most recently, a young woman in Thailand’s South was fined 17,000 baht for posting a photo of a beer she liked to a beer fan page. The page owner was so outraged that he paid 5,000 baht of the fine and met face to face with regulators to protest the law.

Even Kamron, an anti-alcohol zealot, admits that the law is being misused by police and authorities. He says simply using the word “beer” or posting photos of bottles or glasses does not break the law, as long as brands are not shown. He believes the law’s intent is only to prevent advertising of alcoholic beverages on conventional and social media platforms. He argues that if the poster had no commercial intent, no one should be fined.

“But if authorities are going to strictly interpret the law, distant royal relatives or any other elite member of society should be punished equally.”

By the way there is an alcohol ban on for the next two days.

2 Buddhist holidays, Asahna Bucha Day and the start of Buddhist Lent, fall this weekend, and as a result the government has added Monday, July 6, as a national holiday. There will be an alcohol ban on the Sunday (July 5) and Monday (July 6). No alcohol will be sold or served on these days.

Prohibition activist criticises unequal enforcement of Thai alcohol laws | News by The Thaiger

PHOTO: Nation Thailand

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Coronavirus (Covid-19)

Bangkok’s shopping malls struggle under tourist ban, fierce competition

Jack Burton

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Bangkok’s shopping malls struggle under tourist ban, fierce competition | The Thaiger
PHOTO: Nerdnomads

Suvarnabhumi, the name of Bangkok’s second international airport, means “realm of gold,” and was given by His Majesty the late King Rama IX to Bangkok’s eastern outskirts (technically in Samut Prakhan province), once a marshland called Nong Nguhao (Cobra Swamp). With its overtones of wealth, the name represents the hopes of developers, who are turning the area into a retail battlefield.

The problem is oversupply. In late June, multitudes of of shoppers eager for a new experience after weeks of Covid-19 lockdown came to the grand opening of Siam Premium Outlets Bangkok, a brand new mall less than 10 kilometres east of the airport, the main gateway to Southeast Asia’s second largest economy.

The mood was festive for the debut of the massive project, a collaborative effort by Thai mall operator Siam Piwat and US conglomerate Simon Property Group. The joint venture invested 4 billion baht to accommodate an anticipated 10,000 visitors per day in the mall’s 50,000 square metres of floor space.

Siam Piwat Simon’s managing director says “Premium outlet is a retail trend that still has potential to grow”. He believes that growth will reinforce Thailand as one of the world’s most popular tourism destinations. But given the effects of the Covid-19 pandemic, it’s hard to imagine a tougher time to open a mall. The foreign tourists whose spending would normally ensure the success of a new shopping complex are being kept out as the government still bans most international arrivals.

When tourists do return, their numbers and mobility may be limited, and competition among major retailers around Suvarnabhumi will enter a new, more intense chapter. Rivalries between central Bangkok’s many malls and those emerging around the airport will also heat up. There’s plenty of shopping for bored travellers waiting for flights inside the main airport as well.

Some analysts predict the “new normal”, requiring social distancing and limiting customer numbers that could result in significant shrinkage in physical store offerings. The head of retail advisory and transaction services at CBRE Thailand says retailers’ rental space requirement may be reduced by 20 – 40% from the levels before the pandemic. Still, nearly 1.3 million square metres of new retail space is expected in Bangkok by the end of 2023 – more than 25 times the size of Siam Premium Outlets Bangkok. That many commercial facilities opening in a span of just 3½ years is sure to add plenty of new challenges to the retail landscape. According to a spokesman for the Thai Retailers’ Association…

“Premium outlets are business in an upward trend, while duty-free shops are the opposite. In the future, there will be no tax because of free trade agreements. And tourist behaviour is changing. They don’t want to pay a lot of money for short-lifecycle goods. They would buy more goods from premium outlets rather than duty-free shops, where goods are more expensive.”

Thailand has been benefitting from growing overseas tourism, led by the Chinese with their formidable purchasing power, which was booming until the pandemic. According to a report by the World Tourism Organisation, in 2018 the kingdom was the ninth most visited country by tourists in the world, and second after China in Asia. Thailand’s visitors in 2019 were close to 40 million.

Bangkok's shopping malls struggle under tourist ban, fierce competition | News by The Thaiger

The turf war near Suvarnabhumi is essentially an extension of the fierce retail competition in central Bangkok, where retailers are also highly dependent on overseas visitors. Siam Piwat introduced mega mall Iconsiam on the east bank of Chao Phraya river, as a joint project with Thailand’s largest conglomerate CP Group and its property arm Magnolia Quality Development, in November 2018. Siam Piwat co-owns Siam Paragon with another retailer, The Mall Group, which also developed Emporium and EmQuartier department stores. Central Group, including Central Pattana, runs Central World and Central Chidlom.

More projects are in the pipeline. Magnolia Quality Development is working on one called The Forestias, scheduled to be completed by 2023. The US$4 billion (124 billion baht) project is on track to be the largest property investment in the kingdom’s history.

Whether in Bangkok proper or near Suvarnabhumi Airport, all major retail complexes have one thing in common: they’re counting the days until the foreign tourist inflow returns. The Tourism Authority of Thailand came up with a plan to promote domestic tourism packages to mitigate the impact from the lack of overseas travellers, but Thais’ spending power is limited compared to that of foreign tourists.

Although the coronavirus situation in the kingdom is well in hand, the risk of a second wave has the world on edge, even as some countries such as the US and Brazil struggle to rein in their first wave. The outlook for Thailand’s big bet on the return of inbound demand is fraught with uncertainty. The “Realm of Gold” that welcomes travellers may not be quite so precious for some time to come.

Bangkok's shopping malls struggle under tourist ban, fierce competition | News by The Thaiger

SOURCE: Nikkei Asian Review

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