A FEASIBILITY STUDY ON CREATING A LUXURY HOTEL BRAND THAT MEETS THE NEEDS OF ALL GUESTS IN NAIROBI-
KENYA
BY
A RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF SHMS-LEYSIN MSc 182 IN PARTIAL FULFILLMENT FOR THE REQUIREMENT FOR THE AWARD OF DEGREE OF MASTER OF SCIENCE IN INTERNATIONAL HOSPITALITY MANAGEMENT
AUGUST 2019
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In recent years, the number of tourists has grown rapidly in the Kenyan capital city, and with this increase in tourists there has been an increase in the number of hotels too. Nairobi is a province located in the central region of Kenya and is Kenya's fastest growing economy, with its main revenue generated from the tourism and hospitality industries. This growth provides an environment for the lodging business to flourish in the region. There is a needs to examine if the proposed hotel concept is suitable for the site and market, and if it will be financially profitable for investors. Additionally, there is a need to consider if a luxury hotel would be more successful than other types of Hotels, such as the Hilton.
This piece of work contains a feasibility study for a hotel project in Nairobi Kenya. It aims to evaluate whether the implementation of a Luxury hotel Brand in Nairobi would be feasible. The proposed project shall be positioned in the upscale market of Nairobi for a moderate price. The reason for the evaluation of the planned hotel project is the exorbitant price policy of Kenya's hotel supply and the lack of quality accommodations. The study is based on secondary data, which was collected from sources, such as views from a number of hotel managers in Nairobi giving their opinions on the state of the hotel industry in the country. The feasibility study elaborates a market analysis that comprises the macroeconomic environment of Kenya and the Kenyan hotel industry, as well as the microeconomic environment where the Luxury hotel shall be implemented. A competitive analysis of the hotel supply, as well as a financial forecast shall elaborate whether the project should be established and what should be considered during the setting up and during the management phase of the hotel. Regarding the financial forecast and the evaluation of the market analysis, the construction of a luxury hotel brand in Nairobi Kenya is highly recommended.
Table of Contents
Kenya has recently stood out as one of the most prevalent tourist destination in Africa. This is particularly as a result of its value for money, reduced cost of living, low travelling expenses and the availability affordable hotel. The biggest number of tourists that usually visit Kenya are usually from Britain, the Unites States of America, China, and Middle East countries (Ayodo, 2015). The lodging industry in particular has an important role as far as spearheading the overall Kenyan economy. For instance, it is estimated that between 2012 and 2016 the total number hotels within Nairobi had increased with 20% (Bondarenko, Isaeva, Orekhov, & Soltakhanov, 2017). Alternatively, the average number of tourists from foreign countries in Kenya is also reported to have increased by 15% between the years 2012 to 2018 (Gikutha, 2017). At the end of the year 2017, it was established that only 19100 rooms within Nairobi recorded an increase in room booking and even a number of guests had to go to other towns for the hotel services.
This tremendous growth in the recent years is equally due to good infrastructure like expanded airports in the country and better road network that allows smooth movement of tourists in the country (Burke & Hanley, 2009). According to Career Point Kenya (2018) such favourable economy gives way for chances for upcoming developers to set up new tourism services and products to counter expanding needs. A part from the fact that there is an increase in tourism globally in the recent years, Enz and Siguaw (2000) narrates that sooner, consumer demand may be surpassed by hotel supply. Therefore, areas like the airline industry, restaurants, and hotels are known to have fixed inventory supplies which require knowledgeable management especially in a seasonal demand that is usually unpredictable. Thus, facilities such as meeting spaces, seats, and hotel rooms are in most cases perishable in that in incidences that the rooms are not fully booked, it is hard for the hotel to produce revenue that can cover for the maintenance in addition to other costs that support the daily running of the hotel (Gicobi, 2016).
The business sector in Kenya has been experiencing dynamic changes in all the critical sectors hospitality being one of them. Thus, several issues have come up to redefine the way business activities are being handled across the globe (Schwisow, 2018). In that case, business plan, proposals, and business development models accommodate the contemporary factors in order to gain a competitive advantage (Sebestova, 2013). Alternatively, technological advancement, changes in the business environment as well as changes in consumer preferences have formed the basis for different competitive advantage. In essence, most of these facts keep on changing with time making the business world to be redefined every day (Jaffe, Newell and Stavins, 2003). Additionally, competition for market share in the service industry is growing from time to time (Burke and Hanley, 2009).
That said, the hospitality industry has been among the business entities being challenged by changes in business structure and consumer satisfaction or customer preferences. The business environment has also been changing from time to time demanding organization to restructure their operations to fit with the changing factors (Holjevac, Marković and Raspor, n.d.). Therefore the industry has put this consideration as an essential measure to increase the competitive advantage. Therefore, the gap realized in consumer satisfaction would formulate the basis for the development of a strategic model which seeks to increase the workability of a hotel or an accommodation facility (Dominici and Palumbo, 2013).
Deciding to invest in a luxury hotel brand in Nairobi will probably turn out to be a lifetime investment. Tourists take Kenya in great consideration when they have to choose a destination for their holydays; in particular, the demand for luxury hotels had an increase of 50% in the last 5 years. Nairobi has not been an international touristic destination in the past two decades. This is probably why it was able to maintain its integrity and its beauty (Nzioka & Njuguna, 2017). In addition, the characteristics of its countryside are quite similar to the internationally well-known countryside of Mombasa and Kisumu, this is a factor that could be positively exploited in a marketing campaign.
The visitors of the Nairobi define it as "A charming location with a park which instils alluring, mystery and seduction" and "unforgettable" (Siboe, 2017). This reviews were given even though the structure has not been operating at its full potential, as only a small area of the park is open to the public and some relevant facilities, such as a restaurant and a swimming pool, are still missing. Moreover, a large part of the basement, which includes places of great historical interest, and which encloses the old-fashioned essence of the Nairobi, is closed to the visitors (Okello & Novelli, 2014). An additional possibility is offered by the beautiful hills in the immediate surroundings, as a project for constructing a golf camp has been submitted few years ago. Permissions have been already granted, but the project has not been implemented yet due to the lack of capital (Kangthe, 2014). Therefore, this could also be considered as a possible future investment.
Positive externalities are defined as spill-over benefits to third parties not involved in the economic transaction that produce them. The opening of the discussed business, that could attract new tourists and spread the voice of the existence and beauty of Nairobi, would be really good for the local businesses and the whole region (Pavione, Pezzetti & Dall'ava, 2016). The development of a luxury hotel brand is expected to create a variety of external benefits, some of which are briefly discussed in the following sections.
Relying on the above information, this paper seeks to assess the current gap in the hospitality industry in Nairobi-Kenya. Among the gaps that the paper will assess include the knowledge gap which entails understanding of the expectations that the customers have in comparison to the services that the hotel is offering. Secondly, the paper will assess the delivery gap which is will express the difference between the set delivery policies as compared to the actual services in the hospitality industry (Perry, 2014). Thirdly, the consumer gap, which as the name insinuates focuses on the consumer's perception and expectations in relation to services offered. The primary focus will be on luxury hotel brands in Nairobi and its essence in the market (Siboe, 2017). The gaps in this brand will give an insight on their need in the market as a remedy to fulfil customer preferences. The study also seeks to give an insight on relevant attributes needed for the establishment of luxury hotel brand in Nairobi.
This study seeks to analyze the characteristics of the hospitality industry in Kenya to give insight on the establishment of a Luxury hotel brand in Nairobi-Kenya. The study also seeks to gain a better understanding of the competitive advantages that there is in the hospitality industry when it comes to the provision of services to the consumers. Through this, the paper will provide adequate information to managers and investors who are in the hospitality industry in the country.
Luxury services, travel and tourism, hotels, food and services, recreation services and events are some of the features of the hospitality industry that we intent to undertake after establishing a hotel brand in Nairobi Kenya.
Although a country may be experiencing a rampant growth in numbers of tourist, the destination may act as a demotivating factor as it fails to meet the satisfaction factors of the tourists (Wadawi, 2011). This has been attributed by a number of factors which include the increased terror attacks that swept the country between the years of 2015 and 2016. In this case, therefore, Nairobi as the significant destination point for the tourists needs to redefine its structure to meet the contemporary needs of the tourists and other guests (Siboe, 2017). Intrinsically, the accommodation and conferencing facilities in Kenya have been experiencing significant development, but the standards are yet to meet the demand due to limited luxury facilities in the city (Ndiba and Mbugua, 2018).
Branding, as well as the improvement of quality, is among the essential features to be considered in the study. In the same respect, demands for these facilities will be of great importance since they will give insight regarding the gap in the market. Therefore, the study will seek to answer the following ideal objectives as well as adhering to its aim.
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a) To analyze the relationship between luxury hotel brands and how it achieves consumer satisfaction to their clients.
b) To assess qualitative data collected through interviews on their understanding of the consumer wants and needs collected from 5 star luxury hotel brand managers.
c) To evaluate the need for a luxury facility in the hospitality industry in Kenya and how competitive advantage can be achieved in the business environment.
Assess the demand for luxury accommodation facilities in Nairobi by evaluating the wants and needs of the consumers and the market demand by using the porters five forces model.
The study is essential due to the contribution of the hospitality industry in the creation of employment opportunities and the improvement of economic status (Career Point Kenya, 2018). In this respect, an insight raised regarding the market would be essential in pointing out various areas to be considered in investing within the hospitality industry which includes the establishment of luxury hotel brands. The study will also offer an insight to the hoteliers and seeking investors which allow them to re-evaluate strategically regarding essential aspects that define the contemporary hospitality industry (Wainainah, 2018).
The study will aid service providers to understand the essence of consumer behaviors and features that are essential in controlling these behaviors to increase competitive advantage (Siboe, 2017). The essence also is to develop an understanding of consumer's needs which will be incorporated by the identification of gaps in the market regarding luxury hotel brands in Nairobi. The finding of this study will also help in the identification and formulation of relevant policies to guide the service provision competitively (Hotelcluster.com, 2013).
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