October 4, 2023

From Sand Dunes to Skylines: Saudi Arabia Leading the Hospitality Pack in the Middle East and Africa

The Saudi Arabian hospitality market is experiencing a profound evolution, marked by remarkable growth and transformation. This dynamic landscape is underpinned by ambitious initiatives, notably Vision 2030, aimed at diversifying the economy and positioning Saudi Arabia as a global tourism and business hub. In this exploration of the Saudi Arabian hospitality market, we uncover a landscape teeming with potential, driven by strategic projects, surging tourism, and a proliferation of new hotels.

Billions Invested, Thousands of Rooms Added

The Saudi Arabian hospitality sector has undergone a dramatic transformation in the last five years, spurred by an influx of religious pilgrims and ambitious development projects. Spearheaded by the Public Investment Fund of Saudi Arabia, initiatives like Qiddiya, The Red Sea Development, Amaala, NEOM, Al Ula, and Wadi Al Disah have been instrumental. These endeavors, aligned with Vision 2030, envision the creation of 310,000 rooms at a cost of $110 billion. The surge in religious and leisure travel has paved the way for compelling investment opportunities, resulting in a wave of new hotels across major urban centers. Global hospitality brands have played a pivotal role, introducing over 20 new hotels through direct branding and strategic collaborations. These ventures have collectively added more than 8,200 rooms across diverse market segments. Notably, Jeddah has emerged as a standout city, boasting the highest average daily revenue value globally at USD 284. Moreover, Makkah, Riyadh, and Dammam/Al Khobar secured positions in the top 10 locations for highest average daily revenue in 2018, further underlining the region's appeal for potential investors.

Saudi Arabia's Hotel Boom Sparks Supply Chain Challenges

The year 2024 is poised to witness disruptions in the hotel development pipeline, attributed to extensive construction activities in Saudi Arabia and persistent challenges in the global logistics and supply chain post-Covid-19. Saudi Arabia leads the way with a staggering 42,033 hotel rooms currently under construction, surpassing all Middle Eastern and African countries. Alessandro Tedesco, CEO of FEBC, anticipates a surge in demand for materials in Saudi Arabia, potentially straining the global supply chain.

Navigating Supply Chain Disruptions: Lessons from Wyndham Hotels & Resorts

To counter potential shortages, Tedesco's company is proactively engaging in negotiations for advance guarantees with key global accounts. Although the cost of container shipments has seen a reduction post-pandemic, logistics companies are maintaining elevated prices to recuperate profits, notes Philip Halanen, head of sourcing & sustainability EMEA at Wyndham Hotels & Resorts. He advocates that these challenges should propel the hotel industry towards Environmental, Social, and Governance (ESG) goals, while also emphasizing the need for local sourcing to streamline supply chains.

Amid the pandemic, Wyndham Hotels & Resorts successfully transitioned sourcing operations from China to India and Turkey. This strategic move resulted in shorter lead times and heightened cost-competitiveness. The concept of local sourcing extends beyond products to services, where partnerships with local businesses can optimize resource allocation and generate valuable networking opportunities.

Philip Halanen underscores the multifaceted benefits of engaging with local suppliers, not just from a supply chain perspective, but also for social impact, contributing to the local economy and drawing in local patrons to hotels. Nevertheless, it's imperative to conduct a thorough assessment of whether a local supplier can meet the required volume and quality standards without being overwhelmed.

In terms of procurement contracts, it has become customary to specify that a percentage of goods should be locally sourced, although this can be more challenging in certain markets, such as Saudi Arabia, where local availability is limited.