{UAH} A TRAGIC HOTEL BUSINESS FAILURE. THE PEARL OF AFRICA HOTEL STORY.

A TRAGIC HOTEL BUSINESS FAILURE. THE PEARL OF AFRICA HOTEL STORY.

By Allan Atwiine | March 4, 2021.

Towering 24 stories high on 14 acres atop Nakasero hill, there stands an iconic piece of Kampala's skyline that offers amazing panoramic 360degree views of the city. Birthed as a concept to accommodate the 2007 CHOGM, this architectural grand marvel was initially meant to be Kampala Hilton Hotel. Amidst whispers and nothing like an official statement, it opened ten years late, not as Hilton but as Pearl of Africa Hotel.

With the opulence of its lobby that defined class, its outstanding ballroom, the restaurants that were to bring royal dining experience, infinity swimming pool, and the enormity of superb kitchens, it was hyped to be the pinnacle of the glamour of the country's hotel industry: the place where kings and queens, presidents and ambassadors, business icons, world-famous speakers, and rock stars would spend their time in Kampala. But almost four years since it opened, all the above seem like a dream that remained just that – a dream, with no hope of ever living up to its hype.

What went wrong?

Upon converting a vacant piece of land into a hotel asset, there is what is referred to as a development risk. All the setbacks that this hotel faced during the development phase (name change from Hilton, unmet deadlines, physical features like having no balconies, capital structuring etc.) were drums sounding doom, especially amidst high market expectations. They ultimately had a negative effect. Having succumbed to the development risk, their market entry strategy wasn't sufficient enough to shield it against the operational risk. With high fixed operating costs and low business, the asset has been unable to generate adequate cash flow to justify the investment.

Unable to generate cash flows that can catalyze an exit, and the asset depreciating at a fast rate (yet makes no economic sense to reinvest significantly in renovations) and the proprietors seemingly stuck on what next to do, Pearl of Africa faces an obsolescence/exit risk. Obsolescence is an incurable economic depreciation that has a considerable impact on the holding period returns of a hotel asset. It is a miracle if the exit turns out graceful.

It is sad that Pearl of Africa Hotel has already succumbed to the first two (development and operational) risks and will most likely succumb to the third (exit) risk. No other factor better exemplifies a more holistic approach to hotel performance evaluation than service excellence (the ability to consistently meet and exceed customers' expectations). This strong orientation towards guest satisfaction relies upon various efforts and strategies under a comprehensive service culture that seems to elude management at this hotel.

As the road to commercial viability proves to be taking much longer than initially anticipated, Pearl of Africa Hotel now risks standing as a statistic among the country's concrete modernist carcasses. Architecturally, the building is notable and marks out the ingenuity and idealism of the brains behind the concept. But management-wise, the hotel is a spectator in an industry it had initially set out to disrupt and transform. It is more than just a casualty of a changing industry and a business environment that is morphing with the times. They cannot blame external factors because they had significant untapped market potential and barriers to entry that they failed to capitalize on. Strategic problems seem to have been tackled through rigid means and now, gives the impression of a sad sealed destiny.

The key lesson for all of us is to learn to transform the way we view strategy, business models, and management innovation while avoiding complacency. But most importantly, as is with any investment, to improve our odds of success, we need to define the perimeters of our circle of competence and operate inside it. Over time, we can work to expand that circle but we should never fool ourselves about where that circle stands and we should never be afraid to say "I don't know." That is the only way one can be a successful hotelier, gain a comprehensive view of performance drivers, understand how their hotel's performance stacks up against the competition, and implement continuous improvement plans.

The writer can be reached at: allanatwiine@gmail.com

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Rehema
Patriot in Kampala,East Africa:Assalamu Alaikum

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