Starting a Hospitality Business In Nigeria? Here is what you need to know

By Adenike Adeyemi | 6 min read
30th November 2017
Starting a Hospitality Business In Nigeria? Here is what you need to know

The hospitality industry typically refers to businesses that provide  lodging/accommodation, tourism, entertainment and event planning. Businesses such as Hotels, Restaurants, Theme Parks, Game Centers, Tour Companies, Travel Agencies, Amusement Parks, Play Centers etc all fall within this space.

Given the service orientation of the industry and also the ability to serve a very wide clientele range across various demographic levels, a large number of micro, small and medium enterprises (MSMEs) in Nigeria play in the space. According to the National Bureau of Statistics MSME Study (2013), about 10% of Micro Businesses in Nigeria[1] fall within this space and at the time of the study, the businesses reviewed employed about 15% of the labour force accounted for. In a lot of the commercial centers in cities such as Lagos, Accra, Abuja, Port Harcourt, Ibadan, Kaduna, Enugu, etc, one is bound to see a lot of these businesses. 

According to Jumia Travel's 2017 Report and Outlook for Nigeria, the Hospitality Industry contributed about 4.8% to Nigeria's Gross Domestic Product in 2016. This is largely attributed to several new entrants within the space using technology as a driver for their business model.  Given the focus of this Bank & Entrepreneur edition on Millennials in the Hospitality space, I thought to share a few important tips to guide anyone looking to start and grow a successful business within this space.

It all starts and ends with data: From the numbers around the market, competition, industry trends to customer behaviours and trends, data is very critical in the hospitality space. For a hotel idea, the Entrepreneur needs to be clear about his/her target market and the type of Hotel style and structure that will be suitable for them. The Entrepreneur needs to know their target market inside out to enable the business meet their customer needs while also having the ability to quickly adapt to changes. This can only be efficiently possible with good data collection and analysis tools. For a new business concept, one of the very important steps to be carried out is a feasibility study particularly if physical locations are central to your business.

The feasibility study if well prepared will help guide you in considering the viability of your proposed hospitality business in relation to market, location, costs and financing. It will provide a good foundation to your roll out plans and also help to show your investors how they will receive a return on their investment (ROI). I would not advice anyone to proceed with the business plans without carrying out this important and illuminative first step.  

Customers are the Heartbeat of Your Business: This is one industry where the "Customer is King" rule strongly applies in determining the growth or death of the business.  Most of the customers in this space use their disposable income and spare time to make product/service purchase decisions and they usually want to know it is well spent. The businesses are also significantly dependent on repeat business and/ or place strong positive referrals that will encourage anyone to be a new customer. Since the customers do not lack options regarding hotels, restaurants, event places, tour companies etc , any business has to either come in by filling a large gap that currently exists with existing players in the space, improving the level of standards and services that already exist or convince them to try a different option that they will fall for. This is also where data and information is very important. You cannot react to customer needs if you do not have a way of monitoring customer trends within your business and industry; quickly understand what the implication of these trends are; and how to quickly adapt and change your business and operating model to effectively address the issues. Another important advice is to map your critical customer touch points and ensure that they are very well enabled to fully address customer needs as required.

Your People Are Your Brand: One of the particular sensitivities around this business particularly within an environment like Nigeria is that the type of employees you have especially the customer facing ones also significantly affect how you get and keep customers. Apart from those technology businesses in the sector such as the online reservation ones which require more technically skilled personnel to build and maintain their platforms, most businesses within this space rely on lower skilled staff in the daily course of work. There is a high turnover rate in this space as most employees take the jobs just as a way to make ends meet and not necessarily for career opportunities within the space.  

An important step when looking for people to join your team is to conduct personality assessment to ensure that personality profiles of the staff are in line with the requirements for the role. It is also important to explore pre-training and continuous on the job training regarding the peculiarities of the job. Some institutions to consider are the National Institute of Hospitality and Tourism, Abuja and the West Africa Vocational Education (WAVE) Academy. The latter is a social enterprise that provides screening, training, placement and continuous education for talent specifically for the hospitality industry. Having good management team is also very important. Depending on the size of the business and the clientele coverage, most Entrepreneurs who want to be hands-on with the operations start off with full-time management of the day to day operations and then gradually transition to capable hands as they start to grow and scale.

Permits and Licensing: One important thing you need to factor is the regulatory approvals you would require for your type of business in this space. The regulatory permits and licensing requirements are usually a lot and also expensive. After the required company/business registration with the Corporate Affairs Commission (CAC), you would need to register with the Nigerian Tourism Development Commission (NTDC)  if your business provides lodging and tourism services. Apart from being regulatory requirement, registering with the NTDC gives the advantage of having your hotel listed in their official tourism guide.

Also, there are state licensing requirements that are met to be obtained. E.g operators of hospitality and tourism businesses in Lagos are required to obtain licenses from the Lagos State Ministry of Tourism, Arts and Culture. These are also separate from the liquor licenses required for those who have establishments set up to sell Alcohol. One other important requirement for a lot of hospitality businesses is the need for insurance which is usually not a cheap cost item.

Count Your Infrastructural and Capital Costs: There are a number of startup costs associated with starting a new hospitality venture. When developing your business model, take time to critically assess your key cost elements. Apart from the licenses and approvals already mentioned, additional costs include the construction and fitting of the physical space, initial stock of inventory (e.g. food), marketing and branding, professional fees (e.g. from advisers, lawyers and accountants), insurance, hospitality management software, point of sale software and hardware and working capital. Other running costs to be considered include suppliers, salary, rent, license renewals, tax payments and periodic repairs and maintenance. While startup cost is usually a very significant outlay, an important advice given by Impos Startup Hospitality guide is "to be careful not to erode your reserve capital in the beginning by splashing out to buy everything brand new. Instead, invest strategically in the elements most likely to draw in customers (quality food and good customer service) and upgrade on aesthetics when you're more established."

Technology should be your friend: According to the Jumia 2017 Outlook report earlier referenced, the following are key trends that will shape the Hospitality in 2017; availability of recreational facilities, 24-hour reservation/online booking service, social media ease, renovation/facility management and ease of travel. We are in the third quarter of the year and can see that these forecast have become the reality of the business. Any Entrepreneur who wants to succeed in the space has to ensure that from the revenue generation and collection, to reservations and customer management, technology has to be an enabler in the business. Technology allows continuous communication and streamlines the guest experience, from reservation to checkout. Good customer reviews are also crucial to new business generation online particularly as most new customers often use previous customer reviews and experience as deciding factors in paying for a service.

A strong brand presence online is definitely a must. For many hospitality businesses and locations, the customer experience starts long before a traveler arrives--it begins with the first visit to the website or social media pages, when a person sees photos of the location and gets a sense of what to expect. In the hospitality and tourism business, effective use of Internet technologies can improve revenue. Booking engines to allow easy access by consumers and travel professionals; the systems enable individuals to make reservations and compare prices. Presence on platforms such as hotels.ng definitely helps in this regard. Customers also like to be informed about key changes, status updates and any other important matters regarding their travel information so it helps to have a variety of voice, data and web platforms such as texts, emails, phone calls and posts to regularly keep your customers informed. 

The hospitality space isn't an easy industry to crack. With so much of everything, the consumer is often confused with what is on offer. Coming into such a sector with a new product is anything but easy as people already know what they like and what they want. But with a great product, a solid and affable team, and research and experience in the market, you can provide a product and service that has its place in the Nigerian economy. All the set about launching your hospitality business.

This article was originally published in the October 2017 Edition of the Bank & Entrepreneur Africa Magazine, a Numeris Media publication 

Reference:

[1] Micro Enterprises are businesses with asset (excluding lands and buildings) values of less than N5,000,000 (Five Million naira) and employing less than 10 people. 



Adenike Adeyemi
Adenike is passionate about designing and implementing strategies, programmes and policies that foster entrepreneurship and high growth enterprises in Nigeria. As the head of Nigeria's foremost enterprise development non-profit, she leads the fulfilment of FATE Foundation's mission to enable aspiring and emerging Nigerian entrepreneurs start, grow and scale their businesses.
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