Saudi Arabia hotel boom prompts supply chain fears

Disruption to hotel development pipelines is expected in 2024, due to the unprecedented volume of construction in Saudi Arabia and a global logistics and supply industry not fully recovered from Covid-19.

Saudi Arabia currently has 42,033 hotel rooms under construction, more than any other country in the Middle East and Africa, according to STR.

“In 10 to 18 months, Saudi Arabia will have a requirement for so many materials,” said Alessandro Tedesco, CEO, FEBC, a global hospitality procurement management company. “If you consider that for hotels in Africa, we procure everything including concrete and whatever finishing elements that need to go into the building, most probably we’re going to face a supply problem. What’s happening in Saudi Arabia is in addition to all the developments around the world that have not stopped.”

To mitigate delays caused by shortages, Tedesco said that his company was negotiating advance guarantees with key global accounts.

Although the cost of container shipments has come down since the end of the pandemic, logistics companies are keeping their prices artificially high, noted Philip Halanen, head of sourcing & sustainability EMEA, Wyndham Hotels & Resorts: “And they will continue to do that in the short term because they need to recover some profit.”

However, Halanen noted that these problems should encourage the hotel industry to pursue ESG goals and: “try and shorten their supply chains and create more local sourcing where possible.”

During the pandemic, his company was unable to source anything from China. “It completely changed the way we went to market,” he said. “We completed a tender for bathroom amenities and our end solution is manufacturing and distribution from India for India and the Middle East, and the same in Turkey for Turkey and Europe. It’s been fantastic. We have shorter lead times and we got very good pricing.”  

Local sourcing

On the subject of local sourcing, there are many success stories in the hotel industry. Since 2009, Sandals Resorts International, for instance, has invested in technology and education for farming communities throughout the Caribbean.

Can hotels do more? China is the largest exporter of hotel soap, but would guests not prefer local soap and shampoo products?

Halanen commented: “Not only are you adding value from a supply chain perspective. You are adding local social value by engaging with suppliers around you, inputting into the local economy. You can get some marketing value from that. Make sure you are telling people that you are doing this because that will attract local people to come to your hotel.”

“You need to consider if the local supplier can do the value and the volumes you want. Are you giving them too much business and they’ve bitten off more than they can chew? So there’s obviously the right way to do it,” he added.

Local sourcing includes services as well as products, said Vincenzo Occhipinti, associate director, Tristan Capital Partners. In major cities where space is at a premium, it makes sense to create partnerships with the best local businesses, like gyms, for example, rather than wasting money on a sad gym in the hotel basement that no one wants to use.

“You don't double up on the resources and the investment. You start using your assets in a more intelligent way. And you create relationships, and they recommend you and it's networking,” he said.

The local sourcing network provides hotels with sales leads too, added Halanen. “I was talking to a colleague in our sales team and he said: ‘Give me your book of preferred suppliers. We've already got preferred rates with these suppliers. We can work with them and ask if they need corporate travel, meetings and events and more.’ It's about your immediate community.”

Returning to physical supplies, it is now normal for procurement contracts to stipulate that at least a percentage of goods are locally sourced. This is more challenging in some markets than others.

“I mean, if you look at what’s available in Saudi Arabia, it’s extremely limited,” said Tedesco.

All those quoted in the article appeared on stage at the International Hospitality Investment Forum held in Berlin between May 15 and 17, in a session called Procurement: How to Source Smarter