Nigeria's hospitality industry: A loser from consumer spending squeeze


Monday, February 22, 2016 08:54 AM /FBNQuest Research

Nigeria’s hospitality industry has been hit hard by the current macro challenges. We suspect that the hotel and restaurant segment in particular is experiencing these difficulties. The squeeze in consumer spending has forced households to revise their spending priorities.

As such, industry players are tasked with identifying innovative methods to retain and if possible increase their clientele. The recent inflation data released by the National Bureau of Statistics show that restaurant and hotel prices rose by 1.1% m/m in January (unchanged from the previous month). This component has a 1.2% weighting in the index.

The issues surrounding fx sourcing across the country have had a strain on the industry. For restaurants, imported goods contribute significantly to their cost of doing business. Many have been forced to revise their menu prices upwards.

At the end of the third quarter of 2015, food products accounted for 13.1% of sectoral utilisation of fx, compared to 14.6% recorded at the end of the previous quarter.

Generally, five-star hotels in Lagos charge room rates in US dollars. However, there is the option to pay in local currency. Based on our channel checks, the naira is trading at N270 to the dollar (36% higher than the official rate) at some of these luxury hotels.

Despite the current headwinds, the sector is still attracting investment from private equity firms. The construction of a four-star hotel (over 200 bedrooms) is currently underway by Mixta Hospitality & Retail (formerly ARM hospitality and retail fund). The hotel will be managed by Starwood, which is part of the Four Points by Sheraton brand.

In Q3 2015 the sector contracted by – 5.0% y/y. In spite of the general economic slowdown, the untapped potential in this industry is significant; this bodes well for investment in the longer term.

Related News