Shariah-compliant hotels rise in the Gulf

These specialised establishments, known as Shariah-compliant hotels, are run and operated on Islamic principles, which means they are alcohol-free, serve halal food, and provide a percentage of their profit to charity. For the time being these hotels are capitalizing on the Gulf's robust economy and the increasing purchasing power of Middle Eastern travellers.

However, because these hotels do not serve alcohol, they face potential challenges down the road as they try to compete with mainstream establishments.

A growing trend

One factor driving the growth of Shariah-compliant hotels is the increasing number of Arab and Muslim travellers and their growing purchasing power.

According to the World Tourism Organisation, Gulf travellers spend $12bn annually on leisure travel. Perhaps more importantly, leisure and business tourists from the Arab world spend 10-50 per cent more than the average traveller.

The emergence of Islamic financing has also given rise to Shariah-compliant hotels as these lenders often insist that the hotels they finance be in line with Islamic principles.

A few companies have sought to take the lead in this market by launching the first Shariah-compliant hotel chains. Dubai-based Almulla Group recently unveiled a Shariah-compliant brand portfolio that will consist of 30 properties by the end of next year.

By 2013, Almulla wants to have 150 properties worldwide − including 35 in Europe − and plans to spend over $2bn to reach its goal.

Meanwhile, Shaza Hotels, an alcohol-free luxury hotel joint venture between Kempinski Hotels and Guidance Financial Group, plans to have 30 hotels either under development or open in the region within 10 years. Its first hotel is set to open in Dubai within the next two years, in what will be an eight to 10-strong five-star hotel chain across the Middle East in the next three years.

Shazah Hotel's CEO Christopher Hartley said his hotel chain will 'celebrate the people, values, art and traditions of this culturally rich region.' He said the market response to Shaza's brand concept has been positive and is confident that Shaza will 'meet the aspirations of culturally discerning regional and international travellers, families and business groups'.

Niche market

Despite the growth of the Muslim traveler market, Shariah-compliant hotels are clearly aimed at a niche market, said Guy Wilkinson, a partner with Gloster Management Consultants, a Dubai-based hotel consultancy.

'By not serving alcohol you are definitely going to put off some western guests, and once you start narrowing down your potential market, you are going to face a challenge.'

So how difficult is it for these hotels to compete without alcohol revenue? 'Alcohol sales are immensely profitable and constitute a sizeable portion of revenue for many hotels in the region,' said David Lang, a senior consultant with TRI Hospitality Consulting.

'In our experience, international hotel management companies are reluctant to operate Shariah-compliant hotels as they are unwilling to accept the loss of revenues and they see the availability of alcohol to be an expectation of their guests.'

Wilkinson has seen cases where guests simply get up and walk out of a restaurant when they are told that the menu is dry. 'Not serving alcohol has a direct impact on the bottom line in terms of loss of alcohol revenues, but it also has an indirect impact by reducing the number of people who will want to eat at the hotel's restaurant and limiting the number of people who may wish to stay at the hotel,' he noted.

But Wilkinson was eager to clarify that although it is easy to stereotype the market for Shariah-compliant hotels as being Muslim-only, that is not the case.

There are dry hotels that market themselves as the best place to have company meetings or training because the lack of a hotel bar will make it more likely that attendees will 'keep their eye on the ball'. Others characterise themselves as being more tranquil and healthy than hotels that serve alcohol.

Meanwhile, some Shariah-compliant hotels are marketing themselves as a place to get a more 'authentic' Arab or Middle Eastern experience. These hotels often are lavishly decorated with Islamic art in hopes that their aesthetics and respect for the culture will help offset the lack of alcohol, he said.

Lang believes that Shariah-compliant hotels will clearly have appeal to many Middle East tourists. 'We consider there to be strong demand from certain segments of the Arab market - namely from conservative families who are interested in travelling, but are deterred by the alcohol and indulgence found in many upscale hotels.'

He sees no reason why Shariah-compliant hotels would not be able to succeed, as long as they are positioned in the right market. 'These hotels will be differentiated from the competition and appeal to a distinct market segment. If the market conditions are right, and demand in a particular location is strong enough, it is conceivable for a Shariah-compliant hotel to outperform other properties.'

Wilkinson believes that in the short term, Shariah-compliant hotels will be able to thrive due to the overall strength of the hospitality sector in the region.

'Right now, the hotel market in Dubai is so strong that you can probably open a hotel without a bar and not have a problem,' he said. 'The question will be how well these hotels will perform in a few years when more hotels are opened, demand gets softer, and guests have more flexibility in choosing a hotel.'

Wilkinson noted that there are many hotels without a bar or restaurant that turn a profit. Such hotels, known as a 'rooms only' operation, are cheaper to run because they have fewer staff. A lot of cheaper hotels fall into this category. Obviously, such hotels are not going to appeal everyone, so the key is attracting the tourists who are in that niche market.