This article first appeared in The Edge Malaysia Weekly on July 31, 2017 - August 6, 2017

BERJAYA Hotels & Resorts Sdn Bhd (BHR), the hospitality arm of the Berjaya Group, is preparing to launch a new chain of niche hotels that is expected to yield larger profit margins.

The first of these hotels, known as The Living Room (TLR), is slated to open by the end of next year. TLR’s concept is different from conventional hotels that place an emphasis on in-house restaurants, tiered room types and wide open spaces to project luxury.

That conventional approach is inefficient and wastes much space, says BHR CEO Hanley Chew, a hospitality veteran with over 25 years of experience. BHR is a unit of Berjaya Land Bhd (BLand).

“Conventional hotels with huge chandeliers, thick cupboards and high ceilings are probably not going to be there for too long … because the needs of guests today are very, very different,” Chew tells The Edge.

In contrast, TLR will focus on maximising the utilisation of space and offering guests more flexibility. Specifically, it will target a growing group of corporate travellers — especially millennials — who travel with their families.

According to Chew, there is a growing trend of companies encouraging their staff to bring their family along to promote work-life balance and family bonding. However, many are reluctant to do so as they would need to fork out their own money to pay for extra rooms.

“The [millennials] are not looking for very luxurious offerings but something very practical, convenient and flexible,” says Chew. “They do not want to be told that breakfast ends at 10 o’clock or that 12 o’clock is the check-out time.”

TLR will offer about 200 rooms of 25 sq m each, with identical layouts. Each room will come with a full-sized bed that becomes a table when folded, providing guests with more space. More importantly, each room will be able to accommodate four guests, thanks to a sofa that can be transformed into a double-decker bed.

Guests would also have the flexibility of checking in and out at any time of the day or night, says Chew.

He believes this segment is one that alternative hospitality service providers such as Airbnb cannot tap into as the latter is geared towards leisure travellers, not corporate travellers.

Other differentiating factors are TLR will not have the usual front desk, in-house food and beverage (F&B) operations and spacious lobby. Instead, BHR plans to have a Starbucks outlet at each hotel to function as a check-in spot, and guests will be given Starbucks credit to spend at the coffee house. Starbucks will also meet the catering needs of corporate events and meetings held in the hotels.

While a 25-sq-m hotel room may seem small, it is still more spacious than those in Hong Kong or Japan, which can be less than 18 sq m, Chew remarks.

He hopes to reignite innovation in the hotel industry, which he feels has stagnated for too long. “When land is scarce, this model will be very useful. It is particularly useful when integrated with retail or office lots or some kind of mixed-use development.”

Fatter margins

The first TLR hotel is currently being constructed in Johor Baru and will be integrated into a shopping mall, says Chew. Another is being planned for Kuala Lumpur. Chew targets to launch five in the coming three years.

Each hotel should cost about RM50 million, or roughly RM250,000 per key, to build, excluding land cost, he reveals. While BHR will not be aiming for specific star ratings, the accommodation will be benchmarked against four-star hotels in terms of furnishings and other materials.

The margins are expected to be fatter too. Chew says BHR is targeting an operating profit margin of 55% for TLR compared with 28% to 35% for a typical hotel.

“We can achieve this because we do not have an F&B component. At an average occupancy rate of 60% and median price of RM280 per room, we are looking at a bottom line of RM9 million to RM10 million.

“So, we are expecting a payback period of between five and six years, which no hotel in Asia can achieve. The typical payback period is between 12 and 15 years,” Chew remarks.

In terms of workforce, TLR is expected to have a staffing ratio of 0.8 per room, though it is looking to reduce that to 0.6 over time.

Chew plans to hire part-time workers — particularly non-working mothers who have idle hours between family commitments — and institute four-hour shifts, half the normal shift cycle in many hotels. TLR’s ideal mix of staff would be 60% core full-time staff and 40% part-timers.

When asked about the risk of a part-timer shortfall, Chew says the core 60% will be expected to carry the load.

“This 60% will be able to make all the beds. They will be trained to handle work in all areas of the hotel,” Chew says, adding that the staff will not be departmentalised.

Asset-light model

While BHR will own the first few TLR hotels, it is looking at an asset-light model whereby investors can participate in the concept.

“We will provide them with the concept, the technical services to build the hotels and the operation manuals. We could even manage the hotels for them,” says Chew.

To be clear, BHR intends to be in the driving seat in all its partnerships to ensure brand consistency. According to Chew, the management fees typically entail a 3% to 5% share of the top line, and up to 10% of the operating profit.

The first hotel is expected to start contributing to BHR’s earnings early in the financial year ending April 30, 2019 (FY2019). It is set to boost earnings for its hospitality segment and help mitigate an expected lukewarm outlook for BLand’s other businesses.

In FY2017, BLand returned to the black with a net profit of RM275.58 million from a net loss of RM270.64 million the year before. Revenue increased 1.5% year on year.

The largest earnings contributor to the group is its number forecast operation (NFO) segment via 40.05%-owned associate Berjaya Sports Toto Sdn Bhd. The segment accounts for 52.7% of its revenue and over 83% of its operating income last year. BLand is also involved in property development and motor retailing.

Last Friday, BLand rose one sen to close at 43.5 sen, giving the company a market capitalisation of RM2.17 billion. The counter is down 34% year to date.

BHR currently operates 20 hotels across seven countries.

Among its more recent hotels is the five-star Four Seasons Hotel and Hotel Residences Kyoto, which was launched last year. For the past six months, it has seen an average occupancy rate of 65% at a median price of US$1,000 per room per night. Chew says this is thanks to the occupancy rate staying in the 90% range in April and May when the cherry blossoms were blooming.

According to Chew, BHR plans to continue with the traditional hotel business while pushing its TLR brand. “We want to grow TLR as a Malaysian brand and we definitely want to export the brand overseas, possibly to Thailand, Singapore and Hong Kong [for a start].”

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