Luis and Carmen Riu — Tourism's game-changers

ON the final day of a hectic investment promotion mission in Spain, a senior JAMPRO official is tying up a few loose ends with an executive from one of the country's large hotel groups.

The jaunty Spaniard is regaling the Jamaican visitor with stories and insights into the interesting personalities and intertwining alliances that form the fabric of Spain's unique travel trade.

The conversation inevitably turns to RIU.

The shock wave unleashed when Spain's third largest hotel began planting its flag on Jamaican soil was still reverberating throughout the industry, and was an irresistible conversation piece whenever two or more individuals from within tourism circles sat down for lunch.

"After Luis Riu built his first hotel in Jamaica, we asked him, 'so how is it going down there Luis'?" the hotelier lets on. "Luis told us he was only doing a favour to the Jamaican government who had invited him to invest in the country."

The ears of Michael McMorris, the JAMPRO executive director of market, perked up, in anticipation of a memorable climax to this Spanish gem.

"When the second hotel was built," the Spaniard continues sotto voce, and slightly leaning forward for effect, "we asked Luis again to tell us about Jamaica."

The response was again, purposefully coy: "He told us that he was building a second one only because he had built the first, and now realised that he needed critical mass to survive in Jamaica.

"But when we saw the third going up, we did not bother to ask any more questions; we knew that something good must be happening down there, so we packed our bags and headed straight to Jamaica to see for ourselves what was going on."

Luis was taking care not to alert the industry - and stir the infamous Spanish herd instinct - to the fact that he had discovered a goldmine in Jamaica, before his hotel was able to secure a formidable head-start on the competition.

Between 2000 and 2009, he and his elder sister Carmen, with whom he co-chairs the 100-strong hotel chain, pumped US$429 million of their company's money into Jamaica -- erecting four imposing beachfront properties, and creating, almost overnight, the island's largest resort.

Those who have taken note of the pace and scope of the industry-wide expansion during this decade, can have little doubt that the value of the seminal investment has reached much deeper than the 2,257 rooms that RIU by itself has committed on Jamaica's soil.

By all account, this family from Majorca, a small town in southern Spain, can rightly take credit as the harbinger of the unprecedented wave of hotel development that is still taking place on the island's north coast.

"When JAMPRO flooded the market with news about RIU buying a third property in Jamaica, the floodgates opened and we were finally able to get the owners of all the major chains to visit Jamaica and begin to talk seriously about not getting left behind," says McMorris.

By themselves, RIU's Jamaica statistics are quite impressive. This hotel alone accounts for 10.3 per cent of the country's gross room stock, and 11.5 per cent of the rooms that are currently available to potential guests -- 22,823 and 20,550 respectively. Its average annual room occupancy of between 70 and 75 per cent is significantly above the 59 per cent average recorded by the industry last year. Currently, there are 1,868 individuals on its payroll, 98 per cent of them Jamaicans, placing it among the economy's largest employers of labour. Indirect employment and business opportunities are created for hundreds more.

So when the investments of the other four groups that followed this pioneer to Jamaica are factored into the equation, it should not be surprising that a very dramatic picture emerges of the impact that Carmen and Luis have had in shaping the island's tourism industry, and, ultimately, the overall economy.

Not only did RIU provide the magnetic pull for the four Spanish chains, it also created a commercial and operational template that has at its core, critical mass at a single location, which they all faithfully applied to full effect.

Iberostar planted a sprawling, 934-room resort east of Rose Hall, Montego Bay, St James. Not to be outdone, the Grand Palladium built a 1,056- room behemoth at Point, just east of Lucea, the Hanover capital, potentially opening up a new resort corridor at midpoint between the nearly-saturated Negril in Westmoreland to its west, and Montego Bay to the east. Secrets opted for a five-star, 700-room property at Freeport, along the western tip of Montego Bay; while Bahia Principe, laid down its version - 680 rooms at Runaway Bay, St Ann.

Two of the RIU properties are located in Negril, one in Montego Bay, and the fourth, at Mammee Bay, about three miles west of Ocho Rios in St Ann.

Together, the 5,727 rooms built by the Spaniards account for a staggering 25 per cent of Jamaica's offerings.

McMorris, who is the principal behind a new venture development firm, KRONOS, that counts among its successes, the facilitation of the US$180-million Secrets investment in Montego Bay, acknowledges that the RIU initiative paved the way for his clients to raise the requisite capital from 40 independent investors for the five-star development they opened in May.

"RIU acted as a guinea pig for Jamaica's understanding of how to treat with rapid large scale investment," he notes. "It endured the glare of an entire nation and kept going as it played its role to help successfully transform an industry."

Secrets, he added, "would have been impossible had RIU never initiated and kept faith with Jamaica".

Jesus Silva, who, until October 9, spent the last five years as Spain's ambassador to Jamaica, agrees with McMorris' assessment of RIU's role in inducing the mass investment to the island.

"They are the ones that helped to really open the path for the Spanish investment that came afterwards," says Silva. "Ultimately, many of the Spanish groups that came here to invest are competitors with each other, so when RIU started coming, the others went after them."

But true to his reputation as a paragon of personal modesty, Luis Riu downplays what is common knowledge within the trade, and which McMorris, and Silva articulate so eloquently: that he was the trailblazer for the Spaniards in Jamaica, and that the competition simply followed his lead to the island.

"All of the Spanish hotel chains have their own history, philosophy and traditions," says Luis. "We often speak to each other and the relations are good. What was interesting for them was to see if the tour operators would follow us, and if the Jamaican community would welcome the foreign investment positively, and if the authorities would be open to the arrival of new investors."

Luis and Carmen have two distinct roles within RIU Hotel & Resorts. While she stays in Spain to maintain vigilance over the finances, and administrative matters, he travels the globe, always on the lookout for expansion opportunities. It is primarily he who led the investment thrust into Jamaica.

The seeds for RIU's entry into the local market were sown in the late 1990s when the PJ Patterson administration began to search for solutions to the investment inertia that was contributing to the stagnation of the entire economy.

RIU seemed an ideal target, in part, because it had as an equity partner, one of Europe's largest tour operators -- TUI AG. This vertical integration meant that this group was well positioned to open new markets and drive tourist traffic through its hotel doors in Jamaica -- at least by the thinking within the Patterson administration.

So by the time McMorris joined the investment promotion agency in 2000, the discussions regarding the future direction of the tourism industry were already in full swing. He offers a unique perspective into the wider context within which this particular European chain was targeted:

"RIU was already at the centre of a debate about the future of Jamaica's tourism. The tourism master plan called for Jamaica to increase its hotel room count by 10,000 rooms in ten years, but exactly how this was going to be done and the impact an increasing room supply would have on prices remained a question.

"The prevailing philosophy in the industry appeared to be that the domestic hoteliers who had created an excellent product to revive Jamaican tourism in the 1980s and 90s could produce the growth as long as they were given capital and marketing support.

"The problem, however, was that the Jamaica Tourist Board and indeed private domestic hoteliers were already maxed out in marketing the destination at the existing room count, and the development finance agencies were at their threshold, having had to partially fund almost every major new development that took place during the nineties. How then, would the market magically expand to fill these new rooms and who was going to pay for it?"

These were profound questions being asked about a country whose development had been stymied by its reputation as a high-crime destination, and by the growing inadequacy of its infrastructure - that was falling below the standards that European and American tourists were accustomed to experiencing at competing destinations.

While the creation of the North Coast Highway, as well as the Great River Water system that ensured reliable potable water supply to hotels, went a long way to address concerns about the investment absorption capacity within the tourism sector, radical crime containment still remained on the country's to-do list.

Jamaica was therefore never going to be an easy sell.

"It took me a while to convince my family, and Carmen had a hard time to convince the tour operators and partners to go with us for this challenge," explains Luis. "We fought hard and worked to convince the tour operators in Europe to include Jamaica in their brochure and to organise charter flights. Jamaica was something new to them. They had concerns about the safety of the country."

Once convinced that this country was worth the commercial risk, one advantage that Carmen and Luis had was the fact that, as a privately-held family business, they did not have to answer to contentious shareholders, nor did they have to surrender to the veto powers of a sceptical boardroom.

"We have the advantage," he says, "that we do not depend either on financial markets or from shareholders' decision when we decide to start a new hotel project. Our growth has always been very constant and prudent."

The arrival of RIU, followed by the other Spanish brands in Jamaica was not without controversy or detractors. RIU itself was forced to modify sections of its Montego Bay hotel after the authorities demanded compliance with local building code, on grounds that the height of the building could interfere with the aircraft flight path to the Sangster International Airport. There were also fears within sections of the indigenous industry, that the rapid expansion in rooms without a concomitant broadening of the market would promote economic cannibalism, depress rates and force the more vulnerable out of the business.

Luis acknowledges that there was failure with respect to the MoBay project, but insists that the deficiencies were quickly addressed once management was made aware of them. Moreover, he says, it is his company's policy to play by the rules of the jurisdictions within which it does business.

"If you are a guest in a country you have to respect its rules," he notes. "Making a mistake is human; solving it correctly according to the requirements is an obligation."

McMorris believes that the fears expressed within tourism circles were real but exaggerated, and points to the fact that many of those concerns were taken into consideration when JAMPRO went globetrotting to seek investments to expand the sector.

He argues that RIU offered the right balance - critical mass and vertical integration that promoted a new level of efficiency and value proposition within the industry. The end result, he argues, was the creation of options, and the enabling of a more robust product with which Jamaica could compete in the global market place.

"The more choices the market had the more market share Jamaica could take," he says. "RIU fit the profile of a vertically integrated tourism giant with major marketing muscle, and what's more, they had friends."

RIU has developed a very powerful cadre of supporters in Jamaica, from within a wide range of industries, and most of whom continue to benefit from its presence in the market.

Just ask the rural farmers, the suppliers of a variety of items, the bus and taxi operators, or for that matter, any of its nearly 2,000 employees and their dependents.

"RIU has had a significant positive impact on rural development in Jamaica," declares David Phillips, the proprietor of National Meats and Foods, a cold storage operator and distributor of foods, located at Lydford in St Ann.

Phillips who stores and transports local and imported produce that are destined for the kitchens and dining tables at RIU's properties, as well as other hotels throughout the island, describes the Spaniards as game-changers for the fortunes of many within the tourism and ancillary industries.

"They have rapidly expanded the demand and the market which has empowered rural farmers," he says. "They buy tonnes of local poultry, ground provisions, and vegetables. They also introduced a new culture of paying the farmers on time, and because they have expanded the market so rapidly, farmers are able to negotiate better prices for their produce. They have kept the local farming community alive."

Dr Derrick Deslandes, a consultant to the state-run Rural Agricultural Development Authority (RADA) says that Jamaica, and in particular, the farming community, is yet to reap the full benefits from the demand generated by tourists.

The consultant, who has developed a matrix that allows the government to estimate the economic multiplier effect within the sector, cites the lack of local price competitiveness, and inadequate storage and transport infrastructure, as two constraints to optimising the benefit from the rapid growth seen in the last decade.

"The benefits could be a lot better; it could be much more impactful," he notes. Deslandes estimates that Jamaican farmers account for about 30 per cent of the roughly J$13 billion in the annual food bill of hotels - based he says, on year 2007 data.

"There is no doubt that RIU has benefited the farmers, but it will require greater effort and cooperation between the ministry, the hotels, the farming community and the financial institutions for the full potential to be realised," he says.

Silva, a zealous, unabashed advocate for Jamaica/Spain bi-lateral economic partnership, lists RIU's capacity to quickly absorb itself within the local culture, as the corporate ethos he finds most admirable about the hotel.

"They were telling me the other day that in one of their hotels, in Negril I think specifically, they have already appointed one Jamaican as deputy general manager, which is sort of the last level for the hotel to be fully run by Jamaicans," says the ambassador.

"So this shows that RIU is the most advanced in terms of the process of completing a true integration of Jamaica with its own business. They have also started the process of sending Jamaicans to work at RIU hotels in other countries...For example, in Panama this week, they opened their first city hotel...and most of the management team that is running this hotel came from Jamaica. So you can say without exaggeration that RIU is a company getting more and more impregnated by the Jamaican culture."

That Luis Riu would be so embracing of the Jamaican spirit is not surprising. The 50-year-old father of two listed Reggae Superstar Bob Marley among his icons, long before he thought of investing in Jamaica, and is now also embracing sporting great, Usain Bolt.

"When I first visited Jamaica," he declares, "I fell in love with its people, culture and beauty from the very beginning. It was clear to me that Jamaica could become one of the world's leading vacation destinations. Jamaica has a variety of good arguments: sun, sea, and incredible beaches, lush mountains, rich history and vibrant culture, Reggae and rum, great people and the will to go forward."

So the initial trepidation felt by the tour operators that was driven primarily by the crime data, has given way to a burst of hope and optimism, as Jamaica continues to produce the most auspicious numbers from all of RIU's investments within Latin America and the Caribbean.

"Now-a-days they are very happy," beams Luis. "Jamaica has the advantage of a good client mix. We bring American and European guests, which makes it a less seasonal destination in terms of occupancy. The European vacations normally cover the main part of the low season of the Americans and vice versa. The average occupancy is 70-75 per cent."

Silva too, is sanguine about the Rius' positive experience as an investor within the Jamaican economy, and which they have shared with him.

"Mr Riu always says that Jamaica is probably one of his biggest success stories in the history of the company which is also a reason why they have expanded so much here," he notes.

Luis and Carmen are preparing their children — to be the next generation to run the hotel their grandfather started in 1953 — the same way they were taught by their parents.

"My sister and I went through all the departments because 'learning by doing' was the only way to understand all the little aspects of the business," Luis explains. "This way you are able to correct your workers and to judge every single department in depth. We want our children to do the same if they want to work in RIU."

Moses Jackson is the co-founder of the Business Leader Award programme, the founding and former editor of the Business Observer, and a member of the Business Leader Award Selection Committee. He may be reached at [email protected]


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