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“A Tale of Two Inns” (edited version in The Fiji Times, 13 Dec. 2014)

14/12/2014

A Tale of Two Inns, 100% and 25% ownership
(edited version in The Fiji Times, 13 December 2014)
Professor Wadan Narsey

Suva residents who frequent up-market “watering holes” in the evenings used to have an excellent one for decades- once called Travelodge and other names, now the Holiday Inn.

It had reasonably priced drinks at the “Happy Hours”.

They usually had a good range of music being played every night, from the soft sounds of Tom Mawi and family, to Jazz groups.

With meals usually more expensive than the town restaurants not far away, it eventually developed an excellent meal choice with wood-fired pizzas and related dishes, which considerably enhanced its attractiveness for the budget conscious.

Then along comes the other “inn”, the Grand Pacific Hotel (GPH) or the “Grand Old Lady”, re-opened after years of neglect.

The GPH is quite clearly in a class of its own in Suva.

It has the charm of the old colonial building, which I well remember as a laundryman’s son who used to deliver to a hotel staffed by fierce butlers with starched white uniforms and gleaming silver buttons, growling “where are you going, boy?”

The GPH is of course now embellished (or ruined, depending on your architectural tastes) by new modern extensions on the side.

There is a fantastic swimming pool which gets a touch of the ritzy charm in the evenings with the standard floating trays of lights, and the usual touristy gimmick of a Fijian warrior rushing around with a torch lighting the others that adorn the back area.

But most of all, there is a great open ambience to the outdoor sitting area, looking across the swimming pool, the bay and to the mountains on the other side, while sipping a cold beer.

The staff usually provide excellent service, fast and honest, and some patrons might find it quaint and amusing to once more have white managers strutting around in tuxedos and noses in the air, barking orders at the local staff.

Seven nights of the week, there is smooth music provided by Seru Servevi’s two bands, with lead singers Natalie Raikadroka, with her dulcet voice, alternating with Steve McComber, in a class of his own.

There is no watering hole like the GPH, anywhere in Suva.

So which inn should Suva residents frequent?

Competition, side by side

One of the more difficult theories which economics students have to understand especially in small markets like Fiji is “duopoly” which is competition between two providers in a limited market.

The theories (yes, there are many) are a bit harder to understand than pure monopoly, because there can be different outcomes depending on the particular dynamic strategies and counter-strategies followed by each competitor, with strategies often changing reactively over time, as each learns more about the other.

Fiji people have seen many examples of duopoly over the years, such as between cooking gas providers, banks once upon a time, and newspapers.

Perhaps the most interesting (there is a PhD thesis waiting to be written) has been that between Vodaphone and Digicel, with interesting developments in mobile phone call charges packages, and regional coverage with a less-than neutral government.  There could have been a “race to the bottom” in prices, but that did not occur (they are not fools).

Another interesting duopoly phenomenon is that of petroleum companies deliberately setting up on the same corners as their competitors, which consumers would consider wasteful duplication, but which the petroleum companies are able to rationalize from their own competition strategies.

But petrol stations usually provide exactly the same services (fuel, air, servicing), usually have the same quality, and charge the same prices.

The Holiday Inn and GPH do not fall in this category.  But as with service stations, there are lots of watering holes in Suva, all competing with each other.

The Holiday Inn and GPH are unusual in that they are located side by side. So how exactly do they compete?

It is evident that the GPH is in a class above the Holiday Inn, going by the quality of the rooms and the overall ambience, and that is abundantly clear from the much higher room rates they are charging.

The GPH is frequented by the top end of the market, including World Bankers, ADB’ers, IMF’ers, and rich tourists (including a fair number of Chinese, Pacific Islanders and returning former Fiji residents flush with money), who are now all putting up at the more prestigious “Grand Old Lady”, instead of the Holiday Inn as they used to before.

Seru Serevi’s music bands at the GPH seem to be more attractive to many although Tom Mawi and his family, and the jazz sounds at the Holiday Inn have their own fans.

The hotel room rates and meal prices at the Holiday Inn are definitely cheaper, hence would attract those whose pockets are constrained.

Generally, most visitors would say that the Holiday Inn, despite its equally friendly service staff, is fraying at the edges somewhat, as are the rooms, although it is more homely and “ordinary people friendly” whereas the GPH is frequented more by those who think themselves more exclusive and distinct from the “hoi polloi”.

But patriotic Fiji patrons should also think about the significant difference between 25% and 100%.

The 100% and 25% ownership

Holiday Inn is owned 100% by Fiji National Provident Fund, so after the management charges are first paid, 100% of the profits go back to the owners FNPF and those with contributions and savings there (I declare my interest).

Sadly, GPH used to be also once owned 100% by FNPF, but events over the last few years after the Bainimarama Coup, have seen FNPF’s ownership reduced to only 25%, with PNG interests holding the other 75%.

Here is a good thesis topic for some economics student: how and why ownership of an obvious crown jewel of Suva accommodation came to be shared with foreign investors, after lying dormant and earning no returns for years (for some of which it provided very costly accommodation to soldiers).

Essentially, we (ie the investors in FNPF) today get back only 25% of the profits and dividends from the GPH, and that of course, is after the management company cream off their charges at the top.

How do the management charges of the two inns compare?

What is the rate of return that FNPF get on its current investment in GPH as opposed to what it gets from Holiday Inn?

These are interesting question that only FNPF can answer, except that we, the real owners of FNPF, have not a single director on the FNPF Board who can answer to us (worth another article).

But for those of us who own savings in the FNPF, the obvious selfish economic choice must tend more towards patronizing the Holiday Inn which we own 100%, rather than GPH, which we only own 25%.

But is the Holiday Inn rising to the challenge and giving its faithful patrons a better experience?

The challenge for the Holiday Inn

When the GPH was reopening, a manager of the Holiday Inn boldly said he welcomed the competition.

But how exactly has Holiday Inn taken up the challenge?

Competition usually means that both competitors improve the standard of their offerings, and compete on prices and quality.

It is interesting that GPH soon reduced their prices, to offer quite cheap beers ($2.40 per glass) during Happy Hour, which is also offered twice in the night, which the Holiday Inn does not.

The Holiday Inn does have cheaper room rates and meal prices, and there is the great wood-fired pizzas and naans etc. which give great value for money.

It still has not got around to offering FNPF card holders discounts on their bills, which they could easily do (although they do offer longer “Happy Hours” to regulars).

Is the Holiday Inn improving the quality of their rooms after the competition from the GPH?

It is certainly not offering better ambience for those frequenting it as a watering hole, with the music often being quite sub-standard on some nights, although the service is just as good as the GPH.

In the outside sitting area, one can also get a feeling of being “hemmed in” by the rooms on the left and the trees and swimming pool area at the back.

Suva’s frequent rain also makes the outdoor area quite unfriendly.  The GPH also has this disadvantage but the sitting area under cover is larger.

The Holiday Inn, quite surprisingly has not taken advantage of the fantastic asset that right behind the swimming pool is a bay area which is protected on the left and on the right.

All that the Holiday Inn has to do (following permission from the appropriate authorities) is put out a large covered pier over the water, open on three sides; relocate the music providers there,; put in a sound barrier on the accommodation side so that the music does not disturb with the room occupants; and have quieter music after 10 pm.

With the sound of water and waves underneath, the patrons would have a fantastic 270 degree views over the Suva wharf area, the mountains on the other side of the bay with Korobaba and Joske’s Thumb standing guard, and Beqa to the south.

All that FNPF would have to do is then rebrand Holiday Inn as “Holiday Inn on the Water”.

A cliché, I know, but what a wonderful marketing tool.

The Tale of Two Inns might just become more interesting with intense competition on all fronts- price, quality of rooms and food, and ambience, including music.

 

 

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