Hotel Project Proposal

Project Proposal for the Five
Star Hotel in Mekelle City
Promoter:- Ato Hagos Hadgu (HH Engineering)

March 2018
1 Project Proposal for the Five Star Hotel in Mekelle City
Contents
1. EXECUTIVE SUMMARY ............................................................................................................................... 3
2. INTRODUCTION .......................................................................................................................................... 4
2.1. BACK GROUND OF THE PROMOTOR: ............................................................................................. 8
3. THE PROJECT ............................................................................................................................................12
3.1. PROJECT RATIONALE ........................................................................................................................12
3.2. PROJECT DESCRIPITION ....................................................................................................................13
3.3. PROJECT OBJECTIVES .......................................................................................................................13
3.3.1. GENERAL OBJECTIVES ..................................................................................................................13
3.3.2. SPECIFIC OBJECTIVES....................................................................................................................14
3.4. IMPLEMENTATION STRATEGIES .......................................................................................................14
4. TECHNICAL ANALYISIS ..............................................................................................................................16
4.1. PROJECT AREA ..................................................................................................................................16
4.2. SITE LOCATION .................................................................................................................................16
4.3. THE PRODUCT AND/OR SERVICES;...................................................................................................17
4.3.1. PROPOSED FACILITIES SUMMARY................................................................................................17
4.3.2. Internal facilities/furniture/equipment for bed room services ...................................................20
5. ECONOMIC OVERVIEW ............................................................................................................................25
5.1. Introduction .....................................................................................................................................25
5.2. MARKET ANALYSIS; ..........................................................................................................................25
5.2.1. Local Competitive Accommodation Market ................................................................................25
5.2.2. Regional Competitive Accommodation Market...........................................................................25
5.3. MARKETING STRATEGY ..................................................................................................................26
5.3.1. TARGET CUSTOMERS .......................................................................................................................26
5.3.2. MARKET POTENTIAL .....................................................................................................................26
5.3.3. PRICING STRATEGY.......................................................................................................................27
5.4. PROMOTION MECHANISUM ............................................................................................................27
5.5. MARKET APPRAISAL .........................................................................................................................27
5.6. SUPPLY AND DEMAND ANALYSIS .....................................................................................................28
5.6.1. MARKET DEMAND:.......................................................................................................................28
5.6.2. DETERMINATION OF SUPPLY ...................................................................................................30
6. TECHNOLOGY AND ENGINEERING ...........................................................................................................35
6.1. MACHINERY AND EQUIPMENT ........................................................................................................35

6.2. CIVIL ENGINEERING COST ................................................................................................................35
7.3. RUNNING COST .....................................................................................................................................36
7.4. SERVICE AND REVENUE PROJECTION ..............................................................................................36
A. Bed Rooms ..............................................................................................................................................36
B. Sauna and Steam bath services................................................................................................................37
C. Bar and café services ..............................................................................................................................37
D. Meeting hall services ..............................................................................................................................37
E. Restaurant services .................................................................................................................................37
F. Business Center Services ........................................................................................................................37
G. Sweeming pool ........................................................................................................................................37
7.5. ORGANIZATION AND MAN POWER .................................................................................................38
7.1. Training Requirement ......................................................................................................................39
8. INVESTMENT AND FINANCIAL ANALYSIS .................................................................................................40
8.1. INVESTMENT COSTS .........................................................................................................................40
8.2. Production/Service cost ...................................................................................................................41
8.3. Pre-operation Capital expenditures:................................................................................................41
8.4. Working Capital................................................................................................................................41
B. Source of finance .....................................................................................................................................42
C. Operation and Maintenance Costs ...........................................................................................................42
9. BENEFIT AND COSTS .............................................................................................................................44
9.1. PROJECTS COSTS ............................................................................................................................44
9.2. PROJECT BENEFITS ...........................................................................................................................44
9.3. TEST CRITERIA FOR FINANCIAL VIABILITY OF THE PROJECT.............................................................44
I. Financial internal rate of return (FIRR) ................................................................................................44
II. Payback period ....................................................................................................................................44
10. Project implementation plan ...........................................................................................................46
11. CONCLUSION ....................................................................................................................................47
1. EXECUTIVE SUMMARY
The promoter of this project, Ato Hagos Hadgu is a prominent business person in the country especially in
the Metal and Engineering sector that produces High bed, Low bed, Trailers, semi trailers, oil and fuel
trucks in Addis Ababa and currently he is expanding his productivity in Mekelle that he took 20,000m2 area
at Semien industry zone that currently is under construction.
The hotel is going to be constructed at Mekelle around the newly developed part of Mekelle city “Mizer”.
The promoter observed that the population of Mekelle town is growing fast from time to time with an
increasing growth rate of per-capital income and it is the center for the tourist attraction areas and travelers
passé-way in our region. The proposed hotel is going to serve various services such as best quality of
presidential, Special suit, Suit, Semi suit, single, double rooms, modern restaurant, meeting halls, Health
club (Steam, Sauna, GYM, Massge) Indoor and outdoor games, Business Center, Recreational facilities
(Swimming pools, out door concert area, outdoor leasure area), parking and all other necessary functions of
five star hotel. the proposed five star hotel project will be with ground plus twenty floors building (G+20) in
an area of 20,000 m2.
The total initial investment cost of the proposed modern 5 star hotel is estimated about birr 600,000,000.00
of which birr 514,000,000.00 will be required for fixed asset and the remaining will be for day to day
operation of the project (working capital purpose). This investment cost is proposed to finance both by the
long run bank loan and personal own equity. The rate of financing for the proposed project is 70% and its
maximum attainable capacity service provision in its first year of operation will be 60%. Full capacity
service is expected to be attained in the 4th year and then after by increasing its capacity by 10% per annum.
With the opening of the project, it will provide employment opportunity for about 158 Citizens, and will
contribute revenue to the local government in the form of tax. Thus as the project is financial sound, it is
worth investing and needs assistance in materializing the project. The present demand for the proposed
hotel service at Mekelle level will be estimated at 1 million customers per annul and is expected to reach 4.5
million customers after finishing construction building by the year 2021.
Since there are only few modern hotels that accommodate the required services of foreign and local tourists,
the demand for the service is very attractive. The total initial investment requirement is estimated at
birr 600 million, of which 80% is for building construction. The project will create employment
opportunities for 154 persons. The project is financially viable with an internal rate of return (IRR) of 21%
and a net present value (NPV) is Birr 409 million discounted at 11%. The project has been proved feasible
from technical, financial, social economy and environmental perspective.
2. INTRODUCTION
A hotel is commercial establishment providing lodging, meals, and other guest services. In
general, to be called a hotel, an establishment must have a minimum of six letting bedrooms, at
least three of which must have attached (ensuite) private bathroom facilities. Although hotels are
classified into 'Star' categories (1-Star to 5-Star and Deluxe), there is no standard method of
assigning these ratings, and compliance with customary requirements is voluntary. A US hotel
with a certain rating, for example, is may look very different from a European or Asian hotel with
the same rating, and would provide a different level of amenities, range of facilities, and quality of
service. Whereas hotel chains assure uniform standards throughout, non-chain hotels (even within
the same country) may not agree on the same standards. In Germany, for example, only about 30
percent of the hotels choose to comply with the provisions of the rules established by the German
Hotels & Restaurants association. Although both WTO and ISO have been trying to persuade
hotels to agree on some minimum requirements as world-wide norms, the entire membership of
the Paris-based International Hotel & Restaurant (IH&RA) opposes any such move. According to
IH&RA, to harmonize hotel classification based on a single grading (which is uniform across
national boundaries) would be an undesirable and impossible task. As a rough guide: A 1-Star
hotel provides a limited range of amenities and services, but adheres to a high standard of facility-
wide cleanliness. A 2-Star hotel provides good accommodation and better equipped bedrooms,
each with a telephone and attached private bathroom. A 3-Star hotel has more spacious rooms and
adds high-class decorations and furnishings and color TV. It also offers one or more bars or
lounges. A 4-Star hotel is much more comfortable and larger, and provides excellent cuisine (table
d'hote and a la carte), room service, and other amenities. A 5-Star hotel offers most luxurious
premises, widest range of guest services, as well as swimming pool and sport and exercise
facilities.
The European Hotel stars Union has created a profiling system based on the earlier German hotel
stars system that had widely influenced the hotel classifications in central Europe. The main criteria
are in quality management, wellness and sleeping accommodation. In the catalogue of criteria each
entry is associated with a number of points - each Hotel stars level requires a minimal sum of points
besides some criteria being obligatory for the level. The minimum requirement for the Superior flag
requires the same sum of points as for the next Hotel stars level which however was not awarded
due to at least one obligatory requirement being left out.
Hotel star Excerpt of the catalogue of criteria

100% of the rooms with shower/WC or bath tub/WC - Daily room
cleaning - 100% of the rooms with colour-TV together with remote
Tourist control - Table and chair - Soap or body wash - Reception service -
Facsimile at the reception - Publicly available telephone for guests -
Extended breakfast - Beverage offer in the hotel - Deposit possibility
The Superior flag is provided when the additional service and
accommodation provisions are not sufficient for the next Hotel star.
Superior
The bathroom facilities are usually at the same level as for two stars
Tourist
hotels but built from cheaper materials. The cost for regular inspection
by independent associations is waived as well.
In addition to the single star (*) hotels: - Breakfast buffet - Reading
light next to the bed - Bath essence or shower gel - * Bath towels -
Standard
Linen shelves - Offer of sanitary products (e.g. toothbrush, toothpaste,
shaving kit) - Credit Cards
accommodation provisions are not sufficient for the next Hotel star.
Superior The Standard-Superior does usually offer the same service level as
Standard three-star hotels but the interiors of the hotel are smaller and cheaper
so that the three stars were not to be awarded by the inspection body.
A two-star superior does not require mystery guesting.
In addition to the standard star (**) hotels: - Reception opened 18
hours, accessible by phone 24 hours from inside and outside, bilingual
staff (e.g. French/English) - Three piece suite at the reception, luggage
service - Beverage offer in the room - Telephone in the room - Internet
Comfort access in the room or in the public area - Heating facility in the
bathroom, hair-dryer, cleansing tissue - Dressing mirror, place to put
the luggage/suitcase - Sewing kit, shoe polish utensils, laundry and
ironing service - Additional pillow and additional blanket on demand -
Systematic complaint management system
Superior accommodation provisions are not sufficient for the next Hotel star.
Comfort The accommodation facilities for a superior hotel need to be on a
modern level and fully renovated which is checked regularly.
First In addition to the comfort star (***) hotels: - Reception opened 18
Hotel star Excerpt of the catalogue of criteria

Class hours, accessible by phone 24 hours from inside and outside - Lobby
with seats and beverage service - Breakfast buffet or breakfast menu
card via room service - Minibar or 24 hours beverages via room
service - Upholstered chair/couch with side table - Bath robe and
slippers on demand - Cosmetic products (e.g. shower cap, nail file,
cotton swabs), vanity mirror, tray of a large scale in the bathroom) -
Internet access and internet terminal - "À la carte"-restaurant
The Superior flag is provided when the first class hotel has a proven
First high quality not only in the rooms. The superior hotels provide for
Class additional facilities in the hotel like a sauna or a workout room. The
Superior quality is checked regularly by mystery guesting of an external
inspection service.
In addition to the first class (****) hotels: - Reception opened 24
hours, multilingual staff - Doorman-service or valet parking -
Concierge, page boy - Spacious reception hall with several seats and
beverage service - Personalized greeting for each guest with fresh
Luxury flowers or a present in the room - Minibar and food and beverage offer
via room service during 24 hours - Personal care products in flacons -
Internet-PC in the room - Safe in the room - Ironing service (return
within 1 h), shoe polish service - Turndown service in the evening -
Mystery guesting
The democracy, peace and development in Ethiopia are giving the untamed rich tourism potential
of Ethiopia’s treasury in general and Tigray in particular. Tigray has reach history and ruminants’
of the ancient civilization of the Axumite kingdom. The experience of civilized nations and those
with a lion’s share of tourism income suggest that provision of tourist standard hotels services,
among others is crucial. Therefore, in developing nations like Ethiopia, where the tourism sector is
not contributing as it should be, the status of quality hotel service provision and coverage must be
improved to a greater extent. It is only when, we can make avail good standard hotels in places
where foreigners and potential local residents can get access to Ethiopia can be benefited from the
sector. Given the favorable government policy good environment for investors who are willing and
able to get in hotel venture, this proposed project can be one of those hotels intended who provides
quality service.
The government of Ethiopia has introduced the free market economy policy, which enables the
private sector to involve in the economy development efforts of the country. With the introduction
of economy policy, a number of policies that are more suitable to the private sector are issued
where the private business enables to enjoy in its day to day business activity. Among many the
incentive packages with regard to tax free import facilities, income tax exemption, support from
banks in the form of availing loan, provision of working premises and the currently imposed civil
service reform are notably very important for the encouragement of the private investor. The active
economy which is explained by investment in various developmental projects has intensified the
move of people from place to place to deal on their trade and exchange views, share experience and
discuss on developmental issues. Other than the business people and governmental officers, some
other people like tourists, business promoters move from place to place basically from semi urban
to regional towns and from the center of the country to regional towns. This move of people
definitely calls for the use of modern hotels, particularly accommodations in order to deal their
respective assignments properly. In this regard constructing two star hotels, particularly in Mekelle
town, which is the center for tourist attractions both domestic and foreign, will have a great
opportunity in the coming future development.
The study focuses on the macro- and micro-environment of the location of the proposed
hotel, the assumed competitive set, the local hotel market, the estimated trading performance of
the hotel assuming a position at the very near end of the new business center of the city.
The project for the hotel has to include the following elements:
- 260 guest rooms of 20,000 sq m., designed as superior rooms
- Gourmet restaurant and bar, Champagne bar & lounge
- Multifunctional meeting and conference rooms
- Wellness & spa area (including treatment rooms, sauna, steam bath)
Furthermore, the city parking road should be used for guest parking which is near to the
hotel providing. The following elements will be covered in the study:
- Brief economic overview of the city
- Location & site analysis of the property site
- Market analysis including hotel supply, hotel demand and competition
- The product and its positioning
- Financial analysis and trading estimates
2.1. BACK GROUND OF THE PROMOTOR:

The promoter of this project, Ato Hagos Hadgu is a prominient business persom who is engaged in
Metal and Engineering sector that he is producing different types of vehicle parts such as traiers,
semi trailers, High bed and law bed vehicles, fuel trucks and other types of vehicle components.
The company that he is owning is called HH Engineering that any one can see in many long
vehicles operating in every corner of the country. The company is now expanding its production in
Mekelle that the promoter took 20,000 m2 land in Mekelle industry zone and currently under
construction. The long period of experience in business has now saved enough money to involve in
different investment areas in which five stars Hotel is preferred one and creates job opportunities
for citizens as well as generates income to the government by paying taxes and other
contribution.
Therefore, the promoter observed that the population of Mekelle city is growing fast from
time to time with an increasing rate of per-capital income. Due to this fact there is also a
growing demand for hotel service and recreational centers. On the other hand, the
prevailing economic policy of the Ethiopian government on tourism industry creates a good
opportunity for investors in invest their resources in the sector as the policy gives emphasis
on back ward and forward integration with other economic sectors. Since Mekelle is the
political and economic center of the regional government, now the promoter clearly observes
the city is growing in number of population, flow tourist, and the total economic transaction
at faster rate.
Therefore; taking these facts in to consideration, the owner decided to 5* hotel in order to
provide a multipurpose modern and cultural bar and restaurant services, meeting & conference
room services, sauna bath & steam services bath services, and other facilities to its customers.
The project proposal will also include the establishment of a mini brewer plant which will
be the first hotel in the region in doing so and this could be an extra competitive
advantage over other similar hotel in the industry.
What makes a 5-star hotel?
There's actually no international ratings body, so hotels can (and do) claim to be 5-star even when
they are far from the standards of established 5-star luxury hotels. According to the reviews on Trip
Advisor from reviewers that complain about standards at hotels that list themselves as 5-stars,
Here's what they look for when they do inspections and reviews of 5-star hotels:
i. Attentive, Discreet and Consistent Service
Quality and consistency of service is the number one differentiator between true 5-star luxury
hotels and others. The hospitality industry is a tough one, often plagued by high employee turnover,
so it's no small feat for a hotel to be able to deliver consistently at a high level and to recruit and
retain the people that deliver on the hotel's brand promise. Any hotel can put in an elegant lobby or
maintain lush landscaping–the human component is the more challenging piece.
ii. Personalization
Ever noticed how the best hotels consistently greet you by name, even when it's your first time
staying with them? It can seem almost like magic, when it's not at check-in and it's a staff member
that you've never seen before, but it really can help bridge that gap between “just another hotel
stay” and feeling taken care of, particularly if the staff are genuine. By the same token, if you've
had numerous stays at a given property and are not welcomed back or greeted by name, it can have
just the opposite effect–to that hotel and perhaps the hotel chain in general, you really are just
another number, or a head in a bed.
It used to be said that the Ritz-Carlton records all guest preferences down to whether a guest prefers
milk or dark chocolate, although I haven't experienced that level of personalization at a Ritz-
Carlton recently.
iii. Bedding
It's been several years since most of the major chains seriously revamped their bedding for the
better, and now even use it as a key marketing point. It always surprised me that it took as long as it
did since, surprise, surprise–ultimately you want to be able to sleep as well or better in your hotel
room than at home.
iv. Complimentary House Car and VIP Transfer Services
The best 5-star hotels offer complimentary luxury house car services within a certain radius or area.
For example, at our recent stay at The Setai Fifth Avenue, we enjoyed an over 50 block ride in the
Maserati house car.
Even better is a complimentary transfer service that includes VIP service at the airport, as Aman
Resorts offers for many of their resorts. We were picked up from our previous resort and taken to
Amankila, and after our stay, transferred to Denpasar Airport where we received expedited VIP
airport service from Aman's staff member at the airport. Very hard to beat that.
v. Kids' Amenities
The way to a parent's heart is through his or her child, and the top 5-star hotels and resorts
understand that well. as far as 5-star city hotels go, offered a wonderful welcome More recently,
kids adored the rubber ducks and panda he was given at the Four Seasons Hong Kong, and feeding
the koi and playing tennis at the Kids for All Seasons Club at the Four Seasons Bali at Jimbaran
Bay.
vi. Food and Drink Quality
There should be highly value the quality of the food and drink that is available at the hotel. While
an extensive breakfast buffet can be a big attraction for some, they look for quality over quantity.
For breakfast, there should be fresh squeezed orange juice, and preferably some other fresh
squeezed selections as well. Pastries and bread should be excellent and preferably baked on-site.
vii. In-Room Nespresso
There ideally should be an in-room coffee maker, and it should be Nespresso. And please don't
offer powdered creamer–stock some small half and half containers in the mini bar.
viii. Bath Amenities
For a true 5-star hotel or resort, people want to see better brand name toiletries, such as L'Occitane,
Bulgari, Hermes, Aesop, Le Labo–you get the picture. Sometimes 5-star boutique hotels, such as
The Champs-Elysees Plaza in Paris, which offers Hermes bath products, offer more luxurious
amenities than luxury chain hotels. I immediately think less of a hotel if it has its own brand
UNLESS it truly is a stellar spa product. The Mandarin Oriental Singapore's lemongrass bath
amenities come to mind. I can also understand placing the bath products in reusable containers, as
is done at several resorts on Bali, but again, the products themselves need to be high quality
regardless.
ix. Pool Service
There should be standard pool service in the hotel. People noticed a huge difference between the
Mandarin Oriental Singapore and the Ritz-Carlton Singapore just based on the pool service. The
pool service at the Mandarin Oriental couldn't have been more attentive–during the 2 hours or so I
was there working I received a couple of cool towels, several refills of ice water and a refreshing
smoothie shot–whereas at the Ritz-Carlton Singapore I didn't see anyone providing these things
during the time I was there.
x. Concierge Service
People rarely need concierge service, it should be able to rely on it to get them a hard to score
restaurant reservation or know where they can find the best local playground.
3. THE PROJECT
3.1. PROJECT RATIONALE

The democracy, peace and development in Ethiopia are giving the untamed rich
tourism potential of Ethiopia’s treasury in general and Tigray in particular. Tigray
has reach history and ruminants’ of the ancient civilization of the Axumite kingdom.
The many rock hewn churches and beautiful landscapes are found in the region and
most of them are near to Mekelle, Atse Yohannes IV palace, mountains of Geralta,
rock hewn churches of Abreha we Atsbaha, Wukro cherkos, micheal emba mariam
korkor, Al-nejashi, Chelekot slasse, Abayohani and Artaele (the live volcano in Afar
region) are among the others. The experience of civilized nations and those with a
lion’s share of tourism income suggest that provision of tourist standard hotels
services, among others is crucial. Therefore, in developing nations like Ethiopia,
where the tourism sector is not contributing as it should be, the status of quality hotel
service provision and coverage must be improved to a greater extent. It is only when,
we can make avail good standard hotels in places where foreigners and potential local
residents can get access to the tourist attraction area and Ethiopia can be benefited
from the sector. Given the favorable government policy good environment for investors
who are willing and able to get in hotel and tourism venture, this proposed project
can be one of those hotels intended who provides quality service.
The ever increasing number of tourists, town dwellers and economic growth of the
residents, is demanding modern Hotel, cultural amenities and entertainment. The
promoter engages and facilitates social interaction within community; to establish,
new style of living, modern standard recreational areas and entertainment service.
This project profile is therefore, prepared in the line with the government policy to
encourage private investors’ base on the economic changes that is very attractive and
inviting for both national and foreign investors to participate in the countries
development programs through free competitive markets. The newly designed and under
implementation of growth and transformation plan (GTP II) gives a great focus to the development
of this sector to support the industrialization process. There is also a greater initiative that the
government of Ethiopia introduced and underway, Tourism Transformation Council, that intended
to transform the tourism sector so as to benefit the country.
3.2. PROJECT DESCRIPITION

The concept of this project is contained in five-stars standard hotel in the project area by
fully G+20 constructing modern panoramic with other emergency exit stairs and installing
multipurpose modern and cultural bar and restaurant services, meeting & conference room
services, shopping centers, sauna bath & steam services, and other facilities to its customers.
It is assume that the project will be implemented and attain a full capacity operation
within two years period, during which time the project is expected to undertake building
construction activates, purchase, import and install the required machinery and equipment in
order to be able to star up the improved service provision activity with 70% of its
capacity, that grows time to 80%, 90% and eventually attaining 100% of the estimated full
capacity.
For financial analysis and evaluation purpose, the average charging rates for similar service
activities in the city have been taken into account. After undertaking detail computation of
costs and benefits, in order to attract customers and penetrate the market easily, it is
suggested to add on the average of 30 % profit margin and charge for meals and beverages
a relatively reasonable price on its standards.
The total estimated initial investment cost of the project is estimated to be about birr
600,000,000.00 from the total investment cost 60% is assumed to be financed by long-
term bank loan obtained in three phases, of which 49% will be required in foreign currency
and the remaining 40% of the total investment cost will be covered by equity capital
contribution of the owner/investor.
3.3. PROJECT OBJECTIVES
3.3.1. GENERAL OBJECTIVES

The overall objectives is to increase income of the promoter by providing well diversified
hotel service and other related activities that satisfy its customers and create job
opportunities for 154bskilled and semi skilled citizens.
3.3.2. SPECIFIC OBJECTIVES

The hotel project has the following project is specific objective
• To provide modern hotel services at reasonable price with better quality and
diversified services to local and foreign tourists.
• To reduce the scarcity of standard hotel accommodation for the ever growing
number of tourists in Tigray and particularly in Mekelle.
• To make profit from the value added services
• Create employment opportunities for at least 32 local people.
• To generate revenue for the local government through profit tax, employment tax
etc.
• To motivate tourists to come to the region
• Generally it will have a forward linkage on the development of region.
• To improve the quality of life and livelihood of customers in the city and new entrant
tourists who came to the city by providing modern, diversified hotel services at faire
price such as a multipurpose modern and cultural bar and restaurant services , meeting
& conference room services, sauna bath & steam services bath services, and other
facilities to its customers
• To combine the acquired knowledge, work experience and financial resources
• To strengthen the city’s capacity national and international seminars, conferences, and
other related activities
• To build good will of the region and the country nationally and internationally by
making the city a home of many tourists.
• To support and promote governments policy up on tourism industry by providing
standardized hotel services.
3.4. IMPLEMENTATION STRATEGIES
To achieve his immediate objectives, the promoter has decided to implement following
strategies depending .
• The service to be rendered is based on the technical recommendation in order to

provide quality services with minimum costs to maximize profit through customer
satisfaction.
• Follow closely the actual and potential customers behavior reaction to the service
delivery quality and respond accordingly
• Conduct market research to look for other opportunity for expansion, integration,
competition and specialization.
• Using all marketing channels step-by–step focusing in the short run marketing
contractual agreements with sport clubs, training institutions , hospitals, clinical
centers, universities, tour operators and the like.
4. TECHNICAL ANALYISIS
4.1. PROJECT AREA
+20
The G hotel project currently has been constructed in a total area of 20,000m2 of land.
All details about structural drawings and other related civil works are found in the bill of
quantity proposed by professional engineer. The hotel is currently under construction and the
ground part of the front building is constructed. The total cost of construction will be Birr
514,000,000.00
4.2. SITE LOCATION

The major aspects to be considered in site selection for establishment is existence of
possibilities of continuous supply of required manpower, raw materials and other inputs and
accessibility and proximity of the customers to their residential areas by easily taking taxis
and buses. Geographically, the hotel is located at the newly developed business area of the
city in Around “Mizer” sub city.
The site is well endowed with the entire necessary infrastructure and utility such as road, water
supply, electric and telephone lines, b/s of these facilities local and international business visitors
often come to Mekelle either to make business and shopping or pass through to other parts of the
region would like to have an interest to stay, to eat and drink and so forth, in such nearest place,
the establishment of modern hotel in the market area makes it desirable and very important .
Source: New Mekelle Strategic plan document 2015

4.3. THE PRODUCT AND/OR SERVICES;
Currently the hotel renders the following services such as bar and restaurant services, bed
room, meeting & conference room services, sauna bath & steam services indoor and outdoor
services, seeming and recreation with all the standard amenities. Now the owner plans to project
hotel into 5* star Luxurious hotel to render well diversified hotel services. The quality of
the service, color flavor, cleanness and hygiene of the food and drinking items including the
compound will be given greater attention in order to make their customers happy.
Experienced cooks and staffs as well as technicians will be hired to better service quality
according the recommended hotel management practices.
4.3.1. PROPOSED FACILITIES SUMMARY

S.N FUNCTION SPACE NO. TOTAL
NOTE REQUIRMENT AREA
PER FUNCTION (M2)
(SFT)
1 Public Space
Front Desk 160 01 14.86
Lobby 1000 01 92.90
Lounge 1600 01 148.64
Toilet 5 24.15
Total (with 30% circulation) 364.74 sq.m
2 Administration
Front Office
Reservation office 150 01 13.94
Front office manager 140 01 13.01
Room manager 140 01 13.01
Secretary 140 02 26.01
Accounting section 100 01 9.29
1600 01 148.64
150 01 13.94
03 14.86
Total (with 30% circulation) 328.51sq.m.
3 Executive office
Secretary 140 01 13.01
General manager 160 01 14.86
Assistance General manager 160 01 14.86
Food & beverage manager 200 01 18.58

Storage 500 01 46.45
Toilet 05 120.77
4 Sales and catering office
Secretary 150 13.94 13.94
Banquet manager 140 13.01 13.01
Conference service manager 160 14.86 14.86
Catering 500 46.45 46.45
Convention Coordinator 140 13.01 13.01
Storage 500 46.45 46.45
Toilet 03 44.59
Total (with 30% circulation) 250 sq.m.
5 Halls
Lobby + Lounge 2000 1500 139.35
Banquet Hall 500nos 15000 1393.55
6 Restaurants
Main restaurant 16 350 520.26
Shrimp restaurant 16 200 297.29
Breakfast hall 16 100 148.64
Cafe 16 80 118.92
Bar 4000 371.61
Storage 500 46.45
Total (with 30% circulation) 1954.12 sq.m.
7 Recreation facility
Swimming pool
Indoor swimming pool 01 1000 92.90
Outdoor swimming pool 01 3000 278.71
Office 150 13.94
8 Health club
GYM 1000+800 02 167.23
Sauna 200 02 37.16
Steam bath 150 02 27.87
Message 150 02 27.87
Locker, Change room 300 02 55.74
9 Indoor Game 2000 01 185.81
Library 4000 01 371.61
Beauty parlor 300 01 27.87
Barber shop 200 01 18.58

10 Outdoor facilities
Tennis 1337.80
Basket ball 436.64
Hand ball 371.61
Squash 209.03
11 Business Center
Lobby 74.32
Communication cell 37.16
Conference hall 26 150 362.32
Meeting room 300 05 139.35
Audio visual 18.58
Journalist room 18.58
Exhibition & Trade center 743.22
12 Guest rooms
Single 350 120 3901.93
Double 450 80 3344.51
Twin 600 30 1672.25
Suites 850 20 1579.35
Executive suite 1500 10 1393.55
Back of house
Receiving area
Storage area
Dry food Storage 139.35
Refrigerated food Storage 92.90
Non food Storage 139.35
13 Main Kitchen (Total area of the following)
Restaurant 111.48
Ballroom & banquet 46.45
Cocktail lounge 27.87
Hotel guestroom 65.03
14 Employee facilities
Security & timekeeping 01 278.71
Changing & toilet facilities 01 37.16
Dining room 01 92.90
Rest room 300 02 55.74
Training & interview room 01 92.90

15 Laundry & housekeeping
Laundry 150/floor 10 139.35
Housekeeping 250/floor 10 232.26
Supervision 120 10 111.48
Store 160 10 148.64
16 Engineering & mechanical
Engineers office 37.16
Maintenance workshop 92.90
Electrical areas 278.71
Air Conditioning 557.42
Generator and pump 185.81
4.3.2. Internal facilities/furniture/equipment for bed room services
As explained in the project description part, the proposed modern hotel project will be
constructed and equipped using standard material, furniture, equipments, and
machineries bed room services furnished with highest quality material. The furniture,
machinery and equipment required for the hotel will be imported from abroad. The
detail required materials are described here after.
Every bed room shall have imported wooden bed, wooden cupboard, mattresses and
pair of pillow, blanket and sheet, television, telephone, refrigerator
Apart from the internal facility furniture required for the bedrooms, there is also a
need to buy furniture and equipment for the reception, manager office, restaurant,
meeting halls, bar, internet café, laundry business centers etc the expected cost for
those furniture will be 44,801,224.79 Birr and the detailed list of these items is given
here below briefly as follows:
Sr. Unit of
Description Qty
No. Measure
1 Bar & Cafeteria
Coffee machine 10 lt Pcs 5
Armed chair Pcs 600
Sr. Unit of
Description Qty
No. Measure
Oval shaped table Pcs 200
Umbrella Pcs 50
Juice glass Set 250
Tea spoon Pcs 500
Coffee spoon Pcs 500
Juice strainer pcs 20
Juice glass Set 250
Water glass Set 1250
Coffee cups with saucer Set 250
Tea cups w/saucer Set 250
Ice cream box Pcs 10
Water sprinklers Pcs 30
Water hose nylon rope reinforced 25.4 mm dia, 36 mt length with Pcs 8
clamp
Gardener kit Set 8
Children Play ground set 3
Two chain rope swing with steel site and stand Set 10
Plastic made Slide and hide tower (2- 8 years) Set 20
15ft x 42 in. plastic made play tunnel Set 10
Merry-go-round (made of steel) Set 10
See-saw (made of steel) Set 10
Sand filled pits, 5m2 Set 30
Coin operated toy vehicles Set 20
Coin operated video game machines (different type) Set 16
2 GUEST ROOMS
BED ROOMS Pcs
Bed-2.2*1.90 Pc 260
Bed side armoires-wood with 2 chest Drawers Pcs 260
Sofa- single seat upholstery 2 for each room Pcs 260
Coffee table- round glass top Pcs 250
Chair- wooden Pcs 250
Luggage rack- movable & flexible Pcs 250
Wardrobe – wooden built-in with Partitions Pcs 250
TV set – 43-55 inches , flat screen Pcs 280
Telephone Pcs 275
Bath Pcs 280
Shower Pcs 280
Toilet seat Pcs 280
Washing basin Pcs 275
Mirror Pcs 280
Sr. Unit of
Description Qty
No. Measure
3 RESTAURANT Pcs
Tables- round Pcs 125
Chairs Pcs 400
Side service tables Pcs 50
Service trolleys Pcs 20
Cupboards Pcs 20
Main dish Plate with rim- 20 cm Pcs 600
Soup cup with saucer Pcs 180
Salad plate Pcs 200
Bread plate Pcs 100
Salt & pepper –set Pcs 100
Butter holder/dish Pcs 100
Coffee cup with saucer Pcs 180
Tea cup with saucer Pcs 180
Soup spoon Pcs 180
Main dish knife Pcs 200
Forks Pcs 200
Salad knife Pcs 200
Dessert bowl Pcs 200
Water glass Pcs 200
Red wine glass Pcs 100
White wine glass Pcs 100
Champagne glass Pcs 100
Liqueur glass Pcs 100
Cocktail glass Pcs 100
Beer glass Pcs 120
Wine cooler with stand Pcs 12
Ashtray Pcs 40
Cash register Pcs 4
Wine storage shelf Pcs 10
4 BAR Pcs
Tables Pcs 40
Chairs Pcs 160
Bar counter Pcs 2
Beverage shelve/ cupboard Pcs 2
Bar stool (counter chairs) Pcs 8
Bar coffee machine Pcs 1
Mixer & Juicer Pcs 2
Beverage dispenser Pcs 10
Sr. Unit of
Description Qty
No. Measure
Water glass Pcs 200
White wine glass Pcs 50
Red wine glass Pcs 50
Wine cooler Pcs 4
Ice bucket Pcs 10
Cash register Pcs 10
5 COFEE SHOP Pcs
Coffee shop counter unit- custom built Pcs 1
Coffee machine Pcs 1
Long-leg counter stool Pcs 5
Chair with coffee table (set) Pcs 20
Coffee cup with saucer Pcs 50
Tea cup with saucer Pcs 50
Sugar holder (for all outlets) Pcs 20
6 KITCHEN
Electrical & gas grill with six burners Pcs 5
Microwave oven-20nos Pcs 5
Salamander Pcs 5
Deep fryer Pcs 5
Mixer Pcs 5
Silcer Pcs 5
Hot – water bath ( bain maire) Pcs 5
Freezer Pcs 5
Stock pot(50 liters) Pcs 8
Sauce pan Pcs 13
Sauce pot(50 liters) Pcs 15
Boiler( 30 liters) Pcs 4
Baking pan Pcs 3
Roasting pan Pcs 5
Scale(portion) Pcs 1
Scale Pcs 1
Measuring spoons Pcs 5
Chef’s Knife (10 in.) Pcs 5
Salad knife (6 in.) Pcs 2
Vegetable knife (2in.) Pcs 3
Boning (6in.) Pcs 4
Slicer knife (12in.) Pcs 2
Bucher’s knife(12in.) Pcs 2
Cleaver (4in.) Pcs 1
Sr. Unit of
Description Qty
No. Measure
Vegetable peeler (set) Pcs 1
Cutting Board – hard rubber Pcs 4
Pastry wheel Pcs 2
Kitchen spoon ( perforated) Pcs 4
Kitchen spoon( solid) Pcs 10
Tongs (long) Pcs 2
Grater (normal size) Pcs 1
Can opener Pcs 1
Kitchen counter top, with cupboard Unit Pcs 1
Sink unit (900 / 1600mm) Pcs 2
Wall attached shelves Pcs 2
Refrigerator (self contained)- 1500lt Pcs 2
Hot cupboard (warmer) Pcs 2
Ice cream machine Pcs 1
Dishwashing machine Pcs 2
7 HOUSEKEEPING Pcs
Cleaning trolley Pcs 5
Supplies and linen storage shelf unit Pcs 3
Wet and dry floor cleaning machine Pcs 4
Vacuum cleaner (upright) Pcs 5
Mop trolley with squeezer Pcs 5
Buckets big size Pcs 5
Buckets small size Pcs 10
10 Stand By Generator Set With Canopy And Accessories(100KVA) Unit 1
N.B the equipments will be bought both in domestic and foreign markets
5. ECONOMIC OVERVIEW
5.1. Introduction
The market potential of hotel properties are influenced by National, Provincial and local economic
conditions. Accordingly, the analysis has included a review of recent economic performance in
Ethiopia, for the Town of Mekelle specifically, in order to assess potential implications for the
accommodation market and the subject hotel.
5.2. MARKET ANALYSIS;

The proposed hotel is to be located Arround the new developed city center and would
compete within three competitive accommodation markets; the local Hotels accommodation
market; the regional accommodation market, and on a national scale accommodation market,
which includes a mix of hotels in various locations across the province.
5.2.1. Local Competitive Accommodation Market

The local Hotels accommodation market is comprised of approximately 5 three star and one four
star Hotel. the greater part of the existing accommodation supply in Mekelle is considered to be
tired and does not satisfy the needs of transient guests, especially for corporate demand and
meeting/conference groups or sports teams.
5.2.2. Regional Competitive Accommodation Market

The proposed subject hotel development would compete regionally with Mekelle Hotels as
well as with Hotels near Mekelle cities located in Tigray. This combined regional market is
considered to be the primary competitive market for the proposed hotel. Mekelle is the second
tourist attraction area next to the city.
According to data research bureau of culture and tourism 2014 number of tourist places where they
visit is as follows
TABLE-2 Number of tourists in Tigrai region (most tourist destination area)

Year Number of visitors Contribution Contribution Contribution
Axum city Mekelle city Wuqro city
2013 26126 18032 2561 5533
2014 29097 19792 2286 7019
2015 30135 21771 2474 6290
%age 70% 22% 8%
Source: bureau of culture and tourism 2014
The economic vitality of the market area and neighborhood surrounding the subject site is an
important consideration in forecasting lodging demand and future income potential. Economic and
demographic trends that reflect the amount of visitation provide a basis from which to project
lodging demand. The market area is determined the local market will undergo economic growth and
stabilize.
The demand for the recreational and entertainment service in modern hotel is an aggregate demand
of the target, group of the Mekelle population, foreigners who visit Mekelle, businessmen and
other tourists. As the size of the city population raises from time to time. So does the demand for
recreational amenities and entertainments will increase. this promotes the investor to build and
established modern with its full facilities so as satisfy the demand.
According the year 2014 Ethiopian central statistics population projection report, in 2014 the
population of Mekelle city inhabitants is 307,304 and in 2015, 2016, 2017 will reach 323,708;
340,858; 358,529 respectively and this figure assumed to grow at 2.3% per annum,
accordingly the projected population of the city is presented for year 2014, 2015, 2016 and
2017 respective, if we assume that 1% of these population have the capacity to visit our
hotel twice a week, then the annual number of the population that demand our hotel service
will be 30,730, 32,370, 34,058 and 35,852 customers respected.
5.3. MARKETING STRATEGY

5.3.1. TARGET CUSTOMERS
The target market of the project is very wide in nature. All the tourists/visitors whether domestic or
international are the major target market for the project. On the same time, it could also be a
facility for the corporate clients who visit Tigray specifically Mekelle on business purposes and
want to hold seminars/workshops etc. Similarly, the local residents of Mekelle and adjacent areas
could also be one of the major components of the target market who could not only stay overnight
at the huts but also could enjoy see view dining, lunch or evening tea.
5.3.2. MARKET POTENTIAL

As discussed earlier, currently there are no such more facility available in the whole city,
therefore, its uniqueness would attract its customers to have a different and new experience
staying at its family huts and/or enjoy the palace view meals. Also for corporate culture, its palace
view conference hall would also provide a very unique environment.
5.3.3. PRICING STRATEGY

Since the project has a very wide range of customer class, the pricing strategy should be
appealing enough to give its customers the value of their money spend while using its
services. On the same time, the charges should neither be very high to compete with nor
very low to give negative impression in the market. After carefully analyzing the current
hotel/motel cluster in Mekelle, it is proposed that the customers should be charged
somewhere between birr 850 to 2200 per night. The investor can always shuffle the charges
according to the market situation and seasons. However, the investor can always attract customers
to stay as well adding more revenue to the project.
To assure continuous and sustainable income, the project has to use different marketing strategies
some of the techniques to be used will be
• Keeping the service quality standard as technically recommended

• Adjusting competitive price and quality of service to generate more income on
sustainable bases .
• Making contractual agreements with big potential customers such as training centers,
military institutions , university, college, others
• Providing diversified hotel service with full accommodation of food and beverage items
5.4. PROMOTION MECHANISUM

To create initial good imp ration of the hotel, the following promotion activities will be
carried out step by step depending on the stages of the project .
• Bill board announcement.

• Hand written posters posted at Visible places
• Advertising during holydays through television, others
• Advertising using brochures, pamphlets, and leaflets.
5.5. MARKET APPRAISAL

The general assessment conducted in Mekelle shows that exists no more sufficient hotels in
the city that satisfy the need of customers in all aspects of diversified services especially
this one is near to the main road that connects the Industry Park and the rail station of Mekelle.
During the assessment, many travelers Using the bass station, university lecturers and students,
merchants, tourists and couple youths were approached if their demand for hotel service is
satisfied or not but most of them responded that the major problem is not only the
availability of service but also they suffered with poor quality service and higher price rate.
Therefore; this phenomenon assures that the promoter is quite more reliable as there is no
exists amount of standardized hotel that render satisfactory services.
5.6. SUPPLY AND DEMAND ANALYSIS

The developer selected a set of hotels that would compete with the 260-room of the hotel based on
the following factors;
o the standard scale of the hotel (budget, economy, select-service, full-service),
o its proximity to the site of the Proposed Hotel near to the Industry park and the newly
developed city center “Mizer”, and located at the center of business area
o the condition of the hotel, and
o The services levels within the hotel.
o Nationally the second populated city and high urbanization
5.6.1. MARKET DEMAND:

According the year 2016 projection report, the current population of Mekelle city inhabitants
is 446,315 and this figure assumed to grow 2.3 % per annum (source: Mekelle city Administration).
Now the city is divided in 7 sub city, furthermore; the city has many small scale private
and public institutions, factories, tourists and passengers who came to the city for visit,
business and non business activates or to pass over through the city to other parts of the
region and the general public in Mekelle and around the city are considered as potential
customers for the project.
5.6.1.1. DEMAND ANALYSIS

Given the assessment of supply discussed below, lodging demand growth is analyzed in order to
predict the environment for success for the proposed Hotel. The hotel is able to serve quality and
traditional services with fair price and compete with other centers in the city. These considerations
are reflected in the projections below. A new hotel that induces demand to the market will not only
help absorb existing demand and future growth in the market, but it will also be a demand generator
for corporate and association meeting business that is currently held elsewhere.
The proposed Hotel would also induce significant demand into the market and maximize the ability
of bedroom facilities. The primary source of this demand would be group business and recapture of
suburban demand.
5.6.1.2. POTENTIAL DEMAND

While there currently does not appear to be much un accommodated demand in the market, as the
economy continues to grow, demand will continue to be in balance with or outpace hotel room
supply for several years, especially during peak periods of the year and when larger conventions
come to the market and during the popular leisure months. Also expect that there will be many
more groups that can be accommodated in or will consider, especially if a new hotel with
substantial meeting space is provided. This incremental demand can be partially accommodated by
the development of an additional hotel within close proximity to the hotel. In turn, the addition of
the hotel will induce more demand to the market itself primarily in the group sector and help
maximize the ability of the hotels to host events. An additional hotel will be able to accommodate a
portion of this demand, but overflow demand will be pushed to other area hotels, benefiting the
market.
5.6.1.3. PENETRATION RATE ANALYSIS

Occupancy penetration is the ratio of a particular property’s actual room nights captured compared
to its fair share. Fair share is defined as the ratio of the property’s number of rooms to the total
rooms in the defined competitive supply.
The hotel has 260 rooms and the market has 7,562 rooms, its ‘fair share’ of business would be 2
percent of a market’s room nights. The ratio is then applied to the total market demand by segment
to measure the property’s actual room nights captured compared to its fair share of room nights.
The largest share of room nights would come from the aggregate of different demand segments.
Characteristics considered in this analysis include, but are not limited to, location, market
orientation, pricing strategies, chain affiliation, facilities, and amenities.
The Hotel is expected to penetrate the market more than 100 percent from year one on due to its
size, strategic location, standards and rewards program, and its full-service amenities.
TABLE-5 DEMAND FORECAST HOTEL ACCOMMODATION FOR THE 10 YEAR

Year Demand by Demand by Total demand Remark
residents passengers
2019 277248 2276923 2554171
2020 291072 2390769 2681841
2021 305664 2510307 2815971
2022 230928 2635822 2866750
2023 156192 2761337 2917529
2024 81456 2886852 2968308
2025 6720 3012367 3019087
2026 68016 3137882 3069866
2027 142752 3263397 3120645
2028 217488 3388912 3,171,424
Source: bureau of culture and tourism
Excluding tourists’ number of customer are increasing year to year by 23% including passengers
and local residents.
TABLE 6 PROJECTED NUMBERS OF TOURISTS

s.no Year Projected number of tourists % increasing
3 2019 1371202 23
4 2020 1686578 23
5 2021 2074491 23
6 2022 2551624 23
7 2023 3138498 23
8 2024 3860352 23
9 2025 4748233 23
10 2026 5840327 23
Source: bureau of culture and tourism
According to the above table number of tourists’ arrival will increase routinely by 23% annually
and in the near future 2018 when the hotel begin its operation the number of tourists will reach
1,114,798 excluding number habitants, passenger and businessmen.
5.6.2. DETERMINATION OF SUPPLY

The market survey in Mekelle city reveals that there are some public and privately owned
hotels that provide bed room services of which from these there are only very few hotels
that provides reasonable good hotel facilities otherwise most of the hotels have un
satisfactory facilities with poor sanitation conditions, based on the assessment, the occupation
rate of the bed rooms are found to be between 75% - 90% however, for the purpose of our
study also 75% is considered to be occupied, the existing and planned supplies are
forecasted to be grown by 5% in the same population for the first ten years.
TABLE-7 INVESTMENT LICENSE of STAR HOTELS

Star Investment Investment Investment Investment TOTAL
Hotel project under project under project under project nil at
operation implementation pre- the ground
(Actual data) implementation
5 star - 16 0 0 16
4 star 1 9 2 3 15
3 star 14 35 8 6 63
2 star 9 31 18 2 60
1 star 4 21 11 1 37
TOTAL 31 109 39 12 191
Source: Mekelle Investment office 2015
According, to the above data there will be big gap between the supply and demand only 191 hotels
which receive license, 12 hotels are not exist at the ground. The promoter forecast the demand of 2
star hotels because there is only 60 hotels under-construction. Strategic plan GTP-2 of Tigray
government bureau of culture and tourism setting a plan of being Tigray preferable place of
tourists, national in 2020 number of tourist arrival and receipts will be reach 4 million and
regionally 1.1 will be visited.
Information from office of culture and tourism the projections assume that there is no more new
hotel in the sub-city area during the two-year projection period.
Looking back to the same report for December 2014, over 148 hotels are under construction with
almost 191 in the planning and final planning stages. So while there is slight an increased level of
proposed hotels across the town. The above trend shows that tracking only newly constructed hotel
rooms does not tell the complete story of the changes in hotel supply.
5.6.2.1. COMPETITIVE POSITION

The competitive position of a property determines, in large part, its ability to generate higher hotel
room rates. The hotel will serve with high comparative quality to the rest of the competitive set as
well as a good location to penetrate the competitive set rate. The proposed Hotel is large, the newest
hotel in the market, and a part of the few hotel inventory. For that reason, the Hotel is expected to
penetrate the average rate higher than 100 percent even with its higher reliance on group business.
However, it will most likely discount rate somewhat in the first year to establish a strong base of
business.
According to data research bureau of culture and tourism 2014 number of tourist places where they
visit is as follows
TABLE-8 NUMBER OF TOURISTS ARRIVED AT MEKELLE IN 2014

Name No of tourists Total
Male Female
1 Number of Tourists 20077 10330 30,407
TOTAL 20077 10330 30,407
Source: Mekelle office of culture and tourism
The Town of Mekelle attracts approximately 30,407 visitors annually according to the Town of
office culture and tourism. The primary driver of visitation demand is Atse yohannes palace,
“Hawelti semaetat” and churches. Eco-tourism is a growing market as tourists continue to
explore the non-attraction based activities in the area. Only few hotels are star hotels with
good facilities.
TABLE 9 HOTELS HAVING ACCREDITATION

S.no No accreditation Total With accreditation Total
subcity
Pension hotel Pension Hotel
1 Qedamay weyane 2 1 55 21 15 36
2 Ayder - - 6 2 1 3
3 Hawelti - - 28 3 3 6
4 Adihaqi - - 8 2 2 4
5 Hadinet - - 6 2 4 6
6 Semein 11 2 2 4
7 Kuha - - 1 - 3 3
TOTAL 2 2 115 32 30 62
Source; Mekelle culture and tourism office
Based on the above table most of the hotels are not acceptable quality hotels but tourists need first-
rate style hotels. Out of all 177 hotels and pensions 115 hotels and pensions (65%) have not get
accreditation by concerning office or 35% of hotels and pensions are only ready for customers.
TABLE-10 NUMBER OF BEDS IN MEKELLE

Ref. Number of beds No Rooms No of Beds
1 TOTAL 1147 1219
Table 11 Pension In Mekelle City

Ref. Number of Pension/Hotel No Rooms No of Beds
1 91 1338 1343
TOTAL 1338 1343
Source: International Tigray festival 2014 organizing committee
Despite it is hard to get data of number of bed rooms from concerning governmental body, the
number of tourists who had visited Mekelle during last year is 30,407 and number hotel rooms
including pension is 2562. Based average 5 days staying tourist’s desire about 6082 rooms,
according, to the above data there will be big gap between the supply and demand. Strategic plan
(GTP-2) of Tigray government bureau of culture and tourism setting a plan of being Tigray
preferable place of tourists, national in 2020 number of tourist arrival and receipts, will reach 4
million and regionally 1.1 million will be visit. Indicated that there is sufficient demand for the
services of star hotels in the region particularly Mekelle.
Besides serving tourists the hotel could be a good center for passengers due to near to
industrialization in the city on the other hand, as GDP and per capita income of the population
increase local people will try to spend their leisure time with their families in such quality hotel. In
this respect it is of paramount importance to establish neat, clean and medium modern and
traditional hotel that could accommodate foreign and local tourists so as to enjoy and to get quality
service. The implication for conducting hotel market analysis is not much on the supply side. With
the creation of different products to meet the needs of consumers, demand is no longer merely a
function of price and economic and demographic trends. It is a continuously evolving product,
created by chains, to expand by finding narrower market niches.
In mekelle town hotels are very limited, competition is limited as well and most three star hotels are
high priced average price per night are between 750 to 1750 birr the quality is not given
automatically in the market. The economic hotel supply in Mekelle is inefficient to oppose the
existing demand and extremely limited by the security factor. However merely 35% of the hotels
are of acceptable quality.
When we look to the supply aspect, there are no enough buildings giving multipurpose function in
the town. For instance in 2016 about 6500 room (53 star hotels) are big gap and with same
calculation about 5157 normal room are shortage of supply. There are only 31 in number existing
hotels in the town available with very limited services. The existing hotel in the town are few in
number in comparison with existing population apart from this they did not provide a range of
services. Henceforth, as there are no enough hotels with better quality with variety services, at
reasonable price the construction of this modern hotel is highly expected to be a preference and test
of many businessmen, governmental officials’ tourist, and inhabitants at large. Based on the above
analysis there is a supply and demand gap on getting modern hotel services in the town therefore,
the establishment of such kind of modern hotel having different services in the town will be more
feasible and have a great contribution for the ever increasing demand for hotels.
6. TECHNOLOGY AND ENGINEERING

The main processes of establishing modern hotels at Mekelle city include studying the market,
securing land, constructing buildings, equipping and furnishing the buildings and starting the
operations of the businesses.
6.1. MACHINERY AND EQUIPMENT

Machinery and equipment required for a modern hotel could broadly be classified into four
categories. These are;
• Bed room furniture, (includes beds, mattress, blankets, bed sheets, tables, chairs, cap
boards, etc)
• Hotel furniture and equipments (tables ,chairs, glasses etc)
• Restaurant furniture and equipments ( tables, chairs, refrigerator, glasses, etc)
• Kitchen utensils ( forks, spoons, trays, dish, deep freezer, etc)
• Indoor and outdoor game facilities
• Kids corner facilities
• Conference and concert stages
6.2. CIVIL ENGINEERING COST

The proposed project will have ground plus twenty (G+20) floors with best architectural and civil
design and attractive finishing. The detail purpose of the building are described below
✓ Ground floor café, Bar, beauty salon, laundry, reception office, store, toilet and shower for
gents and ladies
✓ 1st floor Meeting and restaurant,
✓ 2nd, 3rd - 20th floors for bedrooms
✓ The compound will accommodate sauna and steam bath.
Internal facilities/furniture/equipments for bed room services
As explained in the project description part, the proposed modern two star hotel project will be
constructed and equipped using standard material, furniture, equipments, and machineries bed room
services furnished with highest quality material the furniture machinery and equipment required for
the hotel will be imported from abroad. The detail required materials are described here after
Every bed room shall have imported wooden bed, wooden cupboard, mattresses and pair of pillow,
blanket and sheet, television, telephone, refrigerator
Internal furniture /equipment/machineries for hotel services
Apart from the internal facility furniture required for the bedrooms, there is also the need to buy
furniture and equipment for the reception, manager office, restaurant, meeting halls, bar, internet
café, laundry business centers etc the expected cost for those furniture will be 44,200,000 Birr and
the detailed list of these items is given here below briefly as follows:
7.3. RUNNING COST

The proposed project will require a running budget to operate the hotel and business center
smoothly up to the plan, the running cost will require for the operation of the bar, restaurant,
business centers etc. Accordingly the project will require a running cost as indicated in the last page
table of the modern hotel services.
7.4. SERVICE AND REVENUE PROJECTION

When the proposed project is completed, it will provided different services with better quality and
reasonable price to the society, business men, higher officials and delegates, and local and local and
international tourist. The project will start its services after two years which for acquire and
construction of the hotel accordingly and then to furnish the hotel as per the required quality.
For the purpose of market test and getting important experiences on the new modern hotel begins
its service operation at 70% capacity services of the project therefore. Full capacity service
operation will start from the fourth year. Based on the information obtained and assessed from the
existing similar service provider business centers of the town, the annual income to be generated
from each of the services of the project at full capacity operation is estimated as follows.
A. Bed Rooms
The proposed project has got 260 bed rooms in total out of which 120 of them are single, 80 double
bed rooms, 30 twin, suit, executive and presidential. All the bed rooms are self contained having
bathroom, television and built in cupboard. In addition to this all the rooms have 2.5x2m imported
bed, two chairs and one table, satellite TV, and internet access.
B. Sauna and Steam bath services

These services will be provided in a more advanced way by constructed a newly modern
construction and equipped with up to date equipments and machinery. The area of the service is
situated in another block out of the hotel complex around the other corner to provide service to the
town dwellers. It will have independent service for both gents and ladies including modern
changing room, shower with boiler and toilet room.
C. Bar and café services

This will be provided in the ground floor of the building under this service hot drinks coffee, tea
milk etc. and cold and alcohol drinking (soft and mineral water, beer, wine, different alcohol …)
and fast foods etc… will be served on all time and the meeting hall participants will also use
refreshment during the break time.
D. Meeting hall services

The proposed modern hotel has one hall with capacity of more than 150 participants. The meeting
halls will serve for special events, workshops, seminars, wedding ceremonies, cinema show,
conference etc…
E. Restaurant services
The proposed hotel project will serve out local and foreign dish in breakfast, lunch and dinner time
to both the local and overseas people. Since the hotel will be constructed along the main road many
domestic and foreign tourist are expected to dine. The expected income from the restaurant
assuming 100 persons use the service at all times of the meal time breakfast, lunch and dinner.
F. Business Center Services

The proposed hotel will have its own business service centers which are highly related with the
operation of hotel works such as tour operators, internet and telephone business service, beauty
salon and barber service center, cosmetics and souvenir shop center etc in the ground floor of the
hotel building and all the services will be operated under the hotel management.
G. Sweeming pool
The proposed hotel will have two categories of sweeming pool (of Children and Olympic size for
adults) where it his highly fall below the demand for the service in the city as well as the region and
this will also one source of income for the project.
7.5. ORGANIZATION AND MAN POWER

The proposed project will be managed by well experienced manager through recruited from the
local labor market. The manager shall be responsible for the overall management of the business
and shall plan, coordinate and mange the project activities under the close supervision of the owner
of the understudy project. The manager is also responsible for the day to day activity of the hotel.
Other supporting staffs responsible for different activities are also listed in the table below. It is
expected to create permanent employment for 154 persons. The total annual salary of the
employees is estimated about birr 5,487,840.00 per annum and the organizational structure and list
of human power was described as follows.
GENERAL MANAGER
Finance & Administrator Marketing and custom service
Purchase & Accounts service Bar & customer service customers
Personal & General service Bed rooms, conference hall service
Table -12 Human Power

Man power Requirement (in Number Monthly
birr) employee Salary Yearly Salary
1 General Manager 1 10000 120000
2 Finance& Administration 1 8000 96000
3 Marketing & customer Service 1 6000 72000
4 Personnel officer 1 4000 48000
5 Accountant 4 4500 216000
6 Purchaser 4 3000 144000
7 Cashier 4 2500 120000
8 Store keeper 3 2800 100800
9 secretary/ operator 5 2500 150000
10 Receptionists 5 2000 120000
Man power Requirement (in Number Monthly

birr) employee Salary Yearly Salary
11 Coffee machine operator 4 3500 168000
12 chef cooker 5 8000 480000
13 assistant cooker 6 5000 360000
14 Waiters 36 1500 648000
15 Cleaners 40 1500 720000
16 Messenger 2 1800 43200
17 plumber& technicians 4 2000 96000
18 Greener 12 1750 252000
19 Drivers 12 3500 504000
20 Guards 8 1200 115200
sub Total 32 4,573,200.00
22 Fringe benefit 20% 914,640
5,487,840
Total
7.1. Training Requirement

For Hotel services trained manpower is available in the market and additional training will be given
on site and can be also given by training institutions as required.
8. INVESTMENT AND FINANCIAL ANALYSIS

Major assumptions considered in undertaking the financial analysis of the proposed project are
✓ The implementation period of the project is assumed to be 2 years

✓ The project will start its service provision operation at 60% capacity. Then it will reach full
capacity in the fourth years.
✓ Fixed assets of the plant is assumed to depreciate on the basis of straight line method
o Building depreciations taken 5% per annum
o Machinery and office furniture depreciation 10% per annum
o Vehicles depreciation rate 20% per annum
o Pre operating expenses will be amortized by 25% per annum
✓ It is assumed that 70% for the project investment will be financed by bank loan and the
remaining 30 % by owner’s equity.
✓ Business income tax is assumed 35% from the annual gross profit before tax less the
deductible amount.
✓ Bank repayment period is for ………….15years
✓ Bank interest rate is taken 8.5%
✓ Repair and maintenance rate is taken 5% for building, 10% for furniture, equipment and
machineries and 5% for project vehicles.
8.1. INVESTMENT COSTS

This cost category comprises capital requirement for the construction of building and purchase of
furniture, machineries and equipment and vehicles.
TABLE-13 CAPITAL REQUIREMENT

Description Total cost (birr)
Land lease price 1,760,096
Construction cost 440,889,747.62
Hotel equipment and facilities 44,801,224.79
Office Furniture and equipment 8,275,000.00
Machinery and vehicles 16,500,000
Pre-production expenditure 2,088,867.50
Fixed total 514,314,936
Working capital 82,041,384
Total 596,356,320.00
8.2. Production/Service cost

The annual production cost at full operation capacity is estimated at birr 82 million. (See table-
below)
TABLE-14 ANNUAL SERVICE COST AT FULL CAPACITY ( IN BIRR)

S.No. ITEMS COST
1 Raw material and Inputs 33,006,208
2 Utilities 4,131,464
3 Maintenance and repair 3,150,000
4 Labor direct 5,487,840
Training cost 350,000
5 Administration cost 1,836,400
6 Total Operating Costs 47,961,912
7 Depreciation 22,079,472.00
Cost of finance 12,000,000
8 Total Production Cost 82,041,384
8.3. Pre-operation Capital expenditures:

The pre-operation expenditure, which have to be capitalized, including the following cost items that
originate during the various stages of the various stages of the project formulation and
implementation
1. Cost of preparatory investigation and pre-investment studies such as feasibility study,

preliminary surveying and designing
2. Detail planning and tendering as well as erection, supervision and coordination of
implementation works
Based on the assumption the pre-operation capital expenditure has been estimated about 4% of the
total investment costs
8.4. Working Capital

Working capital requirement includes for payment of utility expenses, employees salary and other
related recurrent expenditures for the first month of the project operation. Due to the specific nature
of the project under consideration, about 16% of the total capital investment costs comprise
permanent working capital.( refere to table 19)
The total initial investment outlay of the proposed project is therefore estimated to be birr 25.8
million.
B. Source of finance
It is assumed that the project will be able to obtain about 60% of the total investment costs through
bank loans, which be repaid back within 15 years period with 9.5% annual interest rate. The grace
period is expected to be 2 years, during which time only interest will be charged on the loan. The
remaining balance of the investment cost, which would be around 40%, is expected to be covered
by equity contribution of the project promoter. The detail financing breakdown is indicates in table-
20
C. Operation and Maintenance Costs

The proposed new project is assumed to attain its full service provision capacity in its fourth year of
its operation, the total annual service cost at full capacity utilization of the hotel is estimated and
details cost component with its respective amount is given the final page table.
Normal depreciation rate has been used on straight line method, which is 10% for machinery and
equipment including office furniture, 5% for building cost and 25% for amortization (for pre-
production expenses) and 20% for plant vehicles interest rate expenses are estimated on outstanding
balance. For the project under reference promotional and incentive expenses have been estimated at
1% and 1.5% of the direct service cost respectively.
i. Material Inputs:
The basic material input required for the provision of the envisage service are mostly locally
available materials consumed in the process of service production and provision activities. The
current prevailing local and international market price has been used for the estimation of material
inputs. Because of the specific nature of the given project the largest portion of the direct service
cost is estimated to comprise that of material inputs.
ii. Utility
In estimating costs of utility expenses for operation and maintenance of the given project, costs of
fuel and lubricant, electricity and water consumptions have been taken into account, the rate of
which have been estimated on the basis of the proposed capacity utilization schedule of the project
and at the current official exchange rates. The operation of a given project is based on relatively
extensive utilization of electricity and water, when it is needed it will be install its own reserve
generators.
TABLE-15 ANNUAL REQIRMENT OF UTILITIES AND COST

No. Description Number Required Monthly Yearly
1 Electricity 350000 kw 25,736
308832
2 Water 22,720 m3 18700
224400
3 Postage 2000
24000
4 Telephone 60,000
720,000
5 Others 1,590,000
Total 4,131,464
iii. Repair and Maintenance:

Cost estimates required for annual repair costs of structures and civil works as well as repair and
maintenance costs of machinery and equipment including support equipment and office furniture
and facilities. Based on the working conditions of fixed assets, the repair and maintenance costs
have been estimated to rise in the range of 2.59
iv. Salaries and Wages

The cost of salaries and wages has been estimated with its 20% fringe benefits. In the estimation of
salaries and wages the official minimum wages has been taken into account.
v. Overheads
In the expense under this have been included annual land building taxes; building, machinery,
vehicle, and other machinery and equipment insurances; vehicle annual inspection charges, postage,
telephone, e-mail, stationary and office supplies; printing and copying; auditing cash indemnity,
etc. the amount of which have been estimated on percentage and lump sum basis.
9. BENEFIT AND COSTS

9.1. PROJECTS COSTS
The project capital investment cost are the sum of fixed capital investment and net working
capital at full capacity. With fixed capital constituting the resource required for
construction of civil works, purchase, importation and installation of machinery and
equipment, purchase of general service facilities including service , vehicle, whereas, the
working capital corresponding to the resources needed for operation of the project totally or
partially.
The 5 star hotel, which could be modern and cultural bars and restaurant for recreational and
entertainment project, at full capacity operation will entail a total outlay of birr 47.9 million.
9.2. PROJECT BENEFITS

as the detail sited in the assumption for financial analysis and evaluation for the given
project, the current average selling prices of the products and charging rate for the Service
have been taken as base. Consequently it has been found that at full capacity the project is
expected to generate average gross revenue of 121 million birr and 73,580,399 of net profit
per annum as it has been outlined earlier the project is envisaged to reach full capacity
operation four year after commencement of production activates, which are assumed to
begin with 70% of capacity and will reach full capacity in year 3. the financial projection
show that the investment of the project is viable profitable and liquid.
9.3. TEST CRITERIA FOR FINANCIAL VIABILITY OF THE PROJECT
I. Financial internal rate of return (FIRR)

In financial evaluation cash flow is a very important factor to determine the ability of the project to
meet liabilities including service of debt. The rate of FIRR of the project under 9.5% interest rate
and 11% discount rate is 21% which is very acceptable.
II. Payback period

Pay back is the period required to recover the initial investment outlay the project through the
accumulated net cash flow earned after tax by the project. Initial investment costs and income
statement projection are used in estimating the payback period. Thus, the detail calculation of the
project payback period is given here below. The pay back period of the project will be six years.
Form the above indicators, the payback period is far earlier than of the life span of the
project therefore; the project is found to be attractive and remunerative to invest on it.
From the positive trend of profitability analysis, it can be inferred that the project can operate
in the frame work of free market mechanisms on a commercially feasible and financially
viable basis and it is remunerative .
10. Project implementation plan

Expected commencement and completion date of the project
Commencement date June 2018
Completion date June 2022
Details of project activities and their date of completion
S.N. Activities Completion date

DD/MM/YY
1 Project Development and Feasibility study
2 Land acquisition
3 Land Preparation and construction of building (Civil June/2018-February 2019
work)
4 Public utility
• Water • June 2018
• Electricity • March 2020
• Telecom • April 2021
• Others (if any)
5 Procurement of machinery and equipment January-March 2021
6 Machinery and equipment installation April-June 2021

7 preparation of raw materials (Order, purchase, import)
8 Testing of machinery and equipment July 2021
9 Any other (please indicate)
10 Project starting operation January 2022
11. CONCLUSION
The project is designed to operate in the framework of free market system on
commercially feasible and financially viable basis to expand the commercial building to
modern star hotel for recreational and entertainment. With the project promoters
contribution of equity capital and loan expected to be obtained from credit suppliers, it is
strongly believed that the proposals contained and conclusions drawn in this feasibility
study can be reliable implemented with the estimated time schedule and calculated
profitability margin. Furthermore, in addition to its contribution to enhance national
economic development endeavors, the project will also open employment job opportunities
to 154 permanent employees & more than 130 temporary employees during construction.
Annexes
Estimated NPV @ 11%
Project cost Gross Gross Net Discount NPV @

year Fixed Recurrent costs benefit benefit rate @ 11%
investment investment 11%
0 514,314,396 - 514,314,396 0 -514,314,396 1 -514314396
1 70% 33573338.4 33573338.4 76574277.5 51,506,279 0.901 46407157.6
2 85% 40767625.2 40767625.2 92983051.25 62,543,339 0.812 50785191.4
3 100% 47,961,912 47,961,912 109,391,825 73,580,399 0.731 53787271.7
4 47,961,912 47,961,912 109,391,825 73,580,399 0.659 48489482.9
5 47,961,912 47,961,912 109,391,825 73,580,399 0.593 43633176.6
6 47,961,912 47,961,912 109,391,825 73,580,399 0.535 39365513.5
7 47,961,912 47,961,912 109,391,825 73,580,399 0.482 35465752.3
8 47,961,912 47,961,912 109,391,825 73,580,399 0.434 31933893.2
9 47,961,912 47,961,912 109,391,825 73,580,399 0.391 28769936
10 47,961,912 47,961,912 109,391,825 73,580,399 0.352 25900300.4
11 47,961,912 47,961,912 109,391,825 73,580,399 0.317 23324986.5
12 47,961,912 47,961,912 109,391,825 73,580,399 0.286 21043994.1
13 47,961,912 47,961,912 109,391,825 73,580,399 0.258 18983742.9
14 47,961,912 47,961,912 109,391,825 73,580,399 0.232 17070652.6
15 47,961,912 47,961,912 109,391,825 73,580,399 0.209 15378303.4
16 47,961,912 47,961,912 109,391,825 73,580,399 0.188 13833115
17 47,961,912 47,961,912 109,391,825 73,580,399 0.17 12508667.8
18 47,961,912 47,961,912 109,391,825 73,580,399 0.153 11257801
19 47,961,912 47,961,912 109,391,825 73,580,399 0.138 10154095.1
20 47,961,912 47,961,912 109,391,825 73,580,399 0.124 9123969.48
IRR= 21% NPV 42902607.59

Hotel Project Proposal

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Hotel Project Proposal

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Project Proposal for the Five

Star Hotel in Mekelle City

Promoter:- Ato Hagos Hadgu (HH Engineering)

6.1. MACHINERY AND EQUIPMENT ........................................................................................................35

Hotel star Excerpt of the catalogue of criteria

Hotel star Excerpt of the catalogue of criteria

2.1. BACK GROUND OF THE PROMOTOR:

What makes a 5-star hotel?

i. Attentive, Discreet and Consistent Service

iv. Complimentary House Car and VIP Transfer Services

vi. Food and Drink Quality

vii. In-Room Nespresso

viii. Bath Amenities

ix. Pool Service

3.1. PROJECT RATIONALE

3.2. PROJECT DESCRIPITION

3.3. PROJECT OBJECTIVES

3.3.1. GENERAL OBJECTIVES

3.3.2. SPECIFIC OBJECTIVES

3.4. IMPLEMENTATION STRATEGIES

• The service to be rendered is based on the technical recommendation in order to

4.2. SITE LOCATION

Source: New Mekelle Strategic plan document 2015

4.3. THE PRODUCT AND/OR SERVICES;

4.3.1. PROPOSED FACILITIES SUMMARY

Food & beverage manager 200 01 18.58

Barber shop 200 01 18.58

Training & interview room 01 92.90

4.3.2. Internal facilities/furniture/equipment for bed room services

5.2. MARKET ANALYSIS;

5.2.1. Local Competitive Accommodation Market

5.2.2. Regional Competitive Accommodation Market

TABLE-2 Number of tourists in Tigrai region (most tourist destination area)

5.3. MARKETING STRATEGY

5.3.2. MARKET POTENTIAL

5.3.3. PRICING STRATEGY

• Keeping the service quality standard as technically recommended

5.4. PROMOTION MECHANISUM

• Bill board announcement.

5.5. MARKET APPRAISAL

5.6. SUPPLY AND DEMAND ANALYSIS

5.6.1. MARKET DEMAND:

5.6.1.1. DEMAND ANALYSIS

5.6.1.2. POTENTIAL DEMAND

5.6.1.3. PENETRATION RATE ANALYSIS

TABLE-5 DEMAND FORECAST HOTEL ACCOMMODATION FOR THE 10 YEAR

TABLE 6 PROJECTED NUMBERS OF TOURISTS

5.6.2. DETERMINATION OF SUPPLY

TABLE-7 INVESTMENT LICENSE of STAR HOTELS

5.6.2.1. COMPETITIVE POSITION

TABLE-8 NUMBER OF TOURISTS ARRIVED AT MEKELLE IN 2014

TABLE 9 HOTELS HAVING ACCREDITATION

TABLE-10 NUMBER OF BEDS IN MEKELLE

Table 11 Pension In Mekelle City

6. TECHNOLOGY AND ENGINEERING

6.1. MACHINERY AND EQUIPMENT

6.2. CIVIL ENGINEERING COST

Internal facilities/furniture/equipments for bed room services

Internal furniture /equipment/machineries for hotel services

7.3. RUNNING COST

7.4. SERVICE AND REVENUE PROJECTION

B. Sauna and Steam bath services

C. Bar and café services