Hotel Danube Plaza - moving forward to profitability
Ruse is one of the largest cities of Bulgaria and, being located directly at the Romanian border at the only bridge alongside the Danube connecting these countries, the main transit point to the north. Accordingly, it is one of Bulgaria‘s most important business centers and attracts international firms and business travelers. Additionally, it has a beautiful main square which is visited by tourists from all over the world. The Danube Plaza Hotel is situated in the heart of this town. However, in recent years losses have been generated. The student team therefore scrutinized a range of innovative business ideas for the real estate, concluding that a continuation of current activities offers the best future perspectives.
The Danube Plaza is a 3*** hotel located in the center of Ruse, Bulgaria, at the main square in a vibrant area. The building, including the 134-bed hotel, a restaurant, two bars and a garden, was built in the 1960s, ever since it has undergone various renovations. However, in the last 20 years it has not been renovated. It is therefore planned to modernize and refurbish the building completely. Since the Danube Plaza is the oldest hotel in town, it is crucial to find a good mix of an image of being old-fashioned (since many locals connect the hotel to personal memories, like weddings or birthday parties) and modern (in order to attract business customers). The rooms will be provided in an excellent condition, equipped with flat screens, comfortable beds, phones, safes, soundproof windows, furniture, mini-bar, and frills like pens and writing pads. Additionally, small and large conference rooms are going to be established, so as to provide business customers with an excellent offer. Major and minor events in the restaurant complete the value proposition of the business.
Today, the Danube Plaza is one company which encompasses a hotel as well as a restaurant without any clear distinctions between the two divisions. This structure is going to be abolished: the business is going to be split up in three independent legal entities in the form of private limited companies: the real estate (holding) company, the hotel operating company and the restaurant/bar operating company, the main reasons of which are risk reduction as well as accountability of costs and revenues. All three legal entities are going to be fully owned by the current owner, Plamen Mihov, who is going to be the CEO of the Real Estate Company, while the two Operating Companies are going to be managed separately. Correspondingly to this structure the business plan includes three separate business plans, which can be presented separately to potential investors.
Real Estate Company
The revenues of the real estate company are in general based on the rents from the operating companies, which are calculated on the basis of the buildings net asset value as well as compensations for services. The company is basically responsible for services such as accounting.
Hotel Operating Company
The hotel operating company has two major revenue flows: the relatively low room rate and higher priced fees for additional services. With active yield management room rates are adjusted to price levels of the competition or high demand seasons, for example during congresses in town. Costs include fixed costs, including rent and personnel, and variable costs, including energy, laundry and supply costs. The main customer segment is business customers, who the offer of the hotel is geared to.
Restaurant/Bar Operating Company
The restaurant offers space for around 180 seats and is a traditional restaurant on high quality standards attracting hotel guests, tourists and residents of Ruse with higher income. The bar outside is open in the warmer seasons with space for 50 seats. The chill-out bar aims to attract a younger segment, including hotel guests, tourists and residents of Ruse. Garden Eden is located in the inner courtyard. With regard to its wellness concept the target group are young, health-conscious adults. The basic revenue stream results from consumed food and drinks. In addition private and special events provide supplemental revenue. It is crucial for Danube Plaza to succeed in positioning the restaurant as a fancy place for inhabitants, in order not to assume the bad image of a hotel restaurant.
Market and Competition
The Hotel Market
A detailed analysis of the current market conditions has shown that particularly the business customers segment is interesting for Danube Plaza. While accommodation expenses have decreased in the years of 2009 and 2010, the market is about to enlarge again, as the development of 2011 as well as future predictions have shown. The main competitors in this market segment are especially high-quality hotels, which gear their offers to the needs of business customers. Of those, six could be identified as major competitors.
The Food and Beverage (F&B) Market
Ruse disposes of a vibrant nightlife which enables many restaurants and bars to survive in a competitive market. Due to a large number of arriv- ing tourists, expenses for food as well as beverage have experienced a steady rise in the last years.
In the most likely case of future developments a positive result has already been projected for the financial year 2014. The financial analysis attached encompasses an investment amounting to € 1,000,000 for the refurbishments, which are carried out by the real estate company. A scenario analysis has shown that the business is highly volatile, which entails strong opportunities and risks for the company.
Hotel Management JSC