Commentary: Promoting value in South Africa

As the 2012 business year begins, many in the hospitality industry in South Africa are licking wounds, grateful frankly, just to be here.

Around the world, industries across the board are facing a tough battle. The Euro zone uncertainty led by the Greek madness is sobering stuff and the U.S. new jobs data doesn’t make for entirely pleasing reading either.

Forecasting future revenue is never simple but against this backdrop perhaps 2012 is one of the most difficult forecast periods for those of us in the hospitality game. The question of predicting revenue, though, for South African hospitality is further complicated by the levels of discounting that are currently a prominent feature of our market.

The good news is that occupancies are climbing again and industry-wide there’s been approximately a 3% to 4% increase for the months of August and September over the same period last year. We’re also seeing South Africa becoming re-established as a destination in the South American market while growing its presence among new markets such as India, Russia and Asia.

The bad news is that the average daily rate (ADR) is down on last year, so while we have more bums in beds we’re charging them less than in 2010, and while costs are increasing our RevPar is decreasing.

This trend is as a result of a 10-month period of low demand, hence the decrease in ADR, but the wheel is turning and in 2012 the industry needs to focus on growing ADR to market-bearing price points. Continued discounting devalues every hotel in South Africa, as the battle is fought on price rather than value.

Trading conditions have been tough and we all know why. The evidence of bank, developer, owner and operator folly is all around us. The number of South African hotels that closed their doors in 2011 is disheartening. Among them are historic names such as the Alphen Hotel and Le Vendome Hotel in Cape Town. Likewise, some international operators have also decided less is more in the local market or have been replaced with local hospitality companies that have stronger brand equity and better understanding of the trading conditions.

The reality now is that demand is increasing; the total number of rooms sold towards the latter part of 2012 is up by 5% year on year and that’s extremely important because there are more rooms available since the time of the World Cup. But overall, SA rates are still approximately 3% lower.

Battle scars are not to be confused with new wounds. For all the alarmist headlines and industry doom mongers, the numbers do not lie. Hoteliers must be lead by the facts and price their product accordingly. Right now 3-, 4- and 5-star hotels are going to market at much the same price point, which the levels of demand indicate is both foolhardy and unnecessary.

Forward bookings are also looking stronger than this time last year, which supports the premise that the recent STR Global industry figures for SA are not statistical anomalies, but a change in the curve. 

As an industry in South Africa we have to realize that the game isn’t merely about price. It’s all about value. We can’t dilute the value of our product with an unrealistically low price point, because we’re digging a deeper hole for ourselves.

The Protea Hospitality Group (PHG) is making this distinction in its financial modelling and it’s already making a difference. In the year-to-date occupancy at Protea Hotels and African Pride Hotels has increased by 1.8% while the rest of the market showed a decline year on year, and our ADR is also performing 7% better than the competitor’s year on year.

PHG has focused on promoting value as opposed to price as a differentiator as they are cognisant of cash strapped consumers hence the value added packages being promoted to the domestic market for the up and coming summer season.

The period ahead has the potential to be positive and rewarding. Demand is strengthening and forward bookings are looking stronger. And if the rand stays in its current range, that should also translate into improved inbound business.

Our ability to reap this good fortune in 2012, though, is dependent on our action as an industry to assert the value of the products we offer. Failure to do so is just that. Failure.

Contributed by Danny Bryer, director of sales, marketing and revenue, Protea Hospitality Group, Africa’s largest hotel company