Is there a future for international hotel brands in SA?

Expansion by big international hotel brands is not necessarily a good idea for the future of the hotel industry in South Africa, according to industry players speaking at the HICA conference in Durban last week.

Arthur Gillis, Group MD, Protea Hotels, says the days of international hotels coming into South Africa and building without equity are over. He says very few internationally branded hotel groups are coming into SA with their own equity. “These companies pursue an asset-light model. They will put their brand on a hotel, but they don’t bring any money. We are saying: that’s very exciting but not what the country needs.”

Gillis says the country now needs equity investment, real cash. Increasingly this investment is coming from local investors as they have a firmer understanding of the country and its risk profile. “Every time we have bad press on politics or safety and security it raises the barrier to entry. Local investors are much more comfortable with the SA situation.”
International brands can add value by putting flags in key cities and getting the countries into the international spotlight, says Helder Pereira, CEO, Redefine International Hotels. He adds, however, that SA is a very sophisticated market with good distribution and competent management and some very strong hotel brands. That is the reason why the big brands don’t make a great impact in South Africa, says Pereira.

Gabriel Matar, MD, Jones Lang LaSalle, says the expansion of international brands is very restricted in the mature markets. “For a mature destination, such as South Africa, an international brand can bring niche products. These brands then need to cater for their own demand that comes from their market. Non-mature markets need international brands to gain international recognition.”

Graham Wood, MD, Tsogo Sun Hotels, adds that the advantage of international brands is that they provide access to global distribution, which allows hotel owners access to the international corporate market. “International brands have massive loyalty programmes and massive distribution systems, so you pick up your share of the incoming corporate international market. And that’s what the international brands will do.”

Gillis further warns that any hotel brand should proceed with caution when it comes to expansion, even though the hotel industry in South Africa is showing promising signs of recovery. He says the hype about the recovery of the hospitality industry is right but hoteliers need to be careful not to make the same mistakes that were made in the past. “The demand side is growing and if the supply side does not go crazy now, then we will be in good shape. The challenge is that people are now starting to see some green shoots and they start building hotels everywhere. If this happens, we’ll go back to 2008/2009 pre-World Cup situation, where hotels shot up right, left and centre. That was just stupid. It was ridiculous.”