Wednesday 25th May 2011 - Posted by Chris von Ulmenstein
The signs are everywhere – doom and gloom where one goes in the hospitality industry – restaurants are close to empty, accommodation establishments cannot pull in guests, and the enquiries and bookings just are not rolling in, the 50 % deposits for accommodation establishments being an important means of surviving the winter. Bookings generally are a barometer of the summer season lying ahead. The next few months will see a bloodbath of closures, as hospitality businesses run out of cash.
It is sad to see the day-to-day reality of close to empty hotels and guest houses, with a trickle of businesspersons keeping things going, and of seeing top restaurants in Cape Town and in the Winelands standing empty for weekend lunches and dinners, not to mention the poor weekday trade. This scenario is despite fantastic winter specials offered by close to 100 restaurants in the Cape and Winelands, and accommodation rates that drop by close to half from May to August. Chats I have had with owners of restaurants and hospitality establishments in Cape Town and Franschhoek paint a picture of gloom, all saying that this May is far worse than last year’s. Last May was not great, falling into a pre-World Cup vacuum.
Disturbing is to read headlines, such as in Business Report yesterday, crying “Hotels fill more rooms, but special offers hit profit”. Referring to now two-months old figures for March, it writes that the occupancy in 3-, 4-, and 5-star hotels rose relative to March a year ago, but that revenues ‘are down steeply and some are making a loss’, especially in 4- and 5-star hotels, due to rates cut to meet those of 3-star hotels in some instances. However, the ‘South African Hotel Review’ oddly showed lower occupancies for 3-star hotels than for more luxury hotels. Many hotels are for sale, and being converted into retirement homes. Protea Hotels says that it regularly receives requests for this largest local hotel group to take over the management or to buy their properties. The hotel group understands the financial pressures on establishments, and their inability to cut its expenses, such as taxes and municipal costs, as these are fixed.
This scenario is echoed in the STR Global report, an international hotel data tracking company, which shows that 5-star hotels in Cape Town dropped their rates by 11% on average in the first quarter of this year, thereby increasing occupancy by 9%, to achieve an average occupancy of 63%, reports South African Tourism Update. Sandton hotels dropped their rates by 9% on average in the same period, and achieved an average occupancy of 52%. The Average Daily Rate for a 5-star hotel room in Cape Town was R1867, the survey found, compared to R1407 for Sandton’s 5-star hotels. Nationally the 5-star hotel occupancy rose to 55% in the first quarter, but Average Daily Rate dropped by 9% to R1629, and Revenue per Available Room dropped by 6 % to R893.
In complete contrast, the Business Report lead article optimistically trumpeted in its headline report yesterday “Consumers now in better shape”, when most hospitality owners will say that the recession has hit South Africans hard for the first time. The newspaper report bases its sensational headline on the good financial results posted the day before by Famous Brands (with low-cost restaurant chain brands Steers, Wimpy, Debonairs and Mugg & Bean), which opened 111 outlets until February 2011, and plans to open a further 176 outlets in the year to come, and has an objective to double the size of its business by 2013. The company benefited greatly from the World Cup. The Lewis Group as well as Verimark also posted good results.
What is of the biggest concern for the summer season lying ahead is that the UK market is extremely quiet, with only a few enquiries trickling in from a handful of regular guests. Agents and tour operators report how cash-strapped British consumers are, and that they are just not travelling, due to the austerity measures and tax increases imposed by their government, and the strong Rand. The forecast is for the hottest UK summer in years, which is not good news for Cape Town. A small consolation is the increase in the number of BA flights, to two per day, between London and Cape Town from October, reports the Cape Argus. The eruption of the Grimsvötn volcano appears to have had no effect on business locally, due to the low numbers of international arrivals this month.
The South African hospitality industry will be largely dependent on the South African domestic market, and the promised SA Tourism advertising campaign to encourage locals to travel in their own country has not yet been seen. It is sorely needed. So too is some advice and comfort from our tourism bodies Cape Town Tourism and Cape Town Routes Unlimited, who are not communicating with their members, other than to list winter specials.
The recent accolades that Cape Town and South Africa received from TripAdvisor members and Telegraph readers, respectively, earlier this month appear to have made no impact on enquiries and bookings at all.
Chris von Ulmenstein, Whale Cottage Portfolio: www.whalecottage.com Twitter: @WhaleCottageTweet