Size Matters

BON Blog - Size Matters

It’s a fact that we are living in what I call the ‘Age of Consolidation’, the ‘sharing economy’ as it’s coined by others. And the tourism industry is not immune. The airline, car rental, travel services and hospitality industries have undergone massive consolidation over the last few years. The Marriott acquisition of Starwood (at a fine $12 billion), car rental companies being swallowed up, airlines being bought up one after another and online travel portals joining forces. Mergers and acquisitions aplenty. The obvious reasoning: companies must show growth. Share price and size of portfolio matters. While some choose to buy growth, the other alternative has been for companies to take the long road and show growth organically, picking up opportunities in promising regions, as we at BON have done.

In South Africa, we are clamouring over a flat or only marginally growing domestic tourism market and a slightly increasing international market, plodding along as we go. Even the mainstays of our local hotel sector, the likes of City Lodge, have shown a flattening of growth over the last two years. There are no less than 78 hotel management groups in South Africa operating approximately 984 hotels and lodges – 78! – all fighting for a diminishing share of management contracts, franchise agreements, representation agreements, and new hotel projects. Phew. When are we regional players going to realise that new projects will soon be the domain of the mega-giants of the international hotel industry – the Marriott, the Rezidor, the Starwood – rather than the domain of the regional players. These giants have won over the share of big city hotels and new developments, leaving regional players with the rats and mice, the smaller suburban fringe and secondary projects. Hotel developers and hotel owners are locked in long-standing management agreements, with contracts which they are unable to just abort and hand to other players.

We must face facts as regional players. Otherwise, who are we trying to kid? Can you imagine if, amongst these 78 smaller hotel groups muscling our way through the industry, we chose to cast our egos aside and join forces? Consolidate, merge, and in doing so, notched ourselves up in buying power, procurement, BBBEE status, spending power, footprint, diversity of product offering…you name it. Not only would we be giving the international hotel groups in this country (with their strong ambitions of growing their South African and African portfolios) a run for their money, we would, even more importantly, be supporting our own country: buying local, growing local, employing local, supporting local and facilitating the transformation vision. 

The only way we are going to fight against thunder is for us smaller players to join forces. After all, we are all pretty much doing the same thing, aren’t we? I must humbly admit that there are no game-breakers, no trailblazers, no disruptors in the South African regional hotel management space. We are all following the same recipe, disguised only by our branding and logos…stamps if you like.

The only way to get off the bench and onto the playing field is to create something extraordinary. And the only way I see us doing this is by joining forces, admitting that we can’t beat Goliath as individuals. We need to let down our guard and consolidate. And by this I don’t mean a loose affiliation, I mean a true amalgamation. We need to save our local industry and stand together, merging our companies, our expertise and especially our local advantage, forming a strong South African brand once again. We can only take back our industry by becoming a part of this new ‘sharing economy’.

Author

Chief Executive Officer

Having grown up in the corridors and reception areas of Cape Town hotels, Guy Stehlik is no stranger to the hospitality industry.

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