Published in Business Day’s award-winning monthly Wanted Magazine. October 2011.
Attending the Travel Indaba in Durban earlier this year was like walking the yellow brick road with Mickey and Minnie Mouse as a bright eyed child – a virtual dream come true, a Disneyland of travel destinations, experiences and brands, all housed together under one roof. So many beaches to lie on, hammocks to swing in, oceans to dive in, creatures to meet, sunsets to sustain, trees to hug, places to go, so many memorable experiences. From a consumer perspective the choice is dizzying. Never has the guest traveller had such an array and depth from which to choose a luxury travel experience, and within that choice, the level of available product and delivery. From the Delaires and Babylonstoren’s of the Cape Winelands, the Marine in Hermanus up the Garden Route to Kurland in Plettenberg Bay; the Indian Ocean islands of Bazaruto and Quirimbas, not to mention Mauritius and the pristine Seychelles; and back home to what we have created and perfected: high end safari’s with the Singita’s, Wilderness Safari’s and &Beyond’s, and of course the clutch of our smaller, unique brands. As a businessman, or as a guest traveller seeking urban comforts we have an equally astonishing over supply of world-class luxury city hotels: Ellerman House, Taj Cape Town, The Saxon, 15 on Orange, The Oyster Box, The Westcliff, are to name but a few. A wonderful place to be, if you’re planning a honeymoon, a well-deserved break or even a quick weekend getaway, but not so comforting if you’re part of the hospitality trade – which, on the eve of yet another marked downturn, is in a state of turmoil.
Wanted introduces you to a multi-part report on consumer trends in the luxury travel market in Southern Africa. We focus on the current status quo, the consumer experience, business models, trends and analysis, and then introduce you to some of the leading brands, the key industry players and their offerings, region by region.
The local luxury hospitality industry has never been as well developed and actualised in terms of its product offering but concurrently never in such poor condition in terms of its imminent outlook. Over the past five years, hotel occupancy rates have plummeted and we are still very much suffering from the hangover of the FIFA World Cup, with hotel operators, owners and financiers experiencing extreme discomfort, and who are likely to continue to do so for at least the next three to four years. Nowhere more acutely is this being felt than at the high end of the market, where luxury and five-star hotels are especially suffering with lower occupancy levels and are having to reduce rates to a level that will stimulate and maintain demand whilst preserving an adequate measure of the luxury and exclusivity for which they are recognised.
All is not lost, however, at least from a consumer perspective. The guest, especially the wealthier one, is now absolutely spoiled for choice, despite not having the historical discretionary spend to experience it. Over the boom times, from 2004 through to 2008, the hospitality industry in Southern Africa developed and fine-tuned its product into a world class offering, with a depth and variety of experience, luxury and comfort that is hard to match anywhere in the world. From unique luxury bush experiences, celebrity chefs, spa treatments, award winning décor and design and world class service, it is arguable that the guest has never had it so good. Cape Town alone took the lead with the development of several high-end luxury hotels prior to the FIFA World Cup. The One & Only, Taj Cape Town, 15 on Orange, and the Mount Nelson and The Cape Grace having facelifts, all at great expense. With such a glut of supply and selection, and now specials, if only they had the disposable income to experience it.
A few months ago an article appeared in a local newspaper by Arthur Gillis, the CEO of the African Pride and Protea Hospitality Group. Not one to mince his words, Gillis outlined in an incisive article the burning issues in the entire hospitality value chain that have contributed to the industry’s current quandary. Blaming ‘rampant greed’ for the current status quo, from the banks to developers to consultants, to the short-sightedness and imprudence on the part of government, Gillis highlighted the nodding naivety in our industry in the face of FIFA’s multi-billion dollar ‘promise’. Today, with the Protea Group well positioned, and holding an asset acquisition fund of more than R2bn he claims that ‘more than 70 property owners or creditors, at a rate of three to four a day, have approached us hoping to sell’ – fine testament to his words. Gillis believes the only way to value a hotel is on the future value of its cash flow, not from its land value, construction costs nor past earnings or brand value. Protea, which has more of a domestic and corporate than an international tourist occupancy profile, and has recently added some top end properties to its list such as 15 on Orange in Cape Town, has both depth and range in its portfolio of African Pride and Protea Hotels, both nationally and in Sub-Saharan Africa. Bucking the trend, its Fire and Ice Cape Town and Melrose Arch properties for instance are excellent examples of upper mid range destination properties which are almost always fully occupied – even if mostly with local and corporate guests.
It doesn’t take analyst reports to see that our occupancy rates are way down. There is an oversupply at the luxury level as a result of the prior boom and speculation for the World Cup, and in the midst of a global recession, with our primary European and UK market most deeply affected, it does not bode well for the future. Asked what will determine survival, Gillis stands by his mantra: “Hotels in the right location, with enough equity and properly managed with the right brand, will survive’, and his conclusion is not hard to disagree with – “…it is a chaotic situation out there.”
But it is not only future revenues that will be affected. The consumer’s profile and behaviour patterns have already started to change accordingly. The earlier dip drained the ‘luxe’ right out of luxury and affluents have learned to say no to the allure of luxury brands and experiences. Moreover since the Euro crisis became so acute and the effect of recession became viral, affluents are now far more cautious on luxury spending and this has had a direct knock-on effect on the local hospitality industry where we have an over supply of luxury accommodation and product and weak demand from our traditional primary markets.
A recent survey by luxury US researcher Unity Marketing reports that Q2 2011 consumer confidence levels among the affluent were way down, with the firm’s “Luxury Consumption Index” at its lowest point since Q2 2009. The share of affluent respondents who said they were currently spending less on luxury goods than a year ago was up to 27% in Q2 2011, from 25% in Q1 and 23% in Q4 2010. At the same time, only 26% of respondents said they were spending more – down from 33% in Q1, and the smallest number since 2009.
Affluents were similarly cautious about their plans for future luxury spending. Most said they would be spending the same amount or less in the coming year as they have been for the past year. This also means that they will likely spend more time online and whilst most forecasters expect solid growth in online sales this holiday season, there are also signs that consumer confidence is waning in the face of the continuing downturn in the economy. But whilst affluent spending on high-ticket items is down, their media usage is up, especially on digital, which means they are still shopping but perhaps not purchasing. According to the Ipsos Mendelsohn “Affluent Survey,” US consumers with household income of at least $100,000 annually increased the amount of time they spend on the internet each week by 5 hours to 30.3 hours between 2010 and 2011. Consumers now have the tools to make better decisions and this directly affects their purchases and consequently their expectations, which is further informing the end product.
Marketers looking to give a boost to affluent purchase intent on luxury and other products should try to reach them via mobile and video, two channels they are highly engaged in, and should keep in mind that video and search ads drive the most action among this group. Which is exactly where SA Tourism has publicised BrandSA. Having recently won the prestigious and highly sought-after M&M (Media and Marketing Global Awards recognise and celebrate leading global advertising campaigns) Global Award for Nation and Destination Branding for its ‘Adventurers Wanted’ campaign in partnership with National Geographic, SA tourism is getting BrandSA out there and hoping it will go viral. The ‘Adventurers Wanted’ campaign with National Geographic reached more than 260 million people around the world with personalised video stories of the exhilarating adventure experiences offered in South Africa. Whether this will have a positive effect on arrivals, and on their spend, especially in the high-end sector, is still way too early to tell.
The More Hotel Group, a family owned and run hospitality concern, is another example of a robust national portfolio that displays economies of scale with strategic assets in sought after destinations – The Cadogan in Cape Town, Madikwe Safari Lodge, Lion Sands and Tinga in Kruger. It attracts a guest profile of on average 30% domestic and 70% international, marketing an iconic SA experience through its national footprint. Rob More, Co-Founder and MD, echoes the sentiments of a diminishing Euro market in favour of the US, Asia and South America. He points out that it is not only the UK and Euro market that is declining overall – on average not less than a 2% – 3% drop but it is also the reduced discretionary spending amongst the reduced number of arrivals that is making life incredibly difficult for the industry. “The corporate market seems to be holding its own but the typical leisure traveller is already a diminished prospect, and with that its spending power.” The groups’ occupancy, while perhaps not optimal, is likely better than most due to the profile, positioning and location of its portfolio which retains the individual identity of each property without a cookie cutter approach but with exacting service and standards. More describes his portfolio as a trade facing brand rather than a consumer brand, which is interesting in that it speaks to the reservation channels where tour operators and the trade are the primary channel for bookings as opposed to direct, whose peak period was prior to the 2008 recession. “There is a definite move back into the traditional channels of travel agents and operators” More explains, “primarily because the market has become promotionally driven and the traveller / guest has become more cautious and discerning, meaning they need expert advice.”
This is a prevalent trend that affects both the development and sales pattern of the market, heralding a more aggressive, back to basics sales approach. In addition the rise of online travel review sites and social media mean more educated, informed travellers with greater, more particular expectations, who leave less to chance and expect more value out of their prescribed choices.
The traditional holidaymakers are simply not arriving and guest spending patterns are becoming ad hoc and unpredictable with long reservation lead times converting to short lead times. This together with increasingly high operating costs with a slowdown and reversal in the market spells trouble. More reckons it’s going to be another two years of tough trading conditions ahead, perhaps even as long as four years for the market to properly turn, which all spells uncertainty and a gloomy foreseeable future for the trade.
The status quo is not pretty by any means, despite the local industry having a portfolio of product that is unsurpassable, from game lodges to islands, luxury boutique hotels in the winelands, to luxury mobile bush camps, all against an idyllic African backdrop. The consumer is spoiled for choice – there is a glut of supply, selection and specials but we simply don’t have the cash to truly enjoy the experience.
In our next issue we take a look into the trends of some of the leading brands and the key players in the local industry.