Catering and Accommodation

SIC 641 Hotels, camping sites and other provision of short-stay accommodation SIC 642 Restaurants, bars and canteens

Industry: Catering and Accommodation

Share - % of Total Economy in 2008

Contribution to the South African economy

SA Economy 2008 Gross Domestic Product (GDP) Gross Fixed Capital Formation Capital Stock Exports Imports Employment 1.0% 0.5% 0.5% 1.6% 1.0% 2.3% 2013 0.9% 0.6% 0.5% 1.9% 0.8% 2.4% Manufacturing 2008 2013

Trade indicators per economic sector and Total Manufacturing industry

Catering & accommodation services Export propensity Import penetration 18.1% 15.1% 22.3% 15.3% Manufacturing

Performance

Average annual growth rates (% growth p.a.)

1980 - 93 Gross Domestic Product (GDP) Gross Fixed Capital Formation Capital Stock Exports Imports Employment 3.7% 3.9% 0.9% 3.8% 2.1% 2.4%

1994 - 98 0.5% 4.3% 1.4% 12.3% 6.9% 1.5%

1999 - 02 2.9% 2.7% 2.0% 8.9% -1.9% -7.3%

2003 - 08 4.4% 12.4% 3.7% 7.0% 1.5% 0.0%

2009 - 13 3.0% 8.0% 4.1% 7.4% 2.1% 3.1%

Industry: Catering and Accommodation

Industry Overview

Under the SIC, the catering and accommodation industry consists of hotels, camping sites and other provision of short-stay accommodation, restaurants, bars and canteens. The catering and accommodation industry is widely regarded as carrying good potential for rapid growth. Its solid performance in recent years has been driven by the strong consumer demand which has been reinforced by the burgeoning black middle class. Indeed, over the last four years its performance outstripped national GDP growth, albeit marginally. In developed economies like the US, where the industry is the leading employer outside of government, it is considered a training ground for entrepreneurs and employees. The franchise concepts in South Africa compare favourable with the worlds best in term of viability, return on investment for franchisor and franchisee, dcor and design, product quality and image and in the support and training of franchisees. The success of the franchising industry depends on the strong marketing, superior management practices and economies of scales. Investment in the catering and accommodation industry has grown briskly over the last five years though the costs of building have doubled. The cost of building a new five-star room has surged from about R1.9million a unit three years ago to as much as R3 million

National hotel occupancy levels have moderated due to the slowdown that has led corporate travel market to cut back on air travel and limiting the duration of trips. The occupancy rate fell to 58.6% in the 3rd quarter of 2008, from 61.6% in the corresponding 3rd quarter of 2007. Though occupancies fell as much as 24% in the year 2008 to September, most part of the world recorded strong growth in average room rates. Over the period, South African hotels outperformed their international peers. In 2006 the catering and accommodation industry employed nearly 240 000 which is equivalent to 2.4 per cent of all formal sector workers. The industry creates new jobs when demand increases as has been the case between 2003 and 2008. The job creation potential for the industry is further underlined by a capital labour ratio of R64 860 relative R257 050 for the economy as a whole. Food price increases, have dampened demand, but only slightly. Growth continues in the franchise industry due to evolving social trends that favour out-of-home food consumption provided consumers receive a value-for-money offering. Only a quarter of South African food expenditure goes to the restaurant industry while in the US the industry accounts for half of the expenditure.

Demand: Domestic and External Drivers

Nearly all of catering and accommodation industry services are sold to the tertiary sector. Key among the consumers are business services, community, social and personal services, wholesale and retail trade as well as general government. Exports

constitute a significant share of total sales of catering and accommodation services. Demand for catering and accommodation services has been slowed down by increasing interest rates,

Industry: Catering and Accommodation

fuel prices and exceptionally high food inflation in 2008. Restaurants constitute an integral part of the foreign tourist experience. Entertainment and food take up about 44 per cent of spending tourism. Overseas tourists spend on average nearly R300 a day on food or one fifth of their total daily spend. Currently, every four weeks one in four adults eats out at restaurant while one three buys a take away meal during the same period. Changing lifestyles coupled with a growing number of working women has shifted part of the burden of preparing meals to restaurants. In addition, the increased significance of single parents has also contributed to growing consumption of meals prepared outside of the home. People are becoming increasingly aware of their diet and their attitude towards junk food is changing as many nations try to deal with the crisis of obesity. The fast food industry has taken a step to create healthier fast-food options by introducing lower-fat options to win over health conscious consumers. Foreign and domestic tourists are key sources of demand for hotel accommodation. Domestic business tourists currently account for almost one fifth of total hotel room demand. This is significantly Other hotels are seeking to integrate green-building and operational techniques, partly as a response to power crisis and also to align themselves with the growing international appetite for green hotels. Electricity crisis has affected the catering and accommodation industry in January 2008. However, since April 2008 load shedding has been avoided and decreased demand spawned by lower economic growth has helped Eskom demand management efforts. Franchises have seen a drop in sales of as much as 40% due to power cuts. While other industries can install generators to keep going during load shedding, the franchised food companies, which operate mostly from shopping malls, cannot always choose this solution because some shopping centres do not allow individual tenants to have their own generators. lower than the foreign business travellers who account for about 35 per cent of total bed night sales.

Supply

The catering and accommodation industry sources sizeable amounts of its inputs from the food and beverages industry. Indeed food and beverages define the character of the industry. However, the services sector remains the single largest supplier to the industry by value. sector. Key suppliers The industry also to catering and consumes products of the electricity, gas and water accommodation from the sector include, business services, wholesale and retail trade and to a limited extent transport, storage and communication industries.

Imports play a limited role as a source of inputs. The industrys import penetration level of was 6.5% in 2006 and it increased to 15.1% p.a. in 2008. The presence of a strong domestic food industry and non-tradable inputs like services amongst others explain the low level of imports as a source of inputs. Imports also reflect consumption of goods and services by South African tourists in other countries.

Industry: Catering and Accommodation

Prospects

In general the catering and accommodation industry in South Africa carries sizeable potential to grow in the medium term in order to meet demands of the foreign and domestic tourists who will be flooding in for 2010 FIFA World Cup. In addition, demand from foreign tourists is widely expected to remain buoyant in the medium term. The restaurant, bars, and canteens segment of the industry should benefit from strong economic growth. Growing demand for the industry services will be met by increased capacity planned by major players. Between 2009 and 2013 production is forecast to grow by 3.0%; slightly slower than the 4.4% average annual growth recorded between 2003 and 2008. Hotel occupancy is expected to rise above 70 per cent in 2009 with the holding of the soccer Confederation Cup and British Lions Rugby tour. The hotel occupancy should exceed 75 per cent in 2010 on the back of the FIFA World Cup. Moreover, the World Cup will take place during the low season for tourism in country in June and July. The number of hotel beds is also expected to reach 150 000 in 2012 from 119 000 in 2007. Employment is projected to grow by 3.1% over the forecast period. Investment plans of major players indicates that over 10 000 new jobs will be created before 2010 in the restaurant segment of the industry. Expansion plans by major hotel chains and independents also project significant creation of

new employment. Due to the fact that the industry is labour intensive, job creation is inherent in sales growth. Therefore forecast growth in demand will strengthen the job creating capacity of the industry. Investment is projected to grow at 8.0% p.a. as aggressive expansion plans of major industry players come to fruition. Economic growth alongside expected rise in tourist numbers in 2010 should continue to drive investment in the industry in the next two to three years. Famous Brands plans to have additional 500 outlets by 2010, while large hotel like Southern Sun are pressing ahead with a R1.5 billion, three year expansion and refurbishment plan, despite the current slowdown in demand from both tourist and corporation market. Exports are projected to grow by 7.4% p.a., assisted by growing tourism demand. Imports are expected to increase to an average annual growth rate of 2.1% during the same period.

Industry: Catering and Accommodation

Trends analysis: Historical trend and five-year forecast (2008 to 2013)

Trend in Gross Domestic Product (GDP)

200 Forecast 180 160 Index: 2000 = 100 Index: 2000 = 100 140 120 100 80 60

Trend in Employment
140 Forecast 130 120 110 100 90 80

40 20 0 1980 1984 1988 1992 1996 2000 2004 2008 2012

Source: Quantec, IDC

70 60 1980 1984 1988 1992 1996 2000 2004 2008 2012

Source: Quantec, IDC

Trend in Fixed Investment

400 Forecast 360 320 Index: 2000 = 100 280 240 200 160 120 80 40 0 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: Quantec, IDC

Trend in Capital Stock

220

Forecast
200 180
Index: 2000 = 100

160 140 120 100 80 60 40 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: Quantec, IDC

Trend in Exports and the Export propensity

360
Export volumes (LHS)

Trend in Imports
36 Forecast 32 28
Export as % of Output

180 Forecast 160

320 280
Index: 2000 = 100

Export propensity (RHS)

140
Index: 2000 = 100

240 200 160 120 80 40 0 1980 1984 1988 1992 1996 2000 2004 2008 2012
Source: Qunatec, IDC

24 20 16 12 8 4 0

120

100

80

60

40 1980 1984 1988 1992 1996 2000 2004 2008 2012

Source: Quantec, IDC