Southern Sun eyeing new markets in Africa for its hotels

SOUTHERN Sun, the hotel unit of listed casino and hotel group Tsogo Sun, is eyeing opportunities to expand its Garden Court and StayEasy brands into African countries beyond SA’s borders over the next five years.

“There are opportunities in Africa in the value-for-money segment and we are testing the appetite for budget accommodation with our StayEasy hotel in Lusaka,” Southern Sun’s MD Graham Wood said yesterday.

The Zambian hotel opened in November and was “trading well”, Mr Wood said.

Hotels in Africa have traditionally been full-service hotels, he said. “I believe there is an opportunity for the mid-market, value propositions (in Africa). The growth is there, but it’s difficult growth. ”

Challenges facing investors in the hotel sector in the rest of the continent included access to land, identifying the right partners, and the cost of construction, which could be two and a half times more than in SA, he said.

Southern Sun wanted to expand its presence in East and West Africa and expected to have something in place in the next five years in order not to lose out on the developing African hotel market, he said.

Avior analyst De Wet Schutte said all branded South African hotel groups were interested in Africa for growth. “They have all also said it’s not easy and I think the idea will be to start small and would typically involve building hotels near the airports and business districts.”

Higher growth differentials in Africa were what was attracting hotel groups to consider investing in the continent, he said.

In September, Tsogo Sun bought the 52,6% stake in Formula1 that it did not already own from French hotel group and long-time partner Accor for R300m. This transaction is significant as it gives Southern Sun scale across the one-star to five-star range of hotels. “We believe that the one-star market is an opportunity for our expansion. To be a serious player, it’s important for our brand and our distribution to be exposed to the whole market,” Mr Wood said.

The Formula1 portfolio of 23 hotels was going through a “rejuvenation programme” and would position the group to grow in the lower end of the market. The addition of rooms to accommodate expected visitors for the Soccer World Cup in 2010 coupled with the global economic downturn and fall in travel continued to create an overhang in the SA’s leisure industry but would continue to create “consolidation opportunities”, he said.

In October, Southern Sun acquired the defunct boutique hotel The Grace in Rosebank, Johannesburg, for R85m. The hotel is being renovated and rebranded and will be opened to the public in July.

Southern Sun is not alone in recognising the potential for acquisitions. Protea Hotel Group has set aside a war chest of about R2bn to take advantage of the stretched financial circumstances of highlygeared hotel operators or standalone operations.