It’s hard to believe that 2023 is drawing to a close. If you’re like most people, it’s kind of a “blink-and-you’ll-miss-it” experience of time that always seems to speed up in the latter half of the year. And yet here we are with a few weeks to go until 2024.
When it comes to hospitality and tourism within South Africa, there’s no doubt that there’s been some (much-needed and welcomed) growth and improvement when it comes to numbers, performance and earnings. But just how well has South Africa done throughout 2023 regarding tourism and the overall performance of the hospitality sector?
With the 2023-2024 summer season nearly upon us, which is traditionally “high season” for hotels, restaurants, bars and cafes thanks to the influx of holidaymakers, it’s a good time to pause and take a look back at how much progress we’ve made as a nation to continue recovering.
We all know the negative effects the “you-know-what”- demic had on South Africa’s economy and GDP, but how well have we recovered a good three years onwards? What challenges remain real risks to ongoing growth and recovery within the hospitality sector? And what can South African hospitality businesses do to best mitigate these risks and minimise their impacts, even if the risks are beyond their control?
Let’s start by examining the projected number of tourists expected to travel into and around South Africa. The South African Tourism industry initially revealed an estimated target of 21 million visitors on record by 2030. They’ve now revised this target, lowering it to 15.6 million by 2030 and pushing the 21 million tourist target to 2035. While this might not sound optimistic, in the larger context of the tourism industry’s performance in 2023, it’s still positive news.
The Tourism Business Council of South Africa (TBCSA) also unveiled an ambitious target of attracting 8.75 million foreign tourists by the end of 2023 earlier this year. So just how on track is South Africa’s tourism industry in reaching this target? According to Stats SA, more than 4 million tourists arrived in South Africa between January and June 2023. This is a noteworthy increase compared to last year, where only 2.3 million tourist arrivals were recorded between January and June 2022, representing a 78.2% surge in 2023 compared to 2022.
To be exact, South Africa recorded a total of 5.5 million international tourists in South Africa from January to August 2023, again demonstrating an impressive 70.6% surge compared to the same period in 2022. Although it’s important to note that these numbers still lag behind 2019’s numbers by 19%, what’s more important to recognise is that there is growth. There is improvement. These numbers demonstrate that South Africa is still an attractive and popular destination for international tourists and holidaymakers.
Considering that SA’s tourism industry is expected to grow at a rate of 7.6% over the next 10 years, significantly faster compared to the projected 1.8 annual growth rate of SA’s economy, these numbers signify and reinforce the inherent vital role that tourism plays in South African GDP. By 2023, tourism is expected to contribute nearly R554.6 billion (7.4% of the total economy) to annual GDP according to the World Travel and Tourism Council.
With tourism being so intrinsically tied to the hospitality sector, one would expect it to show similarly strong growth surges over 2023. But has that happened? How has SA’s hospitality sector fared throughout the last year?
Taking a broad look the initial answer appears to be, pretty well. Stats SA’s Food and Beverage Report for March 2023 states that the industry experienced a 7.4% year-on-year increase in March 2023 compared to 2022. Total income for the food and beverage industry increased by 12% in Q1 of 2023, compared to Q1 of 2022. The key drivers of this growth in the first quarter of 2023 were restaurants, coffee shops, and fast food outlets.
Restaurants and coffee shops contributed growth of 10.9% and 5.3 percentage points to the total increase. Takeaway and fast food restaurants generated 9.7% growth and contributed 3.6 percentage points to the income increase recorded.
The 7.4% improvement remained somewhat steady, dipping slightly in June with food and beverage sales recording an increase of 7.1% in June 2023 compared to June 2022. Restaurants and coffee shops remained the primary drivers of this growth.
Great news, right? Well, yes and no.
Taking a closer look, while dining establishments have enjoyed significant year-on-year income growth in 2023 compared to 2022, the month-to-month growth paints a somewhat dimmer picture of progress.
While it’s true that the total income of Q1 in 2023 improved by 12% compared to the previous year, the month-on-month income steadily decreased from January to February and March 2023. The same is true of Q2 in 2023 which saw a total income increase of 6.7% compared to Q2 in 2022, but saw a dip in April 2023 before a slight rise in May and June 2023.
This apparent slowdown of month-to-month earnings suggests that the food and dining industry is still struggling to regain its pre-pandemic momentum. Since tourism rates appear relatively strong, it’s more likely due to other external factors eating into revenue growth, like rising fuel costs, inflation and load shedding.
The hotel industry appears to be faring a little better, it seems. Stats SA found that South African hotels recorded an occupancy rate of 47.3% in July 2023, increasing from 45.8% in June and 45.5% in May. Total year-on-year income in July 2023 increased by 17.8% compared to July 2022.
This suggests that hotels are enjoying a stronger 2023 comeback compared to restaurants, bars and cafes, likely due to the strong influx of tourists and their operations being less directly impacted by issues crippling restaurants and dining establishments.
Despite the noticeable differences in growth across different hospitality businesses in the sector, again, it’s important to note the positive growth. Yes, we still haven’t reached 2019 revenue and performance levels, but we’re on the right track to getting there. However, no matter whether you’re a hotel, restaurant, cafe or bar, there are still uniquely South African challenges that could act as roadblocks to this growth.
Load shedding remains one of the largest contributors eating into hospitality profit margins and revenue for both restaurants and hotels. Purchasing diesel for generators is a significant cost and, for many smaller businesses, simply not a viable option due to the upfront costs, meaning they’re unable to partially or fully operate during load shedding. Water shortages and erratic water supply can also interrupt service delivery, particularly in higher-risk areas like Gauteng and KwaZulu-Natal.
While these challenges are out of the control of most businesses, the hospitality sector needs to remain flexible and resilient, adapting to sudden changes as they emerge. Reducing electricity consumption where possible and employing more water-conscious strategies in your establishment also ties into the larger sustainability initiative many establishments are undertaking, which can be marketed to attract a wider net of guests and diners. It’s no solution, of course, but it’s still important to be adaptable where possible.
As the hospitality sector prepares for the high season in 2023 and looks ahead to 2024, the key is to remain flexible and identify what opportunities exist in ongoing challenges being faced. Solving them might not be possible but mitigating their effects as best you can, is.
Having full data visibility over every key operation and expense can fast-track your ability to identify emerging risks and opportunities and proactively tackle them before they impact your earnings or your guest experience. It’s not a be or end-all solution but it’s a start for greater agility and efficiency gains.
