Just How Badly is Load shedding Impacting the Hospitality Industry in South Africa?

September 1, 2023
Rory Mongomery
A look back at the SA state of Hospitality in 2023

Initially implemented as a way to combat demand outpacing supply, load shedding has unfortunately become a fixed feature of everyday life in South Africa thanks to ongoing power generation constraints - and every industry, from manufacturing to delivery, has been affected. 

The hospitality industry in South Africa has been hit particularly hard, especially as it still tries to shake off the effects of two years of ongoing lockdowns that have effectively bulldozed the tourism season. Not only this, but load shedding also disproportionately affects key players within the industry. 

Larger hotels and restaurant franchises are likely to be less negatively impacted by load shedding thanks to better economies of scale compared to smaller, independent SMEs, who are bearing significantly more brunt of consistent power disruptions. 

If you’re a born and bred South African, load shedding is a phenomenon that needs no introduction. On the possibility that you’re not and have no idea what it is, load shedding refers to planned, rotational power cuts that disrupt the electricity supply across the country. 

So just how badly is load shedding impacting the hospitality industry in South Africa? And how can businesses adapt to mitigate its effect as much as is realistically possible?

How are SMEs trying to mitigate and adapt to load shedding?

While load shedding is a nightmare for every business in hospitality, it's undeniable that SMEs have been hit harder, in terms of operational and revenue constraints. So how have smaller hotels, BnBs and other businesses been working to mitigate the effects of ongoing power cuts?

In a study titled “Strategies Used by B&Bs and Guesthouses to Mitigate the Impacts of Load Shedding in South Africa”, conducted by Tembe, Z.N. & Hlengwa, D.C. (2022), it was found that the businesses surveyed employed a range of strategies to attempt to minimise the negative impact of load shedding on their establishments and the guest experience. 

These strategies include the installation and use of solar panels, gas systems and backup generators (63%), proactively informing guests of expected load shedding times (13%), requesting full upfront payment to prevent outstanding bills (11%) and offering discounts (3%). The purchase of gas appliances like stoves, heaters, geysers and fridges was also popular.

What’s the real financial impact of implementing these mitigation measures?

While it’s fantastic that hospitality businesses are clearly working to proactively mitigate the rampaging effects of ongoing load shedding, the question remains: at what cost does this come to the business?

According to stats released by the latest SAPOA survey which included hotels and accommodation chains, the majority of businesses surveyed reported spending up to R100,000 on additional power generation sources a month to keep running during load shedding. 

Almost 10% of respondents reported spending an excess of R10 million a month. Investments in alternative sources of energy, such as solar panels and generators, cost between R400,000 and R500 million - an expense that’s simply not feasible for most smaller, independent hospitality businesses. 

It’s also important to keep in mind that these are only the direct costs recorded. Indirect costs that include loss of productivity, damage to equipment and machinery through power surges and higher operational costs all amount to much more. More than 50% of respondents in the survey stated that they spend between R100,000 and R500,000 a month on indirect costs, on top of existing direct costs. 

For restaurants, the reality is equally as grim. For larger restaurants and chains that can afford it, investing in generators and diesel to keep the lights on and kitchens operating are the only way to prevent limited operational capabilities and resultant lost revenue. 

Unfortunately, for smaller restaurants, there’s no alternative other than to invest in candles and gas stoves, reduce their menu offerings and eventually lay off staff. 

What else can businesses do to reduce the damage load shedding is causing?

Unfortunately, there’s no solution to eradicate the effects of load shedding entirely, but the government has made it easier for smaller businesses to invest in alternative sources of energy generation. 

South Africa’s Finance Minister,  Enoch Godongwana, announced in his budget speech that, from 1 March 2023, businesses can deduct 125% of the cost of their investment in renewable energy sources from their taxable income. This offers some much-needed support for SMEs looking for viable means of obtaining additional electricity. 

Where possible, businesses sharing premises or operating from the same premises can look to partner and pool their resources where possible to invest in shared solutions to help reduce long power cuts, such as generators and inverters. 

Investing in other resources that help to centralise and streamline all data and operations to identify potential cost sinks and opportunities for improving performance is also a viable way of reinforcing ongoing business agility.

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