International and regional hotel brands are moving into Africa, changing the landscape and becoming formidable competitors to longstanding hotels. Earlier this year, a report from W Hospitality Group found the number of planned hotel rooms in Africa was up 30% on last year.
Both Wayne Troughton, CEO, Hospitality & Real Estate Consulting at HTI Consulting, and Lee-Anne Bac, Director of Grant Thornton Johannesburg, say the interest from international brands is driven by the growth in Africa. Bac explains that hotel development tends to track economic development. According to Troughton, some countries in Africa have seen annual GDP growth of 6% and 7%, with some seeing even 9% growth.
Troughton points out that while some operators were reluctant to enter Africa, the first wave of investors has paved the way for new investments. For example, Troughton says there are 41 international brands that currently have an interest in entering Africa. He says 10 years ago, when looking at operator selection for new developments, the firm was lucky to get interest from three or four brands. In comparison, a recent development in Ghana has sparked interest from 15 operators. He added that, in addition to global brands, many other brands, including those from the Far East and Middle East, are also coming into Africa.
Hotel brands can quickly move into new destinations by signing management contracts, says Troughton, adding that this means their exposure to risk is reduced. “If somebody has the capital to build a hotel, [the hotel brand] is not taking that commercial risk.”
According to Bac, new brands entering Africa are serious competitors to existing properties. She explains that many of the hotels in Africa have ageing infrastructure and international brands are coming in with new hotels.
Bac and Troughton point out that global brands are also internationally known and therefore come with a customer base that wants the security of knowing it can rely on a certain standard from a particular brand. Troughton says the brand standards of these international brands are non-negotiable, and adds that their power is their global brand and their ability to market.
International brands also have the ability to leverage their loyalty programmes, says Troughton. He suggests that Marriott’s interest in buying Starwood is largely driven by the value of Starwood’s loyalty programme, which is one of the “most successful” and “most used” loyalty programmes. Troughton says among the large international brands, loyalty programmes can account for between 5% and 52% of revenue. He adds that the spend of guests on these programmes is far greater than other guests.
Troughton says within the five-star segment, the entry of international brands on the continent will be a “game changer”. However, he also points out that international brands will find it challenging to enter the three- and four-star segment as there are existing local brands that are strong in these segments. He says these segments are typically dominated by domestic travel, where existing relationships are important. Troughton suggests this dynamic informed Marriott’s decision to buy Protea.
Brand penetration in Africa is “tiny” and there is a lot of scope for international brands to come in and take existing market share away from hotels, says Troghton. For example, he says Lagos, despite being a significant economy comparable to Johannesburg, has a disproportionately low representation of international hotel brands. He added that international brands had the opportunity to bring their loyalty programmes and achieve significant penetration.