Hotel group discusses the strategy behind its African expansion
Over the past two years How we made it in Africa has reported on the entry and expansion of numerous multinational hotel brands – including Four Seasons, Radisson Blu, Marriott and Protea Hotels – into African markets. South African hotel group City Lodge recently decided to venture into the rest of the continent for the first time with its entry into Botswana and Kenya.
Clifford Ross, chief executive of City Lodge Hotels, tells Kate Douglas about the strategic decision to move into these markets and how this will prepare them for further expansion.
Tell us more about your entry into Kenya and Botswana
It has always been a strategic objective of the group to take City Lodge outside of the borders of South Africa and, having considered many other market opportunities, we decided that Africa would be the area that we would like to start this journey in. In our investigations and research into the different African markets on our radar, Kenya was visited and we found an opportunity to get immediate traction in East Africa with the 50% acquisition and joint venture (JV) with the Fairview Hotel and adjacent Country Lodge. Kenya, we found, was an established market and being the hub of the East African region, suited our plans for expansion. Our JV partners have also been investigating the market and there were good synergies to jointly develop hotels in this region; them having the hands on experience in these markets and knowing the business climate, market dynamics, administration processes, taxation, legal and other business imperatives to operate in the region.
Country Lodge is also a replica of our Town Lodge brand and will be shortly converted to establish the brand in the region. Nairobi really is the hub of the East African region with many international and South African companies established in the city.
Botswana is a market that we have been looking at for a long time and when the opportunity presented itself to do a development in Gaborone – and we identified a market need in the as yet un-serviced 2/3-star market – we were happy to press the button on our Town Lodge. As many business visitors to Botswana are from South Africa, a good quality affordable hotel offering such as the Town Lodge will fill a niche which is not yet catered for.
What makes East Africa so attractive for City Lodge?
We believe that East Africa is a growing market with relative political stability and lacks good quality 3-star accommodation at an affordable rate. Most African countries are well serviced at the top end of the market with many 4-star and 5-star hotels but don’t service the growing business markets from South Africa and other neighbouring countries with a good quality 2-star and 3-star offering.
How would you describe the competition in the region?
There are a number of good and well established hotels in the region. The majority of the product is, however, old and in need of refurbishment. City Lodge will bring a fresh and modern alternative to this offering.
What other countries in the East Africa region are you interested in entering?
With our JV partners we will jointly develop hotels in Rwanda, Uganda, Tanzania and other opportunities in Kenya. Ethiopia and Burundi will follow once we are better established. We believe that the City Lodge offering is what is needed in these areas.
You entered the Kenyan market through a partnership with two local hotels in Nairobi. Why enter the market through a JV partnership and not on your own?
Local knowledge and expertise, together with the fact that this is our first venture outside of South Africa, gave us a sense of comfort in the JV with well established and successful operations such as the Fairview and Country Lodge. It is the intention to “greenfield” other of the City Lodge brands now that we have a presence in the area.
What risks do you face with entering the East Africa region?
The biggest risk is probably political uncertainty but this is inherent in any venture in Africa. Other risks such as land tenure, cost of land, building costs, lack of infrastructural development, financing, etc., will all be factored into the feasibility of each project and weighed up accordingly with the expected returns before final decisions are taken on any development.