In late November City Lodge Hotels (CLH) released a positive voluntary trading update. Since the full lifting of Covid-19 restrictions in April 2022, the hospitality industry has experienced an improving climate, with individual and corporate travellers returning in volume.
The prolonged lockdown hit CLH and all other hotel groups hard, and some did not survive. But CLH acted quickly at the outset and though the past two years were hard the group adapted to the new normal in a way few would have thought possible a few years ago.
CLH’s primary raison d’être had always been providing a good value bedroom and breakfast for the busy corporate traveller. But the pandemic changed all that. Now the group spends a lot more time and energy on food and beverages (F&B), while still offering good value accommodation.
It should be noted that CLH hasn’t got carried away with F&B, which can be a drain on profitability if not executed properly. There’s an old saying in the hotel industry that accommodation gives 80% of the profit and 20% of the hassles, while F&B gives 80% of the hassles and only 20% of the revenue.
But F&B offerings throughout the global hotel industry have changed noticeably in recent years. The image of a waiter with a badly fitting uniform and a napkin on his forearm is long gone, along with the dreaded brown Windsor soup and plum duff (with apologies to White Mischief). Modern hotel menus are more aligned to a fast-moving customer who wants interesting food at a reasonable price.
And that is precisely what CLH now offers. Depending on hotel type, customers can choose from a range of tasty favourites such as chicken and prawn curry or lamb shanks.
Menus have been kept small to keep a tight focus on what customers want. At the cheaper hotels, items such as pizza and chesa nyama dishes are offered. This approach has undoubtedly worked, with a 200% rise in F&B revenue evident compared with the previous year’s.
The drinks has been revamped completely. It is now possible to get a serious Old-Fashioned or a “Bang Babbelas” cocktail and many others at City Lodges, Courtyards and Town Lodges. This resonated with me as I struggled to get a cocktail of any description during the festive season a few years ago at a variety of upmarket hotels in Sandton.
Group occupancies for the financial year to end-November averaged 56.5% and have been improving every month since July. For November 2022 itself, average occupancy was 60%. CLH management has forecast that December 2022 would exceed 2019 levels, the last “normal” year before the pandemic. Room rates are also up, with a 9.5% increase year on year, which takes average rates back to similar levels to those last experienced in 2019.
The balance sheet is looking good, with a positive bank balance of R226m as at November 27. Total debt is now running at R200m and the group has access to another R415m if necessary. There is still some capital expenditure to be paid for, at Courtyard Waterfall in December 2022 and City Lodge V&A Waterfront in April 2023.
The next year will continue to be tough from an economic perspective and the dampening effects of rotational power cuts aren’t going away any time soon. But 2023 will be the first full year in which City Lodge experiences a “normal” operating environment.
It may be asking too much to expect resumption of dividend payments next year, but that time can’t be too far off now. International tourists are returning to SA in big numbers and people are coming back to the office from working from home and are travelling for business again. And while 2022 was far from a normal year, 2023 is likely to be much closer.
• Gilmour is an investment analyst.
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