This sector is quite a mixture of different types of businesses, including fast foods, restaurants, hotels, gaming, sports management and tourism.
It was a good year for the sector. The hotel groups benefited from SA's hosting of the World Summit on Sustainable Development in 2002 and the cricket World Cup in early 2003. Average room occupancies soared despite much higher room rates.
The strengthening of the rand as 2003 progressed was not too damaging because SA is still regarded as a relatively safe destination. Numbers of foreign tourists did not fall, but the growth rate did tail off.
Foreign tourists also became more discriminating in their choice of hotels and more careful with other expenses, because of the stronger rand and higher hotel rates. The average occupancies of five-star and four-star accommodation declined, but three-star hotels bore up well, helping chains such as Holiday Inn Garden Court and City Lodge.
It's often forgotten that local tourism comprises more than 75% of the total. Local tourism remained buoyant and there were signs that corporate travel budgets were loosening: good news for the middle-market hotel chains.
Interest in gaming remained high. The infrastructural spending on new casinos is over and the operators are watching the cash pour in. It's instructive to note that the gaming side of Tsogo Sun is more profitable than its hotel sibling, Southern Sun, with Tsogo operating from six outlets compared with Southern Sun's 80-plus.
Famous Brands (formerly Steers Holdings) pulled off an audacious coup in late 2003 by acquiring first Brazilian and House of Coffees and then Pleasure Foods, the holding company of Wimpy and Whistlestop. The enlarged group now has more than 1 000 outlets in SA.
By mid-2003, Tsogo Sun - the combined hotel and gaming group formerly known as Southern Sun Hotel Holdings - was raising its profile. It had been one of the main beneficiaries of foreign tourism and was telling people about it. In 2003 it also completed the deal whereby it ceased to be a subsidiary of SABMiller and became a majority black-owned company. Many observers expected a JSE listing of the company would soon follow.
It's no coincidence that three of the five most profitable companies in the sector are related to gaming - Kersaf, Sun International and Gold Reef. Even though it operates in a strictly regulated industry, gaming is highly profitable and should continue to be so for the foreseeable future.
Kersaf makes by far the most profit in the sector - almost twice as much as second-placed Tourvest. It's also connected to two other players in the sector, as the holding company of Sun International (SI) and owning 39% of City Lodge.
Early in 2004 Kersaf announced that it would buy out the minorities in SI, delist it and rename Kersaf as Sun International.
City Lodge continued to confound the pundits. Though foreign tourism is relatively small in City Lodge's life, it is a growing part of the business. City Lodge is also branching out into smaller cities. There is plenty of growth left in this well-managed company.
Once Kersaf has consummated its SI deal and simplified the structure, it may be tempted to make an offer to the City Lodge minorities as well.
