The group owns, manages and operates almost all of its properties

Celebrating its 25th anniversary this year, City Lodge Hotels is a trailblazer in the SA hotel industry, having effectively pioneered the selected services hotel concept.

At the time of its launch, City Lodge Hotels had many critics in the hotel industry who believed the selected services concept would never work or be able to compete against full service hotels.

But the group has proved them wrong with dramatic growth in profits and rooms over the past quarter of a century.

By the end of this year, there will be 52 hotels with more than 6000 rooms within the group.

The group has also grown from a single brand, City Lodge, to four brands including Town Lodge, Road Lodge and Courtyard.

It is hard to believe that City Lodge Hotels, which has been listed on the JSE since 1992, began life as a single 123 room hotel — City Lodge Sandton — on Swiss National Day on August 1 1985.

City Lodge was the brainchild of Swiss-born Hans Enderle, who started the group with the Mine’s Pension Funds as the major funder.

Enderle, who steps down as nonexecutive chairman of the group on August 1 this year, says the idea of the selected services hotel goes back to his days as CEO of Holiday Inn in SA.

“We realised that because of high hotel prices, there was a gap in the market. We went around the world and did studies of hotels. In America, they had started what were called selected services hotels. We did more research in SA and tailor-made a hotel for the SA market,” says Enderle.

“We pressed the button on the first hotel (what would later become City Lodge Bryanston). But then the Rennies Group, which owned Holiday Inn at the time, decided to sell the Holiday Inn brand in 1985 to the Southern Sun Group, which was Holiday Inn’s major competitor in the SA market.”

Enderle decided to make a bid himself to acquire the then unbranded hotel, which was still under construction.

“The cost was R6m and the new owners of Holiday Inn granted me the option to purchase the yet-to-be completed selected services hotel. I had to go and look for the money and I found my partners, the Mine’s Pension Funds,” says Enderle.

Clifford Ross, CEO of the City Lodge Hotels group, says that when Enderle obtained the funding, he was given five years to achieve 1000 rooms. “That was achieved in four years when we opened a City Lodge in Bloemfontein,” says Ross, who has been with the group since 1986.

Relishing the challenge, Enderle says he “never had in mind just one hotel” and always wanted to build a chain of selected services hotels.

Ross says: “In those days, all hotels were full-service, offering porters, banqueting, room service, in-house bars and restaurants. We took all of that out and offered only those services we felt were required by the Monday to Friday business traveller.”

Adopting the selected services concept meant City Lodge Hotels could run a hotel with smaller staff numbers.

“In a full service hotel, you have one staff member for each room. We had 123 rooms (to start with) with one staff member for every three rooms. The economy of scale was there.”

Ross says that with an initial opening room rate of R39,50/night, the City Lodge Bryanston offered the business traveller the option of having breakfast or not. “In those days, most hotels had bed/breakfast rates, meaning that even if you didn’t want breakfast it was included. We gave them a choice,” says Ross.

On August 1 1990, City Lodge Hotels opened its first two-star Town Lodge in Bellville, offering a lower room rate than City Lodge. Town Lodge was a new concept, one step down from the three star City Lodge hotel concept.

“This was based on research done in the US by Hans (Enderle), which indicated that markets wanted a service a tier below City Lodge,” says Ross.

Ironically, Enderle had gone overseas to investigate the prospects of building a suite hotel offering a notch above City Lodge. However, his research found there was more demand below the three-star market.

A Town Lodge hotel room differs from a City Lodge room in that it is around 25% smaller and its bathroom has a maxi-shower, but no bath.

In 1995, City Lodge Hotels opened its first one-star Road Lodge, which was a tier below the Town Lodge, at the Johannesburg Airport.

The 25% difference rule also applied to this hotel concept, with a Road Lodge room being 25% smaller than a Town Lodge room.

But Enderle did ultimately go more upmarket with the acquisition of the four-star Courtyard brand, which included five hotels at that stage, from the development company Gallic. “They (Gallic) wanted to be in the hotel market, but realised it wasn’t their core business. We bought 50% of the five Courtyards and 100% of the management company of Courtyard,” says Ross.

AECI Pension Fund owned the other 50% of the hotels and later sold them to JSE-listed Hospitality Property Fund.

Enderle says the acquisition of Courtyard “completed the four-tier and four-brands strategy of City Lodge Hotels”.

Ross says the City Lodge Hotels group is unique in the hotel industry. “We own and develop property, we buy land, do improvements and then we own the finished product. We always felt that owning the asset was the way we wanted it to be. Owning properties is defensive, we don’t have to pay rentals to a landlord and in bad times it certainly works in our favour. If you don’t own your property, when occupancy goes down, you are tied into a lease arrangement escalating every year.”

The group has had to make exceptions to this rule on a few occasions to obtain prime sites in recent times as the property boom made it difficult to source suitable A-grade sites for hotel development.

“About two years ago, in order to grow the company, we had to change the model to include land and building leases. We did a deal with Airports Company SA (Acsa) where we have three airport hotels developed on land and building leases. Acsa owns the land and we developed the buildings according to our requirements, and funded them during construction. Once we had completed developments, Acsa paid for the buildings. Acsa owns the land and buildings and we pay a lease,” he says.

Properties developed under this model include a 303-room City Lodge at OR Tambo International Airport (the biggest hotel in the group); a 90-room Road Lodge at Port Elizabeth Airport; and a 66-room Road Lodge at Bloemfontein Airport. City Lodge Hotels also has a similar arrangement with Acsa at Cape Town International Airport.

“We are also landbanking at the moment for future developments. At any given time we have two dozen developments in various stages of negotiation,” says Ross.

Henri Joubert is international business manager for City Lodge Hotels and his main focus is research. They are looking at India and have made a few visits there to study the market and meet potential investors.

Though Enderle is stepping down 25 years to the day that the first City Lodge opened, he remains a sizeable shareholder. “I am still a 10% shareholder in City Lodge. It’s a good thing for me to hand over the torch to younger people and it’s good to have change,” he says.

Enderle is happy that Bulelani Ngcuka will be taking over as nonexecutive chairman from August 1 this year. “I am delighted we have a person of his calibre to lead the company into the future.”

He believes the most important aspect of the City Lodge story is “all the people who have worked for this wonderful group and have made this company what it is today”.

He says: “They have built this company. For half of the 25 years of the company’s existence, my friend Clifford Ross has been leading the company with very able colleagues such as Andrew Widegger and all the divisional and nonexecutive directors.”

Source: Financial Mail