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World Cup winners and losers

Posted on: 01 June 2010

Vuvuzela manufacturers around the country might be reviewing their retirement plans, but there are also quite a few SME decision makers who have made critical errors in judgement, hoping to cash in on the event.

Then, there are businesses that will simply have to cope with the disruption the tournament creates and hope that cash flow will be sufficient to survive.

The general excitement of the tournament continues to mount, but the expectations of never seen before riches it initially created has left the SME sector.

Many small businesses have already benefited from the immense infrastructure spending that has taken place, but others put their money on the wrong horse: hordes of Euro and US dollar spending foreigners buying anything and everything under the sun.

A recent report by auditing firm Grant Thornton concluded that the financial spin-offs from the tournament will remain at 0.5% of GDP.

This is despite the fact that the expected foreign visitor figures have dropped significantly from the initial 450 000.

It is now expected that the event will see approximately 373 000 foreign visitors coming to South Africa, each of whom will spend about R30 000. The total economic impact of the event stands at R93 billion.

Soccer and government officials blame the economic downturn but tourism professionals have long doubted the influx of foreign visitors to a long haul destination such as South Africa.

As a result, Fifa's official booking agency MATCH, has returned large numbers of bed nights and flight seats. This has left many accommodation establishments in the lurch as they declined private bookings.

Gerrie van Biljon, an Executive Director at private SME investment firm Business Partners, says many of the pipedreams sold with the event are disappearing.

"The reality is kicking in for many people, especially in the accommodation industry where prices were hugely inflated in some instances. I think many foreign visitors did more homework than hospitality establishment owners expected," he says.

Accommodation price increases has been a subject of debate for some time. In a study commissioned by the Department of Tourism earlier this year, it was found that most establishments did increase their prices, but this was done in line with annual, normal escalations.

Nevertheless, there are many SMEs who took a chance to cash in on the event and Van Biljon says some even invested heavily on infrastructure such as building additional rooms.

"You can't build a guest house based on a single event when your business plan demands that the income to pay off the associated capital outlay will take a long time."

He adds that many small businesses also made plans to cash in on the event without realising how strictly Fifa would enforce its branding, naming and geographical exclusivity rights.

The event has placed a premium on travel costs to larger urban centres and some businesses, such as Business Partners, will not travel during the tournament.

Van Biljon explains that this is a business decision based on the cost of air fares.

"You need to adjust your life and plans to accommodate the reality," he adds.

Business Partners is not alone in its decision and knock on effects of this nature obviously affect other businesses.

Laurette Haynes of XL Aloe Travel in East London says that approximately 70% of their business stems from corporate travel.

"We have told our clients that if they need to travel, to make their plans early. Business can still carry on but we told them not to try and fly the day before or after a match otherwise they will be paying a premium…

"For two months our business will be adversely affected. People will either not be travelling, or they will be taking leave."

Nevertheless, Haynes says she actively planned for the reality and that a good cash flow situation to see the business through this period. In addition, they will be marketing extensively to try and minimise the negative impact of the event.

There are some businesses however that have struck gold and this includes the Norscot Manor Lodge in Johannesburg.

Owner John Edwards explains that he was initially extremely worried about the effects the tournament might have on the business as most regular corporate clients had already indicated that they would not be travelling in June.

Luck was on his side though and an American travel agent got in touch last year, booking out the entire venue for the duration of the soccer spectacle.

"We get five or six emails every day from people looking for accommodation (during the World Cup). I think we could have booked this place out three times over," he says.

While Edwards was lucky, other business owners had to actively look for and fight for 2010 related business, including Connecting Africa.

The business specialises in business communication, especially satellite set ups and Technical Director Barry Schubert says World Cup spin offs have been "bitter sweet".

"There are 15 matches that take place during office hours so many of our large corporate clients have made provision for this and we have been expending their DStv reach on different office buildings."

He adds that they also won a tender at OR Tambo International Airport, but that there have been some negatives as well: because their installation teams are on the road all day, they have been caught up in the road works going on throughout Gauteng.

This effectively means lost man hours, offsetting the extra work secured on the balance sheet.

Kevin Gericke, the co owner of Food & Beverage Institute in Bloemfontein, explains in turn that because they are a training institute, they have both the facilities and the man power to provide catering services.

Gericke made a conscious decision to be part of the event and managed to secure three large contracts in Bloemfontein and Rustenburg.

"Firstly, it is good exposure for the students. I have catered for many different sporting events but this is obviously the biggest ever – I wanted to get my teeth into it."

The business will be providing about 3 000 meals a day in Bloemfontein alone and Gericke has been working on these contracts since last December.

"We had our ears on the ground and through mutual contacts we got hold of (the client).

"I think the people that thought they would make a lot of money are bitterly disappointed. People like ourselves, who were looking for an opportunity are ecstatic. Obviously we are a business and money is an issue but it was not the priority – the students were."

Van Biljon explains that the World Cup is an opportunity for almost every SME, even if they are not making money through the tournament.

"You need to realise that you cannot operate normally… Maybe you can take this time to reflect on your business model and how it operates."

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