High food prices will not curb tourism growth
Rising food price inflation which is currently driving the increase in operating costs will not severely affect the tourism sector due to its continued resilience and increasing foreign arrivals boosted by the weak Rand.
The latest figures from the TBCSA Tourism Business Index (“TBI”) revealed that the sector performed steadily in the first quarter of the year regardless of tough business conditions.
Charnel Kara, Tourism Specialist at FNB Business, says the recent drought which has led to a surge in food prices, coupled with broader economic challenges are placing strain on the bottom line of many tourism operators. The situation is further exacerbated by a drop in domestic tourism activities and high operating costs, driven by factors such as increasing electricity tariffs and high labour costs.
“Despite the current challenges, the travel and tourism sector is still showing strong performance, especially in accommodation occupancy rates which are being driven by foreign and regional arrivals,” says Kara.
Although the industry is experiencing a slowdown in domestic activities due to tough economic conditions forcing consumers to cut back on spending and luxuries, high food costs will not be a negative factor for foreign visitors due to the weakness of the Rand against major international currencies.
From a global perspective food has become an important part of tourism experiences and attractions for travelers who are keen to explore different cultures. Many foreign visitors come to South Africa not only because of its beautiful weather and natural attractions, but also for its famous wines, seafood and traditional cuisines.
As a result, food and hotel restaurants are now playing an important role in job creation as well as generating profit and revenue for the sector.
Kara cautions tourism operators that are desperate to increase revenue not to hike prices of accommodation, food and services unrealistically, in an attempt to benefit from the disposable income of foreign visitors.
Drastic price increases would not only harm the reputation and competitiveness of the sector, but could also slowdown domestic tourism growth and create barriers to entry for future entrepreneurs.
On the contrary, food costs play an important role in the profitability of hotel restaurants, and it is therefore becoming essential for operators to constantly review their menu pricing strategies in order to strike the correct balance between input costs and meal prices.
“Regardless of its negative impact on the local economy, rising food price inflation does not currently pose an immediate threat to the revenue and growth of the tourism sector. Instead, it may assist in keeping some businesses afloat while the weak Rand continues to attract foreign visitors,” concludes Kara.