REGENERATION STRATEGY FOR THEGA-RANKUWA HOTEL SCHOOL

Contents

1. Introduction2. Policy and Strategy context3. Situation Analysis, Physical Facilities and Key Issues4. Training in the tourism sector5. Skills Gaps6. Best practices – hotel schools and related physical

facilities7. Regeneration Strategy8. Marketing Plan9. Financial Model10. Implementation Roadmap11. DED Vision12. Conclusions

IntroductionBackground

• The Ga-Rankuwa Hotel School (GRHS), located in Ga-Rankuwa township of the Gauteng Province, is currently a campus of the hotel division of the North West Parks and Tourism Board (NWPTB) and is in the process of being transferred to Department of Economic Development of the Gauteng Provincial Government (GDED)

• The DED resolved as follows:

• Conduct a due diligence that will inform the acquisition transaction of the Ga-Rankuwa Hotel School (GRHS) for valuation purposes

• Develop a Regeneration Strategy and Marketing Plan with the aim of repositioning the school to be a “Leading world class training and leisure facility in Africa” – this project

Introduction (cont’d)

Scope of the Project• The scope of the project inter alia included a review of the

following:– Policy and Strategy context;– A Situation Analysis with respect to:

• GRHS;• Training in the tourism and hospitality sector;• Industry skills gaps; and• Best practices in the tourism industry – benchmarking both local and

international.

 

Introduction (cont’d)

Scope of the Project•  The scope further required a development of the following:

• Business model for the new hotel school;• Alignment of the school to government strategies for the

tourism industry; and• Implementation Roadmap.

 

FOCUS: This presentation is structured as per the scope of work of the project, and it further details the Regeneration Strategy and Marketing Plan

Tourism Policy

The White Policy (1996) is considered the overarching tourism policy. With regards tourism education, it emphasised the following:

• Deficiency in tourism education;• The need to access an affordable tourism education for the

previously neglected groups;• The need for a tourism awareness programme;• The school curriculum to include a tourism subject; and• Basic skills such as communication and customer service to

compliment tourism technical skills.

Tourism Sector StrategiesCognisance is taken of various strategies in place. For the purpose of this presentation, we focus only the National Tourism Sector Strategy (NTSS) and the Gauteng Tourism Sector Strategy (GTSS). These strategies set the targets illustrated below:

The GTSS states that the number of jobs is still to be determined, and we thus extrapolated to estimate that about 32,000 learners must be trained and given decent jobs, based on the tourism growth rate with regard to the envisaged number of tourists to South Africa

National Tourism Sector Strategy

Gauteng TourismSector Strategy

Foreign visitor arrivals 15 million 8.25 million Domestic tourists 18 million 10.26 million Total est tourist 33 million 18.51 milliomDirect jobs 461,700 *258,972 * Extrapolated based on NTSS direct jobs to be created

Situation Analysis• Management and organisation

– The rector manages the school and hotel operations with a 23 staff compliment, eligible for corporate benefits

• GRHS operations– The school has capacity to enrol 100 students, and currently

enrols about 40%, using 2 academic staff members;– The hotel school is accredited with CATHSSETA and offers one

year certificate and two year diploma courses in professional cookery;

– The hotel, currently not graded, has ten (10) rooms and utilises about 7 staff members;

– The GRHS shared services, namely, HR, IT and financial management are based in Mafikeng; and

• The physical facilities require urgent refurbishment.

GRHS Physical Facilities - Buildings

GRHS Physical Facilities - Kitchens

GRHS Physical Facilities - Library

Situation Analysis – strategic decisions• Transfer. The finalisation of the transactional arrangements,

which are recommended to deal with:– the nature of the transaction-which should be an asset

transfer/acquisition;– a management agreement concluded with the NWPTB to

manage the school on behalf of DED during the transitional phase

• Improvements. The timing of the refurbishment of the physical facilities

• Expansion. Raising of investment capital and related funding options

• Institutional capacity. Formalisation of relationships with industry players

Training in the tourism sector

The South African education system comprises these bands:• Basic Education – tourism courses offered at school• Further Education and Training (FET)• Higher Education – University of Technology and University• Sector Education and Training Authority (SETA)

 

The GRHS is accredited by CATHSSETA, one of the SETAs.

The universities offer mainly diplomas and degrees in tourism and hospitality studies.

Skills GapThe GRHS offers learners career opportunities to become Chefs. The table below illustrates tremendous skills gap in the hospitality sector:

The table indicates that 82% of employees in the hospitality sector have obtained qualifications at or lower than NQF4, which is equivalent to Matric.

Employee Qualification Level NQF 5-8 NQF 2-4 NQF 1 & LESS

HOSPITALITY 18% 28% 54%

TOURISM & TRAVEL 74% 18% 7%

GAMING & LOTTERIES 53% 40% 5%

CONSERVATION & TOURIST GUIDING 22% 50% 28%

Best Practices – hotel schools

• Highly ranked schools are private – GRHS may utilise an outsourced management company, with the land and physical facilities being leased to an institution/operator to run academic programs, with clearly set out targets contained in the business plan;– The benefits of such a model are clear

• Location – in the city centre or nearby a tourist attraction – GRHS is on the outskirts of City of Tshwane, but may remain a campus of a bigger school;

• Physical facilities including the library – state-of-the-art;• Fees are generally expensive – a subsidy may be needed for the

new GRHS; and• Limited revenue models – GRHS may explore hosting a restaurant

at its facility instead of providing hotel operations, whereby the conference facility becomes a dining room

World Class - FacilitiesCity centre building Palace in a

resort

Well-equipped library

Computer room

World Class - FacilitiesTypical classroom Residential

corridors

En-suite rooms with TV Double-room

Regeneration Strategy• Institutional Arrangements

– Appoint, in the interim, a senior official to facilitate and conclude the transfer transaction

– Establish a section 21 company to warehouse the current GRHS and formulate its related business plan;

– Appoint the board to establish a Project Programme Office for the feasibility study and construction of a new tourism centre of excellence and supporting hotel facilities

• Vision and Mission– Make it easy to remember , and refine it into, “ to be a centre

of excellence in tourism education”– Similarly to the Vision, the mission can be refined to read, “to

provide tourism education and professionalise the tourism market”

Regeneration Strategy• Accreditation

– Upon official name change, register the school with CATHSSETA

– Register the school with industry relevant associations, e.g., CASA and RASA

• Internship– Appoint a full-time person and an assistant to fully co-

ordinate internships and placements• Refurbishment Programme

– Implement quick-wins

Marketing Plan• Formulate a generic brand of the Gauteng Institute of Tourism

Education (GITE), and also the brand for the school of culinary arts;

• Register a website, www.gite.gov.za;• Compile a new prospectus for the GITE;• Advertise nationally, and local media including the DED online;• Launch the new GITE following completion of the upgrades.

Financial Model

Value Drivers for the Financial Model

The number of students that the expanded facility will accommodate will have an impact on the extent of the investment in the infrastructure which will further impact on the operating expenses of the school. The ratio of boarding v/s day students will also impact on the infrastructure with regard to number of rooms to be developed.

Input Variable Amount Total target students 1,500

Boarding students ratio 0.25

Day students ratio 0.58

Correspondence students ratio 0.17

Revenue Model

Financial Model

The fees structure is based on the existing fee structure. The correspondence students fee is an estimate. The conference rate is based on a similar facility in Randburg. The restaurant price per meal is influenced by average food price in the locality of the school and the potential target market of the school. The government subsidy is per the due diligence report.

Input Variable Base Case Amount/Rate

Average annual

increase Base school fees for boarding students

R29,700 10%

Base school fees for day students

R16,100

9%

Correspondence fees R8,250

8%

Base conferencing fee rate (per delegate)

R240

8%

Restaurant average price per meal

R30 8%

Base government subsidy R4,943,253

10%

Revenue Model

Financial Model

Year 1 2 3 4 5 6

TOTAL INCOME 8 157 500 10 072 855 13 159 043 17 436 028 22 828 709 54 200 554

Boarding Student fees 2 227 500 2 951 438 4 242 691 6 098 869 8 385 945 22 692 366

Number of boarding students 75 94 117 146 183 450

Fees per student 29 700.00 31,482 36,204 41,635 45,798 50,378

Estimated Sales Turnover 2 227 500 2 951 438 4 242 691 6 098 869 8 385 945 22 692 366

Day Student fees 2 817 500 3 733 188 5 226 463 7 317 048 10 060 940 26 729 906

Number of Day students 175 219 273 342 427 1 051

Fees per student 16 100.00 17,066 19,114 21,408 23,548 25,432

Estimated Sales Turnover 2 817 500 3 733 188 5 226 463 7 317 048 10 060 940 26 729 906

Correspondence Student fees 412 500 472 230 540 609 618 889 708 504 811 096

Number of Day students 50 53 56 60 63 67

Fees per student 8 250.00 8 910.00 9 622.80 10 392.62 11 224.03 12 121.96

Estimated Sales Turnover 412 500 472 230 540 609 618 889 708 504 811 096

Restaurant Revenues 2 700 000 2 916 000 3 149 280 3 401 222 3 673 320 3 967 186

Esimtated number of meals sold 90 000 90 000 90 000 90 000 90 000 90 000

Average price per meal 30.00 32.40 34.99 37.79 40.81 44.08

Estimated Sales Turnover 2 700 000 2 916 000 3 149 280 3 401 222 3 673 320 3 967 186

Financial ModelDirect Cost Model

The key direct cost drivers were arrived at by applying a 70% factor on the student fee structure, thus assuming a 30% gross margin. Other costs include a culinary tool kit per student, food & beverage cost per student and internet connectivity

Year 1 2 3 4 5 6

Total direct student costs 5 578 088 6 880 112 9 053 916 11 926 518 15 724 071 40 351 638

Average Cost per Student 18 593.63 18 823.84 20 263.69 21 770.39 23 347.65 25 728.29

Total Number of Students 300 313 391 488 610 1,501

Boarding students

Number of boarding students 75 94 117 146 183 450

Cost of kitchen training set 2 500.00 2 650.00 2 809.00 2 977.54 3 156.19 3 345.56

Student training costs 11 270.00 11 946.20 12 662.97 13 422.75 14 228.12 15 081.80

Boarding lodge charges 9 100.00 9 646.00 10 224.76 10 838.25 11 488.54 12 177.85

Student ICT costs 129.00 136.74 144.94 153.64 162.86 172.63

Direct foobd & beverages costs 4,583 4 858.35 5 149.86 5 458.85 5 786.38 6 133.56

Kitchen equipment amortisation costs

Total 2 068 676 2 285 526 3 028 321 4 012 526 5 316 597 13 863 558

Dau Students

Number of Day students 175 219 273 342 427 1 051

Cost of kitchen training set 2 500.00 2 650.00 2 809.00 2 977.54 3 156.19 3 345.56

Student training costs 11 270.00 11 946.20 12 662.97 13 422.75 14 228.12 15 081.80

Direct foobd & beverages costs 4 583.35 4 858.35 5 149.86 5 458.85 5 786.38 6 133.56

Student ICT costs 129.00 136.74 144.94 153.64 162.86 172.63

Kitchen equipment amortisation costs - - - - - -

Total 3 234 412 4 285 596 5 678 414 7 523 899 9 969 166 25 995 597

Correspondence students

Number of correspondence students 50 53 56 60 63 67

Distance training administration costs 5 500.00 5 830.00 6 179.80 6 550.59 6 943.62 7 360.24

Total 275 000 308 990 347 181 390 093 438 308 492 483

Revenue based expenses

Financial Model

Input variable Percentage of revenue

Water & electricity charges 2.25% 

Cleaning services 1.25% 

Building maintenance 1.5% 

Equipment maintenance 2% 

Landscape services 0.5% 

Marketing & sales 2.5% 

Security services 3.5% 

Input variable RateCommunications  

Telecommunications per employee per month 

R484

Internet connectivity per month R129 

Courier services (base usage -300 times) R125 

Transport costs for administrative staff per month

R3,300 

Stationery use per month per employee R55 

Computer consumables per employee per month 

R75

Usage based expenses

Financial Model

Job implications Direct Employees

Rector 1

Deputy Rector 2

Finance Officer 1

Lecturers 9

Programme coordinator 6

Student registrar 6

General Office Adminsitration 17

Administration Staff 9

Total Staff 52

Indirect Jobs

Security services 50

Professional consulting 10

Contruction (short term) 130

Supplies 10

Total Staff 200

Financial Model

Projected Income StatementYear 1 2 3 4 5 6

R R R R R R

Income

- Revenue 13 615 000 17 229 710 23 168 806 31 470 833 41 984 099 104 433 922

13 615 000 17 229 710 23 168 806 31 470 833 41 984 099 104 433 922

Less

Direct costs of education provision (5 578 088) (6 880 112) (9 053 916) (11 926 518) (15 724 071) (40 351 638)

Gross Profit 8 036 912 10 349 598 14 114 889 19 544 316 26 260 027 64 082 284

Government subsidy 4 943 253 5 437 578 5 981 336 6 579 469 7 237 416 7 961 158

Expenses (8 640 373) (8 743 485) (9 971 252) (12 118 001) (15 104 462) (32 971 748)

Net Profit Before Interest 4,339,792 7,043,691 10,124,973 14,005,784 18,392,982 39,071,695

Less Interest Paid - - - - - -

Add Intrest Earned

Net Profit Before Tax 4 339 792 7 043 691 10 124 973 14 005 784 18 392 982 39 071 695

Taxation (1 215 142) (1 972 234) (2 834 992) (3 921 620) (5 150 035) (10 940 074)

Profit after Tax 3 124 650 5 071 458 7 289 981 10 084 165 13 242 947 28 131 620

Dividends - - - - - -

Retained Income 3 124 650 5 071 458 7 289 981 10 084 165 13 242 947 28 131 620

Investment Implications

Financial Model

The estimated capital investment is based on the number of students and the resultant facility that is required. The conservative development cost is at R8,850 per square meter.

Description Number of units Sqm/unit Indicative costsAdministrative block 1 2,782 R24,619,743.24Kitchens 8 112.37 R7,955,796.00Hostel Accommodation 168 40 R59,372,783.20Student dining room 1 462 R3,606,733.20Linen rooms 4 21.43 R627,539.30Classrooms 16 45.53 R5,653,557Library 6 41.86 R2,222,766.00Computer labs 6 41.86 R2,222,766.00Maintenance offices 5 84.97 R3,759,923.00Project management fees R20,517,231.81

VAT thereon the estimated costs R18,398,965.35TOTAL DEVELOPMENT COSTS R149,820,146.46

Implementation Roadmap

Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 2013-2015ACTIVITIES/ACTION POINTSDEPARTMENT OF ECONOMIC DEVELOPMENT ACTIVITIESFinalise the DED's Strategic Implementation Road Map (SIRM)Approval of the SIRMDevelop the TOR for the PMOIssue a Request for Proposals for the PMOAppoint a Service Provider (PMO)PMO ACTIVITIESConclude the Transaction between DED and NWTBPRestructure the operations of GRHSDevelop a business plan for GRHSConduct architenctural design, costings for the refurbsihments of the GRHSDetermine the funding requirements and design funding structures for GRHS

Develop specifications for the management of GRHS and call RFP

Conclude transaction with land owner for the new schoolConduct geotechnical, land survey, EIA on the land earmarked for the school

Submit applications for development and obtain all regulatory approvals for development of the new school

Design the school's infrastructure, lay-out of kitchens etcCall for proposals for the Development of the new SchoolProject Manage the development of the school

INDICATIVE TIMELINES FOR THE PMO-NEW SCHOOL HOTEL

DED VisionA reception to reflect a School in hospitality

A conference centre converted into a restaurant

Learners provided with right tools, books and uniform

Access to internet, including in corridors

GITECulinary

GITECulinary

GITECulinary

GITECulinary

DED VisionDemo kitchen for foundation phase levels

Optimal use of space – advanced kitchens

Enclosed kitchens, pastry (wooden tables) and cookery (stainless steel)

DED VisionProper computer room

Proper library

Conclusion• The GRHS has been severely under-funded over the past five

(5) years and certain facilities require urgent attention and funding estimated at R150 million

• The international bench marking trip further confirmed hotel schools best practices

• The GRHS must consider to substantially increase its student intake to support envisaged phenomenal growth in tourism;

• The GITE must evaluate which of priority and critical skills courses it wants to offer initially within the hospitality industry

• Optimal institutional arrangement is that the GRHS is warehoused in a section 21 company with the aim to ring-fence the tourism institute, and renamed the existing school the Ga-Rankuwa School of Culinary Arts