The Don Group has been completely transformed in the past six years. When it was acquired for a nominal R1 by CEO Thabiso Tlelai in January 2000, the company was effectively bankrupt and in the hands of a consortium of banks. At that time, it was more of a property company than a hotel chain, as the 13 properties in the group were rented apartments. And it was white-owned and managed.
Today, it's the only black-owned and managed hotel group in SA, it has turned the corner financially and it's a full-service chain of all-suite hotels. Tlelai contends that this is due to the collective efforts of everyone involved with the Don during the past six difficult years. While this is true, it's difficult to ignore Tlelai's immense determination, courage and entrepreneurship.
Tlelai comes from a Free State family that was always intricately linked to businesses of varying sorts, such as bottle stores, retail outlets and restaurants. "I'm an entrepreneur by nature," he says. "I've never been employed."
It was natural that he chose the hospitality industry as his career, as this brings together the elements of liquor, restaurants and retail in one business entity. Before he acquired the Don, he already had a portfolio of three hotels in Bloemfontein and Maseru, Lesotho.
Tlelai has an eye for spotting under-performing and undervalued businesses. "But don't refer to me as a turnaround specialist, otherwise I'll have everyone dumping their junk in my backyard."
He perceived a disconnect between the Don's product offering and its positioning in the market. He reckoned that by repositioning the Don hotel as an all-suite product, he could capitalise on a gap in the market.
Most people would have walked away. "It was a scary prospect at the time," he recalls. The consortium of banks that owned it had a risk on their hands: there were too many extraneous factors at play to give comfort to investors. These factors came into play with a vengeance during the next five years.
Almost from the time Tlelai acquired the company he has had to contend with record high interest rates, a surplus of hotel rooms and a lack of interest in SA by foreign tourists, at least in the early part of the decade.
One of the Don's biggest problems at its nadir in 2001 was its unsustainable debt level. This was addressed at the time by selling eight properties to Ellwain Investments, which removed debt of R100m. According to Tlelai: "Had this not taken place, the group would have been completely vulnerable to negative bank pressure."
The Ellwain transaction held open a three-year window to repurchase the hotels, which the group exercised last year. It received funding from the Industrial Development Corporation (IDC) for the repurchase. The cost of servicing the IDC funding is less than the previous lease payments on the hotels and this has improved cash flow.
Today, the group operates nine all-suite hotels, with a combined 410 rooms. There can be little doubt that the chain offers good value - typically the suites sell for between R400 and R500/night, for rooms larger than at a standard hotel.
The debt situation has been resolved, at least as long as interest rates remain relatively low. The remaining question is whether the group can significantly improve its operational performance. Indications are that this has happened - costs are under control and occupancy levels are rising.
Two events stand out as Tlelai's personal highlights during the past five years: the first occurred when he managed to settle with the banks, back in 2000. "That was a sweet deal. Not only was it good financially but we also secured the livelihoods of 300 people." The second one was in 2004, when the option to reacquire the properties was exercised. "These were two proud, exhausting, momentous occasions."
Tlelai is optimistic about the prospects for the group. Though the relatively small size of the chain might be viewed as a disadvantage, it's concentrated in the Western Cape and Gauteng - the two major business travel centres of the country. The realignment of the group's sales and marketing strategies is showing promise and management expects a reversal of the disappointing trend of recent years. Plus, there's the tantalising prospect of the Don expanding into the rest of Africa.
