JOHANNESBURG. To sell hotel rooms at a 50 percent discount doesn’t sound as a great idea. Clients, burnt by zillions of internet hoax offers, believe that it’s a bogus offer and are skeptical about coughing up the membership fee. Hotels think that such a massive discount will ultimately cannibalise on their own fully priced, or more reasonably discounted, offerings. And surely, there cant be much of a margin for the guy who sells the discount package?
Well, think again. Richard Somogyvari has done exactly that. He has convinced, clients, hotels and various marketing partners that there is money to be made from discount beds as much as there is money to be made from bums on otherwise empty plane seats.
Since Richard Somogyvari set up Hotel Express South Africa in 2001 the company has grown to an impressive ZAR 6 million business and he now employ’s 18 people in Southern Africa.
“There was a clear gap for this kind of business, which has relatively high acquisition cost and therefore need relatively high margins. The first three years I was on the road most of the time to pitch our services to hoteliers and customers”, says Richard Somogyvari.
If nothing else, Richard Somogyvari proves that to be an entrepreneur is never that straight forward as one get told in the text books – the card board box entrepreneur dreams and thinks invention, its in his blood, and somehow, just by doggedly sticking to his instincts and vision it will work.
Certainly, in a way Richard Somogyvari fits the stereotype. He has that particular curiosity that tell you that inside there resides a born salesman. But it wasn’t a straightforward journey from A to B.
This particular journey started back in 1999 when Richard Somogyvari and his wife Helene, decided to move on, to start a new life outside their home country Sweden. Richard applied for the sales manager position for the South African licensee of the international directory Kompass. He had worked for Kompass in Sweden for 13 years, so that part of the equation was a natural progression.
There were enough challenges anyway. To move from the southern Swedish city of Malmö, Zlatan Ibrahimovic’s hometown, to the bustling mining city of Johannesburg, was quite a change. And though the product he was set to sell was the same, his new colleagues, clients and the way business was done was quite different from home.
“Organisations are not as flat as in Sweden – a factor that drives up the acquisition costs. You simply need to spend more time to get to someone that can make a decision”, says Richard Somogyvari.
Which means that to get to a decision maker it takes another decision maker – it is a hierarchical situation and there is very little you can do about it. Besides adjusting your sales strategy.
Nevertheless, he did a good day’s work and increased the sales of Kompass considerably. But after a year and a half Richard Somogyvari felt that he’d had enough. What he did at Kompass was very much the same thing, albeit in a new environment, and there was very little in it for him.
Up came an offer from German online travel agency, Flights.com, to set up a South African subsidiary. Richard Somogyvari took up the challenge and ran with it.
“It didn’t last very long, it was just before the bubble burst. Suddenly came a letter that no more money would be forthcoming from Germany. It was quite a blow, I really didn’t know what to do, one option was to move back home”, says Richard Somogyvari.
Of course he didn’t. Instead Richard Somogyvari scratched around to see what kind of agencies and opportunities there were. He came across Norwegian hotel discount concept Hotel Express.
“I thought it should work beautifully in South Africa, particularly back then when it was recession and all businesses were trying to save money in one way or the other”, says Richard Somogyvari.
So he stuck his head down, shrunk the office to a one room-one staffer situation and put the funky, internet-chique office furniture in storage, and went back to do what he knew he was good at – pitch his product to procurement managers.
“It was very hard, there was a lot of suspicion from the companies that it was a bogus offer, which gave me a lot of motivation to make sure that we would deliver on our word. It’s only by keeping what you’ve promised that you stand a chance to succeed. There is nothing worse for a discount business to not deliver”, says Richard Somogyvari.
Hotel Express has been around since 1987 and claims 250 000 worldwide clients. It was started in the US, but was soon bought by the Norwegian franchisee, as they were the most successful of the lot. The concept is simple, to take care of hotel’s surplus capacity and add some more revenue to the bottom line instead of stand there and accept what otherwise would be an outright cost. The South African franchisee pays a license fee to the worldwide group mainly for the marketing and international hotel contracts that are maintained.
As clear and simple as this sound, it’s still against human nature to undersell your own product. Why should one do such a thing? What if all customers would become clients of a Hotel Express kind of outfit, that would be rather disastrous for the hotels.
To fight that kind of perception, to stick it out, Richard Somogyvari had to sink whatever savings he had, and a quit a bit more. At some point he considered selling the house, his car, whatever, in order to just keep the business afloat. Even to give in and move back to Sweden.
To this day Richard Somogyvari is not too sure why he continued, except that he believed in the concept and that there eventually would be a break through. He continued to be cheerful and have the right kind of positive attitude.
“There was a lot of trial and error. I went to a company and pitched and hoped for the best. When someone actually bought the idea I probably more surprised then they were. That’s what happened when I got my first reasonably large contract, with Swedish truck manufacturer Scania. They actually bought it and I was stunned”, says Richard Somogyvari.
He tried just about everything under the sun, most of the ideas where never followed through. But those that worked work really well to this day.
“One was to enter bulk contracts. I entered a deal with The Holiday Club, one of RCI International’s – the largest timeshare company in the world – major developers. Their members became our members at a massive discount. The assumption, from our point of view was that their members would be marginal users, and that we therefore still would make money from it”, says Richard Somogyvari.
The assumption worked. What happened was that these kinds of bulk members used there cards sparsely and when they did they used them during the weekends, which member hotels appreciated.
When critical mass had been achieved and Richard Somogyvari had understood his market a lot better it was time to set up a tele sales centre. Initially it was outsourced, but quite soon he set up his own tele sales operation.
Neighbouring countries have become an important part of Hotel Express’s business, to the extent that half his staff are doing sales work, and are sourcing new hotels, outside of South Africa.
“There are three types of clients. We have local businessmen travelling in South Africa and internationally, and they get our discount hotel rates. Then there are regional business men mostly travelling to South Africa and often staying over the weekend. Finally its the bulk clients”, says Richard Somogyvari.
Richard Somogyvari is in the final stage of a contract with one of South Africa’s major life insurers. The contract is huge and works on the same underlying assumptions as the RCI contract – that the massive bulk discount will pay off due to the sheer numbers it adds.
Richard Somogyvari’s next challenge is to set up a new office in Cape Town, were he recently moved with the family. He expects to employ about as many as he has working for him in the Hyde Park, Johannesburg office.
His first reflection, after the move to Cape Town, was how differently everything worked in Cape Town.
“It could as well have been another country. We felt very much outside and longed back to Johannesburg”, says Richard Somogyvari.
From a networking point of view it was also very much to start from scratch. But that he knows how to do – as a Swedish immigrant in South Africa he had no social or business networks to fall back on.
“But that have never really been an issue. In many way’, I would say people are more curious about what I have to offer as a foreigner. South African’s are very often scathing about each other”, says Richard Somogyvari.
His recommendation for others to move down to South Africa and start a business is clear.
“It is very easy to set up a business in South Africa. Taxes are much lower and there are massive opportunities just about everywhere. But you must be focused and obviously be prepared to work hard. It is particularly difficult to find good, pro-active staff”, he says.
His own solution to the latter have been to employ well educated staff from neighbouring countries, in particular from Zimbabwe.
Richard Somogyvari has loads of ideas of where to take the business next. He believes that the company’s core clientele can grow two to three times.
In the larger Hotel Express empire it is Richard Somogyvari’s fiefdom that shows fastest growth by far.
So indeed it worked.
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