As the economy improves, domestic business, leisure and MICE travel is expected to grow rapidly in India. Many homegrown as well as international hospitality brands have been busy charting their expansion plans to grow their footprint in different locations across the country By Kahini Chakraborty
Over the last 50 years, India has seen a rapid evolution of the Indian hospitality industry as consumers are constantly being exposed to new international brands, concepts and trends. Extensive consumer researches have shown that Indian guests have become value-conscious and are increasingly expecting their hotel experiences to be locally relevant. Furthermore, with the rising middle class projected to reach 200 million by 2020 and more than double by 2030, it has become all the more important to have quality hotels that cater to the growing segment of discerning travellers. And hence with the positive market sentiment, the tourism and hospitality industry is anticipated to generate revenues worth US$ 400 billion by 2022.
Presently, the demand is less and supply is more in a number of cities. But within the period of 12 – 14 months the position may change with demand picking up against the supply. In the next five years, the demand is expected to surpass the supply and industry would do better. Domestic travel is strong and remains to be the demand bedrock of the industry, and as the economy improves domestic business, leisure and MICE travel will grow rapidly spreading over to many cities and towns.
Where is the growth
Overall the rise of middle class families who are willing to indulge in a weekend getaway or to visit their family in another city, as well as corporates focusing on off-sites are some of the trends that are leading to a growth in the secondary markets. This segment also seeks upper upscale hotels at upscale pricing. In addition, in-bound travel can grow sizeably and benefit the economy. However, the industry needs interesting and inviting destinations with attraction and quality. F&B and banqueting also remains a key business ingredient. SP Jain, managing director, Pride Hotels opines, “Metro and semi metro cities presently have more supply of room than the demand but there is definitely scope in Tier II and Tier III cities which are close to industrial developed areas.”
Taking cue from this analysis, many hospitality brands are expanding their portfolio by introducing their different brands to cater to every segment giving rise to micro markets. For example, InterContinental Hotels Group’s growth is focused on the midscale segment which comprises of Holiday Inn and Holiday Inn Express brands. Shantha de Silva, head of South West Asia, IHG says, “These two brands currently account for more than 85 per cent of our development pipeline (by number of hotels) in India. The hotels are planned in Chennai, Ahmedabad, Hyderabad and major metros and key secondary cities. At present, we have nine Holiday Inn hotels and three Holiday Inn Express hotels and will grow this over the next three to five years as we open 24 Holiday Inn hotels and 17 Holiday Inn Express hotels across major metros and secondary cities in India.”
India continues to be a key market growth for Accor with strong demand across all segments. Jean-Michel Cassé – Sr vice president – Operations, Accor India highlights, “Accor is uniquely placed as the only international hotel chain in India with brands that span across all segments from luxury (Sofitel), upscale (Pullman), leisure (Grand Mercure), midscale (Novotel) to economy (ibis) and budget (Formule 1). We currently have a network of 31 hotels and three convention centres in India.” Further stating, “Accor is committed to growing our network of hotels in the long-term substantially across segments here in India. We are looking to open 11 hotels this year along with the Jaipur Exhibition and Convention Centre (JECC) – South Asia largest integrated exhibition & convention centre. By the end of 2015, we will have approximately 42 hotels ranging from upscale, leisure, mid-scale to economy to be in full operation across key cities in Bengaluru, Chennai, Hyderabad, Lavasa, New Delhi, Goa, Kochi and Nashik.”
While Wyndham Hotel Group currently has 24 properties with approximately 2,586 rooms open under the Ramada, Howard Johnson, Wyndham Grand Hotels and Resorts and Days Inn brands in India and 41 properties with approximately 4,561 rooms under development. Deepika Arora, regional vice president, Indian Ocean, EMEAI, Wyndham Hotel Group adds, “The brand also has 28 operating properties in Indian Ocean with 2994 rooms which includes 23 Ramada, two Days Inn, one Wyndham Grand, one Ramada Encore and one Howard Johnson properties respectively. However, the other hotels in the pipeline to be opened this year include: Ramada Plaza Agra, Days Hotel Jalandhar Jyoti Chowk, Ramada Encore Lucknow Kanpur Road, Ramada Raipur VIP Road, Days Hotel Chennai OMR Road, Days Hotel Bangalore Whitefield, Ramada Trivandrum Palayam, Ramada Jammu City Center, Ramada Darjeeling Hill Cart Road. Tier II and Tier III markets are very important for the Wyndham Hotel Group to take the brands forward. The aim is to cater to Tier 2 and Tier 3 markets with strong industrial segments such as Panipat or Neemrana.”
Over the last decade, Silva points out, “ We have observed key economic developments in tier II cities such as Ahmedabad, Chandigarh, Guwahati and Jaipur which include a boom in the real estate market and exciting development. Cities such as Kochi, Goa, and Thiruvananthapuram are enhancing their tourism offerings with visa on arrival facilities, air connectivity, and ongoing development of hotel infrastructure in the mid-scale category. We are also seeing these cities enhance their meetings and events amenities to further increase its appeal as a destination for conferences and events.” Reports have also shown that tourist spots in Tier II states such as Gujarat and Rajasthan are increasingly being preferred by domestic travellers as holiday destinations for a short getaway. “We are ready to cater to the expected increase in visitors arrivals with the opening of 24 Holiday Inn hotels and 17 Holiday Inn Express hotels across major metros and secondary cities over the next three to five years,” says Silva.
While homegrown brands like Sarovar Hotels and The Fern Hotels & Resorts have always had a strong focus on Tier II and Tier III locations, what has brought dynamism to the market is the growing footprint of major international hospitality chains in these destinations. Raj Rana, CEO, Carlson Rezidor, South Asia avers that the Indian hospitality landscape is evolving after first having made inroads in metro cities and is now shifting focus to secondary markets where broad parameters such as improved infrastructure, focus on connectivity and lower land costs are promising growth indicators. The leading international hotel operator in the country with over 110 hotels in operation and under development in over 40 cities across India, is at the forefront of expanding into these markets. Of its current pipeline of over 40 hotels under development, about 20 hotels are in secondary cities such as Jalandhar, Aligarh, Raipur, Kota, Karjat, Phagwara and Coimbatore. “This year, we have opened hotels in secondary markets such as Radisson Blu Guwahati and Country Inns & Suites Bathinda, which gives us a first mover advantage in these markets,” adds Rana. The company has a well-established presence in the northern region and is now focusing on opportunities in East and South India through prospective strategic partners.
While Marriott will launch a Courtyard by Marriott in Shillong, Courtyard by Marriott and JW Marriott in Siliguri and three properties in Guwahati. All the properties in North East will be developed within the next two years. Marriott International in association with Chhatisgarh based-City Mall 36 Group is planning to launch Renaissance by Marriott in Raipur by mid 2015. Rajeev Menon, chief operations officer (Southeast Asia & Pacific), Marriott International informed that the company aims to have over 100 MICE hotels by 2015. When it comes to Indian hospitality chain, Sarovar Hotels has from the beginning had a focus on the secondary markets. “We have been well rewarded and secondary market would be the main theme of our expansion strategy in next three to five years,” says Anil Madhok, managing director, Sarovar Hotels. Sarovar with 70 hotels is looking to be a true pan India company. “We are monitoring all regions and states and wherever cities show potential of growth we are targeting those cities,” adds Madhok.
For The Fern Hotels & Resorts of Concept Hospitality, this market is very important as 70 per cent to 80 per cent of its development is within Tier II and Tier III cities. “Our primary focus is in the western region (Gujarat, Maharashtra, Goa) and we are strengthening our presence in north and southern region as well. We recently opened two hotels in eastern region – The Fern Residency Tezpur and The Fern Residency Asansol, future plans in this region is limited,” says Param Kannampilly, CMD, Concept Hospitality. The company also has taken a strategic partnership with Nepal-based Chaudhary Group (CG) Hotels and Resorts, as part of its expansion plans. The investment amount is said to be approximately Rs 50 crore. Following this investment decision, Concept Hospitality will manage hotels belonging to CG Hotels and Resorts. CG Hotels and Resorts will help all hotels under its umbrella by offering a broader platform and international reach. Kannampilly elaborates, “Through this association we are the management wing of CG Group, and by 2017 we will have 88 hotels in various locations. Together presently we have 53 hotels and offer eight brands- Glow by Zinc, Zinc Journey, Zinc Living, Zinc City, The Fern, The Fern Residency , Beacon Hotels and Resorts as part of our portfolio. Our aim is to operate 200 hotels by 2020. Destinations like Chennai city, Orissa, Madhya Pradesh, Shillong, Siliguri, Sikkim could be looked at for our expansion plans in India.”
Another fast growing chain in the country, Keys Hotels has its presence in many Tier II and Tier III locations. While the company has a significant presence in west and the south India, in the future the focus will be on growing in the northern and eastern part of the country. Apart from metros like NCR, Kolkata, Hyderabad, the immediate focus of the company, is having a presence in cities like Lucknow, Agra, Patna, Ranchi, Mysore and Bhopal. Roots Corporation is also expanding its footprint in key pilgrimage centres across the country – from a 100 room Ginger in Katra, near Vaishnodevi and 125 keys property in Tirupati to Shirdi, Udipi, Ajmer and Haridwar.
UK-based Premier Inn is going to open four hotels in India by 2016-17, as part of its larger expansion focus plans for the three regions- India, South East Asia and GCC markets. By the first quarter of 2015, the company will be opening two properties in Chennai (total of 171 rooms) and a 130 room inventory Goa property. The 350 rooms Premier Inn Mumbai Worli property is scheduled to open in 2018, which is under management contract and is developed by the Kamala Group. The properties scheduled to open in Goa and Chennai are owned by Premier Inn, while the second property in Chennai and first one in Mumbai is through management contracts. Apart from these projects, the group is also eyeing other cities in India like Hyderabad, Lucknow, Ahmedabad and Dwarka.
The group plans to have around 50 hotels in India, Southeast Asia and Middle East by 2018. The brand has three hotels in India. David Vely, senior vice president development, Middle East, Africa and South Asia, Premier Inn says, “We have aggressive pan India expansion plans. We are looking at penetrating into micro markets of Tier I, Tier II and III cities. To develop greenfield projects for our expansion we will look at selected investment of own capital or adopt the third party management contract model. We will build substantial scale in three regions – India, South East Asia and GCC markets via ‘asset right’ business model, building on UK’s brand strength to deliver the core elements of Premier Inn.” He further adds, “Our international objective is to reach 5661 rooms by 2016-17 through 31 properties in eight countries. These are supported by an internal business plan.”
Supply and demand curve
Cassé informs that the industry recently crossed the official count of 100,000 branded hotel rooms this past year. At present, urbanisation and a higher rate of domestic travel to newer Tier II and Tier III cities and beyond will continue to drive growth. “We continue to witness a major shift in the industry for the last decade, with budget & mid-market hotels forming a larger percentage of the total room inventory and now accounting for nearly half of all the hotel rooms in the country. Accor is expanding rapidly in this segment through the Novotel and Ibis brands.”
“The past financial year has seen a marginal improvement in nationwide occupancies, thus breaking a three-year downward trend. We are confident that overall occupancies will improve this year with renewed economic interest and liberal visa policies driving inbound business travel,” he adds.
Areas of investments
Affordable real estate prices, available talent pool and improving connectivity have attracted many hotel companies to the growing Indian secondary markets. Shwetank Singh, vice president – Development & Asset Management, InterGlobe Hotels, mentions, “In these locations hotels show high growth in F&B revenue through social dinners, outings and functions being organised in hotels. Hotels in most of the secondary markets have F&B contributing a large pie of the total revenue and to succeed in these markets hotels should have sufficient banquet space and good restaurants. MICE is another important segment growing in these cities.” The primary growth factor is the dynamics on the supply and demand front.
The Pride group has invested during the last two-three years about Rs 500 crore and further has plans to invest `500 crore for expansion in Nagpur, develop a new resort in Goa and five-star hotel in Mumbai. Secondary markets are attractive due to their better return on investment as land costs are lower and financials therefore point to sustainable profits. “These markets are ripe for midscale brands as demand resonates with the growing corporate and leisure travellers in that market segment,” states Rana.
While secondary and tertiary cities offer good potential for midscale hotels over the long term, however, for India to develop as a mature hospitality market over the next decade, these cities will require better hospitality-specific infrastructure. “As several Indian cities are benefiting from improved rail, road and air connectivity and state governments are aggressively seeking investments, they are attracting manufacturing, industrial, commercial and IT-related developments. All this augurs well for new hospitality-related infrastructure development in such cities, which currently lack any quality accommodation and related services,” says Mandeep Singh Lamba, managing director – Hotels & Hospitality, Jones Lang Lasalle India.
The development of industrial corridors, for example the Delhi-Mumbai industrial corridor is a huge fillip to the hospitality industry in the cities and townships along the way. Lamba is bullish about the industrial corridors, which have large captive demand with little or no significant hospitality infrastructure. Growth is going to happen at the intersection where there is infrastructure development and industrial productivity. “New growth is going to be driven around highways in India. What happened in the US in the 70s is that motel and hotel boom rode parallel to the growth of roadways/ highways. In India highway growth is going to lead to growth in hotel demand,” says Rahul Pandit, president and executive director, The Lemon Tree Hotel Company. He points out that another factor leading to growth is tertiary locations surrounding big markets.
Challenges to overcome
“High taxation in India is making us less competitive with our neighbouring countries and large number of approvals which takes lot of time in government departments is affecting cost of project,” rues Jain. While Arora states that with increasing competition the Wyndham Hotel Group has realised that monitoring and policing of pricing amongst the hospitality industry has emerged as an important issue. For example, a five-star hotel today is charging a price of a mid-market hotel which makes it a challenge for the mid- market hotels to gain occupancy.
Menon gave two reasons as to why Indian hotels suffer. “Firstly the gestation period for any new hotel in India is typically a year or two which is longer than across the world. This issue is mainly due to the challenges with levels of corruption, bureaucracy, red tapeism which slows down the process with delays in hotel projects. The second issue is the cost of land, cost of borrowings as interest rates are 13-14 per cent, depreciating rupee. All these factors make a heavy cocktail for any company who wants to invest in the market ,” highlights Menon.
Seeing a positive side to the initiatives being taken in the tourism and hospitality industries by the government, Silva opines, “There are a number of new government initiatives to support the growth of the tourism industry, including the decision to extend visa-on-arrival; new airports in smaller key cities and the building of world-class convention facilities. These developments are all welcome news and as these changes take effect we are very optimistic about what lies ahead for the industry.”