Hospitality Apr, 08 2011

Big Hotels in Small Cities

Impelled by a substantial growth in the travel and tourism industry and being sufficiently established in metros and big cities, hospitality brands are now foraying into tier II and III cities preferably via franchise route. Read on to explore the scope f

By Ramanjit Kaur
Feature Writer
Big Hotels in Small Cities

With increased industrialisation and rising salaries of the middle class, large number of hospitality brands is eyeing tier II and III cities for expansion. Franchising is the best possible mode to penetrate in to these markets as it requires less investment, low promotional and operational costs, and the untapped potential.

These tier II and III markets are continuously gaining momentum because these have enabled the franchisors and aspiring entrepreneurs not just a chance to enjoy healthy competition but have also provided immense opportunity and fair chance to capture the largest share of the market. As Ken Greene, President and Managing Director, Asia Pacific, Wyndham Hotel Group says, “Expansion in tier II and III cities is very important and franchising work extremely well in such market places. The most important thing to consider while expanding in these cities is to find the right property, or a location to put the right brand depending upon the consumer demographics that are driving the franchise business in that particular market place.” This article will give you an insight on the scope for hospitality brands in tier II and II cities.

Scope of tier II and III cities

Majority of the big hospitality brands are now eyeing the tier II and III cities for filling the gap in the mid-sized hotel market. According to Sudhir Sinha, President and COO, Best Western India, “Tier II and III cities are more suitable for mid-market hospitality chains because the propensity of the people to spend in these markets would be comparatively less. Brands like us fit very well in this segment.” As the expansion of the two, three and five star brands in the metro cities has reached to a saturation point, therefore these brands have started heading towards the B and C class cities to enjoy the fair share of the rising industrialisation and franchise expansion here. Brands from various sectors; be it retail or service industry are moving in these locations in order to enjoy the fair share of the rising Indian economy. These cities offer enormous opportunities to the franchisors as well as the aspiring entrepreneurs and immense potential for generating profits.

Tier II and III cities as emerging destinations

Every big retailer, franchisors and brand is talking about tier II and II cities and hospitality brands are also not secluded to this development. Here are reasons for this growth:

Low investment: Expansion in tier II and III cities is beneficial as it offers low rentals, investments and infrastructures costs. Besides this, real estate is easily available and affordable with low lease and acquisition costs.

Cost-effective marketing and promotion: Marketing and promotional expenses are much more cost-effective than in the metro cities. Best way to market the brand in these cities is the utilisation of regional and local media that reach out to the wider section of the society.

Affordable man-power: Labour in such cities is easily available and cheaper than metro cities thereby lowering the operational cost of the franchise venture. Acquiring and recruiting the man power also costs less here. Besides this, on the basis of the consumer demographics of these cities, the hospitality brands incorporate certain changes in their product and service offerings also in order to ensure profitability.

Technical advancement: With the changing scenario, tier II and III cities are no less in any way than the metro cities with the rising approach of big brands in these cities. The markets have become much more advanced with the availability of internet and latest technologies.

To fill the mid-size market gap: With the rising number of brands in various sectors exploring new markets in tier II and III cities for growth, the need and demand for hotels chains in these cities have also increased.

Need for fresh avenues

This way it provides fertile grounds to the players of the hospitality sector to launch mid-sized hotels for corporates whose visit in these cities for business purposes have increased manifold in the recent time. Besides this, the Indian travel and tourism industry has also reported a rise in the figures, thereby increasing the seasonal demand of quality and affordable hotels. There is a huge gap in the mid-sized hotels segment in these cities that need to be tapped. Realising this gap where tier II and III cities need quality accommodations for the tourists and corporates, hospitality brands also need fresh avenues for franchise expansion.

Key players

Keeping in mind the huge vacuum in the mid-market segment, a slew of well established brands like Best Western, Wyndham Hotels, Royal Orchid, Kamat Hotels India, Starwood Hotels & Resorts, and so on are planning to come up with mid-sized hotels to get benefited. For instance, Best Western has recently announced the launch of its new Hotel brand Descriptor ‘Best Western Plus’, which is a four star hotel chain. On this, Sinha says, “Discerning high end travelers, who prefers to stay in five star properties, are unable to find suitable accommodation in tier II cities in India, at the moment. Best Western Plus is our endeavor to fill this gap in the market with properties which are as good as five star products, maybe with less grand and spacious public areas, but with premium guest amenities and well-appointed rooms.”

Conclusion

The Indian hospitality industry is emerging big time with companies making mid-sized hotels by keeping in mind the requirements of the national and international travellers, in alignment with their own experiences. In short, tier II and III cities offer a pool of entrepreneurial talent, spending power and low penetration cost along with the rising approach of brands from various industries and growing tourist visits keep the hospitality brands optimistic about their long haul.

Related: Experience Indian philosophy with Le Sutra

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