The Hospitality Industry is taking care of all the aspects while embracing the franchise model that has few challenges too. Let’s discuss in detail...
Be it any Industry, big or small, challenges surely come with success. Similarly it applies to the hospitality industry. Franchising has seen fast development in the hotel industry with the globalization of hotel chains. Many big Indian and even international hotel chains in India have expanded fast via this model. Hospitality Industry is taking care of all the aspects while embracing this model that has few challenges too. Market check, quality control, skilled people, business tradition and many other aspects have to be looked into before getting into the franchise ship. Dilpreet Singh Bindra, General Manager, JW Marriott Chandigarh tells us: ‘High cost of operations has emerged as one of the biggest challenges that the Indian Hospitality Industry faces. With taxes as high as 28% (GST) for hotels and the ever rising Heating, Lighting and Power (HLP) cost, both contributing a substantial part of the total operating cost, it will become an even more challenging market to operate in.’
India’s domestic travel market is on an acceleration path with the travel market all set to grow at 11-11.5% to $48 billion by 2020, according to a report released by Google India, with along with Boston Consulting Group on the growth opportunities in the Indian hospitality market over the next four years. As per the report, Hotels, will grow at 13% to $13 billion by 2020. As more people come online, smartphone penetration improves and use of digital payments goes up, the report estimates that India’s online hotel market will grow to $4 billion with 31% penetration at a compound annual growth rate (CAGR) of 25%.
On facing the challenges heroically Bindra says: ‘Streamlining the business and seeking professional advice may be the best way to combat the rising operating costs. In order for any of the lines of business in the hospitality industry to be efficient in operations, the size of the operation matters. In the case of international luxury brands such as JW Marriott, this might pose a lesser challenge because of their expanse and the streamlined processes and procedures followed globally.’
Cost and tenure of funding matters
Talking more on the challenges, Raj Rana, CEO, South Asia, Carlson Rezidor Hotel Group explains: ‘Given the increasing demand for hotel rooms and long term projection for additional inventory, the industry has a promising potential. Yet it is challenging owing to the cost of land, total investment in building a hotel and cost and tenure of funding (which are higher than most parts of the world). This means that owners face longer lead time to realise returns necessitating adequate capital in early years of ramp up. Additionally, India is still a slow market which further demands investing in the right brand after proper feasibility studies as overspending can burden the return on investment.’
Speaking on GST, Rana says: ‘The revised GST slabs have provided some relief to the hotel industry and reflect the ground realities better. Tier II and III cities in India have been largely protected under GST, which is where a lot of domestic travel takes place. However, the tax rate is still higher than most neighbouring countries which puts India in a disadvantageous position vis-à-vis global tourism. At Carlson Rezidor Hotel Group, we are upbeat on the mid-scale segment in the country and continue to invest in it through our brands Country Inns & Suites by Carlson and Park Inn by Radisson.’
India is seeing a lot of incoming of budget hotel chains and hence this industry is bound to grow even faster with entry of new players. The challenge for them is to face the rising costs everywhere. India is also prone to socio-economic and political conditions. As the number of players keeps rising, the competition will increase too and so are the challenges. The ultimate test will be to offer the best to the patrons even with changing tax slabs and approaching good or bad times.