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Dec, 01 2006

RAPID Growth Of Hotel Chains

THE boom period in the Indian hospitality and tourism business is showering all the good things and is here to stay. Whether it is business travel or foreigners visiting India, the tourism figures are soaring higher. The increase in tourist traffic is a r

THE boom period in the Indian hospitality and tourism business is showering all the good things and is here to stay. Whether it is business travel or foreigners visiting India, the tourism figures are soaring higher. The increase in tourist traffic is a reason valid enough to have more hotels in India that can offer world-class services not only to foreigners but to Indians as well.

In terms of growth in the tourism and hospitality sector, there has been a very steady growth over the last few years with 2005 being the best so far, having attracted nearly 4 million international tourist arrivals into India. Domestic tourism, both leisure and business, is booming around an estimated Rs 390 million, which is a direct fallout of better corporate results and higher disposable income in the hands of leisure travellers. Both international and domestic travel has grown over 16% during the last year. Further, it is poised to do even better in the coming years, backed by a strong GDP growth rate and infrastructure developments in India.

The burgeoning statistics in the travel and hospitality sector have all given rise to an ever-increasing demand to have more budget and luxury hotels.

Players in the market

Currently, the hotel industry is witnessing unprecedented attention and growth. According to the figures given by the Indian Association of Tour Operator's (IATO), there are around 1,283 budget hotels in India in the approved sector with around 51,000 rooms. And thanks to the increasing demand, hospitality players are expected to expand their operations in the budget category.

Mid-market and budget hotels have a great potential in India. However, that does not downplay the comforts offered by a five-star deluxe hotel, because the market there too is witnessing expansion.

Both domestic players and international chains are set to play a long innings in the mid-market and luxury segment. The most flourishing amongst all is the budget hotel market. Companies like Sarovar Hotels; Indian Hotels from the Tata Group company that owns the Taj Group of Hotels; and Clark's Inn, owned by the Clark Group, are all considering expansion. The international hotel chains are also not leaving any stone unturned. Popular hotel chains like Easy hotel and Choice Hotels have already started their growth activities in India.

Franchising in the hotel industry

Till now, franchising in the Indian hospitality industry had been mostly concentrated in the luxury segments. However, during the last few years, mid-market hotels in 3- to 4-star segments are fast taking the franchising route. This is reflected by the rapid growth in the franchising network of the international hotels chains like Choice Hotels and Easy Hotels.

In the current scene in India, 60 per cent of the hotels are looking towards franchising and 40 per cent fall in the stand-alone category. Figures of hotels that are into franchising in India reveal that international chains that have already tried and tested franchising the world over prefer to follow the model in India also. International luxury hotel players like Hilton and Radisson have adopted the franchising route everywhere.

Big brands, at times, become more cautious about their reputation and are hesitant to experiment with the concept of franchising. International chain Marriott, that has become a popular hotel chain the world over, is not into franchising in India. The chain has introduced in India, six out of the twelve brands of hotels the company owns. According to a company source, franchising is adopted the world over by them but is not the business model for India.

Even big domestic players in the market are not willing to franchise. For example, two major Indian players in the luxury segment, Taj and Oberoi Group of Hotels, don't want to expand through franchising. Says Ketaki Narain, Director, Corporate Communications, Oberoi Group of Hotels, "Franchising is scary as we cannot be sure whether a franchisee would be able to maintain the same standards we are known for." This issue of debate remains one of the main impediments in the use of the franchising concept in this industry.

Another interesting point that emerges is whether a franchisor would prefer to add a new project to his franchise chain, or would he prefer to redo an already existing hotel to match his franchising requirements. Explains Sudhir Sinha, Senior General Manager - Development & Franchise Services, Choice Hotels India, "As regards the implementation of franchising, it is much more convenient and quicker in green-field projects. It is relatively difficult implementing it in existing hotels owing to their handicaps of an already existing design (which a franchisor may like to modify), difficulties in implementing stringent brand specifications in the face of the existing conventional ways, and the cost of upgrading the hotels by replacing existing plant and machinery, furniture, etc."

There are also challenges unique to the Indian market. As Vilas Pawar, CEO, Choice Hotels India, states, "Finding franchisees who are ready to open hotels in A grade or B grade locations in tier-I and -II cities, is difficult because at this time the price of land is too expensive in India. As a result, we don't have as many hotels as we would like to have in prime locations in tier-I and -II cities."

Who can take up a hotel franchise

Establishing your name in the market is a somewhat difficult task, but can be made easy if you partner with an established brand.

For this, the franchisee should be as enterprising as the franchisor in closing a good franchise deal. The interested franchisee on her part should be proactive in dealing with the franchisor. For this it is important for her to gauge what the franchisor would be interested in and how to state the uniqueness of her proposal.

Take the example of the MBD Group, which took franchise rights from Radisson Hotel for two of their hotels. Monika Malhotra, Director, Radisson MBD Hotel states, "We showed the location to Radisson and they studied the market and realized there was a virgin market lying in Noida. So they understood that they would be the first movers to come to Noida. That was the edge. And even if you look at Ludhiana, Radisson was the first 5-star hotel there."

So a right mix of location and a virgin market can be the right mix to attract a hotel franchisor. To make a hotel work, location is the first point considered by any franchisor before he grants the franchise rights of his company. And the right location would be that which attracts more and more guests. So even if you fulfill all the requirements of a franchisor, he will always give his franchise rights to the one who offers a better location.

Cost can be a barrier in setting up a hotel, whether as a franchise or otherwise. So a franchisee, according to his budget, can choose which category of a hotel he wants to set up. This would also be in keeping with the market demand for his segment.

The hotel business is a highly sensitive one, dictated by the preferences and mood of the customer. And it is no secret that the basic route to profitability in the hotel industry is through a satisfied and happy guest. Thus, the better and wider the range of services, delivered in an enthralling way, the more a guest will keep coming back to your hotel. This is where the franchisor can make all the difference: through the quality audits and extensive training he provides to the franchisee, who would then translate it into impeccable customer service in his hotel. One case in point is that of Radisson franchisee, Malhotra, who was completely new to the hospitality sector. The franchisor was instrumental in ably guiding the franchisee to make a success of their franchise. So, if entering the hospitality sector or coming out of that conventional mode of operating your hotel is your intention, then franchising seems to be the right answer.

What the future holds

The hotel industry in India is witnessing a tremendous upsurge backed by strong economic growth of the Indian economy. Unlike five to ten years ago, when the hotel industry largely depended on the inbound traffic flow into India, now a huge domestic patronage propels the hospitality industry. It is not dependent on the International Business and Trade (IBT) factor anymore, which had an erratic propensity and affected the hotel business negatively. Add to that the phenomenon of foreign chains coming into India and franchising. Thus, the coming years hold tremendous potential.

Sinha predicts the future by saying, "The percentage of franchised hotels in India is miniscule as of now, but the picture is expected to change in the next 3 to 10 years, when franchising in the hotel industry will become a norm."

Pawar states it clearly, "It is much more difficult for a stand-alone hotel to survive in the long term as compared to being associated with an already established brand."

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