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Aug, 09 2011

Hot(el) Revolution

With the Indian hotel industry offering a colossal room for revenue, global hospitality brands seem to be scurrying to cash in on this boom with most of them opting to take the franchise route.

WHAT'S common between Choice Hotels, Carlson, Wyndham, Mariott, 3 Palms International and Best Western? Well, they are the crème-de-la-crème of the global hospitality industry and are here in India! They are fuelling growth and momentum to the much thriving scenario of the USD 17 billion Indian hotel industry, which is projected to grow at a rate of 8.8 per cent. This segment has undergone tremendous transformation primarily due to the outstanding presence of several international hotel chains, offering numerous prospects with attractive returns that make this segment the most sought after.

According to industry data, India is expected to double the number of its branded hotel rooms from one lakh, in just three years. Leading from the front are global hotel chains that are estimated to add over 300 hotel properties (an estimated 55,000 rooms) in the country by 2013. Industry experts attribute this boom to the Indian travel and tourism sector, which is believed to have brought about a drastic change in the field. And heightening this success quotient are the fast evolving international hotel chains that are yielding rich dividends via franchising. Doug Collins, Chairman and Chief Executive Officer (CEO), America's Best Franchising, the brand that recently launched 3 Palms Hotel in India, with SRM Spa and Resorts Pvt. Ltd, as the master franchise licensor, quips, “Putting the 3 Palms name on properties in India will give travellers the confidence to know they have chosen a hotel that provides the most modern amenities in an ultra comfortable setting that too at an attractive price. It will give owners an opportunity to improve upon.”

Putting the ‘slowdown’ in the back burner, this time around, it's not just big numbers, but it is these hospitality players who are all set to bring in new brands to India catering to all price points - be it luxury, mid-market or budget. Affirming this burgeoning trend for Best Western Hotels, a brand that entered India almost 17 years ago in the mid-market segment, Sudhir Sinha, President and Chief Operating Officer (COO), Best Western India, says, “The time was right, as India only had national and international hotel chains in the upscale and luxury segments. There were no hotel chains to cater to the aspirations of the mid-market and value-for-money segments that craved for international hospitality standards. Best Western has always been the industry pioneer in most regions. We ventured into mid-market segment and we have helped setting international standards in various regions.”

 

Cut to customise

These global brands are smelling success via ‘Indianised’ route to cater to the diversity of guests predominant in India. Saumya M. Sharma, Chief Development Officer, 3 Palms Hotel and Resorts, India Operations, affirms, “We are trying to give a regional flavour. We are going to give the customer a flavour not only of our branded luxury and hospitality, but also of the region, wherever we will be located. So, if a property is in Rajasthan, it would be carrying local paintings, arts, crafts, work of Rajasthani artisans etc. None of our properties will have a stereotypical look. They look very different from each other based on the region.”

While décor, ambience and look of the property exhibits the touch of the regions, serving local food and beverage has been a vital aspect for most of the international brands. Informs Vilas Pawar, Chief Executive Officer, Choice Hotels, India, “I think the food and beverage (F&B) element is something that is minimal in the US and overseas in the mid-market range. But in India, we have incorporated the F&B element because it fuels revenue to the business and caters to the region-based diversity that is predominant in Indian cuisine and culture,” he added.

 

Chasing the challenges

While these global brands are seeing the sunny side of the booming hotel industry, challenges for franchisees, including lack of knowledge and experience, high fee structure, rising real estate rentals etc, are adding on their woes. Deepika Arora, Vice President, International Development, Indian Ocean, Wyndham Hotel Group International throws light, “Franchising as a concept is still in the nascent stage in the Indian subcontinent. Earlier, international brands came to India under the franchise model, because that was the only viable route for regulatory reasons. Since many owners during that time were inexperienced operators, many brands had a bad experience in maintaining brand standards and made the decision only to manage in India.” While Sharma points out, “The biggest challenge a franchisor fears is re-creation and infrastructure. The rules and regulations, along with the franchise laws, are murky. There is a lot of work in franchising, giving protection to the franchisor as well as franchisee.” However, Arora is hopeful that the scenario is heading for a positive change, as she says, “Seeing the growth Wyndham Hotel Group has experienced in India, we are confident that franchising is slowly but surely making its mark. One key attraction of franchising to owners is that they can retain more control of the operation and finances.”

 

Synchronising success

If the scaling success of these international brands is the parameter for the plethora of prospects that the Indian hotel industry offers, then franchising has been fuelling this growth.  Confirming this Sinha asserts, “Globally, Best Western has always provided brand franchising services and is considered a leader in the hospitality industry in this regard. And given the huge diversity in the Indian hotel landscape, we thought it was appropriate to start with our brand franchising services before stepping into the management services.” Cashing in on the franchise boom in the hotel industry, global brands are making most of the franchise format. Arora adds, “Though we are witnessing interest from the Indian hotel owners' community to manage their hotels, we've presently adopted only the franchising model for this region. Depending on the market, location, owner profile and our existing properties, we offer a suitable brand for the property. Being franchisors, our model is fairly simple as compared to a management contract.”

However, expansion via franchising means maintaining standardisation among the franchise properties and following strict quality checks and control. Sharma feels, “We have a system called the quality assurance system- throughout our brand, specific to a particular brand that gives specifics to each franchisor. We don't plan to dilute this in any form. Besides, there will be standard operating manuals and a lot of support will be given in terms of marketing, infrastructure and vendors. Also, we will specify the quality and colour scheme.”

 

Expanding horizons

According to industry experts, India is highly under-served at the moment with the total inventory in the branded segment hovering below one lakh rooms since the past few years, while the requirement is of at least two lakh rooms across the country. The biggest gap is in the mid-market segment, as ‘value-conscious’ customers now look for good quality and international standards for their accommodation needs. Making a move to fill this void, global brands are not just restricting themselves to metros, but are checking in the markets across tier-II & III cities. For instance, 3 Palms Hotels and Resorts is the first brand to create a five star luxury resort chain, targeting the non-metro market in India. Similarly, Best Western will be opening properties in Ahmedabad, Indore, Dhanbad in the next few months, while negotiations are underway for properties in Pune and Coimbatore. Likewise, Wyndham Hotel Group has recently executed its brands- Days Neemrana and Days Asansol.

 

Road ahead

Even though India is on the radar of international hospitality brands, offering growth and room for revenue, operating a chain in India is truly not for the faint hearted. Pawar sums up, “It surely is a long-term game for anyone. It's not that you get immediate returns in the Indian market. The return on investment (ROI) is not as quick as it is in the West. The Indian market is lucrative, but it's not for the weak hearted. You have to be a long-time player to gain good returns.”

 

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Not to forget the recently held Commonwealth Games in Delhi and the chaos that happened due to lack of hotel accommodation. The tall claims of authorities concerned crumbled when Tourism Ministry, in its review, reported that the city was short of 6,500 rooms for players. This is reason enough to wake up to the hotel industry, as there is a lot of 'room' to go richie-rich!

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