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Jul, 12 2011

CASHING IN ON SIZZLING HOT(EL) INDUSTRY

With rapidly changing business models all over the world, franchising in hotel industry is not new, but the point is how feasible it is in our country and why should one consider going this way is a million dollar question?

NOW, who in the world is not aware about India's hospitality? Hospitality in India has emerged as one of the key sectors propelling the country's economy. Its current market size is USD 23 billion, accounting for 2.2 per cent of India's GDP. The Indian hotel industry is estimated at USD 17 billion; 70 per cent (USD 11.85 billion) contribution that comes from the unorganised sector and the remaining 30 per cent (USD 5.08 billion) come from the organised sector. The industry is expected to grow to USD 36 billion by 2018 and this upward trend in growth will be witnessed in overall hotel sector.

Road ahead

In times when domestic and international tourism are witnessing growth, hotels in the country have redirected their strategies, too. Eyeing the expansion and capturing masses is just the beginning. Now, the road to success doesn't stop at having a hotel, as competition in this industry is fierce and hotel owners are trying all the tricks available to capture the market.  There are two aspects to this, one having a branded hotel and another to have a non-branded hotel. If you currently operate one of those hotels without a brand affiliation, then it's time you start considering a hotel franchise sometime soon. In today's aggressive hotel market being a part of a group of hotels that share a recognised brand and provide services, including a central reservation system, marketing and defined operational procedures can be an added bonus. One of the major benefits of a hotel franchise affiliation is the brand ability to generate more occupancy as compared to the non-franchised ones present in the market.

Growth drivers

India occupies 46th position among the top 60 tourist destinations in the world. The country lags behind global peers in average number of rooms per branded hotel. The World Travel and Tourism Council (WTTC) has named India, along with China, as one of the fastest growing tourism industries in next 10 to 15 years. Foreign Tourist Arrivals (FTAs) in January 2011 was 5.38 lakh, a growth rate of 9.7 per cent. The industry, however, is not only dependent on foreign arrivals, as the domestic tourism far exceeds the FTA. There are other forms of tourism that are gaining popularity in India such as eco-tourism, wildlife tourism and adventure tourism. India is also emerging as a preferred destination for medical treatment and medical tourism is expected to grow at 29 per cent to reach USD 2.4 billion by 2012.

Budget hotels value money

For the past three years domestic tourist arrival in the country has witnessed a growth of 6.9 per cent and 15.5 per cent Year Over Year. Till a few years ago, the hospitality industry was concentrating only on luxury segment in metro cities and tourist circuits. Even some of the potential state capitals were being left out due to poor infrastructure or demand potential. As the air, road and rail infrastructure gets augmented, tier-II and III cities will gradually emerge as cities of the future. Expansion and growth is expected in budget and mid-sized market hotels. Franchisors are optimistic about tire-II and III cities.

Presently, three and four star category hotels together account for 22 per cent of the total room supply in India. The after-affects of the recession (2008-09) have been such that the organisations are increasingly becoming prudent of their travel and lodging budgets. As a result, there has been mushrooming of budget hotels across various markets. Today, a traveler, whether business or leisure, is looking for “value for money”. The key factors instrumental in surge of budget hotels are low capital outflows, smaller land requirement, large rooms to land ratio, lower gestation periods and easy construction and operations. Moreover, a traveler will opt to book a room in any branded budget hotel vis-à-vis an unbranded property since he/she is assured of certain services, including food and breakfast.

Scaling a new high

Scope is perhaps the only driving force behind the success of any sorts. As correctly pointed out by Deepika Arora, Vice President Indian Ocean, Wyndham Group, the scope for franchising in hotel industry can't be quantified. It is no doubt the most popular mode in developed countries like the US and Europe. Leisure and business travel is slowly gaining popularity in India. Quality product and services at an affordable price are the only success mantras in hotel industry. Sudhir Sinha, President and COO, Best Western, feels that scope is phenomenal in hotel franchising. With branding, any property gets add on benefits and recognition worldwide.

Hotel franchising is considered to be one of the best methods for expansion. Franchise reduces the risk of business failure, as one uses a proven operational business model and also a franchisor is benefited, as franchisees and its financial capital help in expanding the brand faster. A recognised hotel franchise, besides giving an identity to your hotel, attracts customers to your property. Today, hotel owners progressively affiliate their hotels with other hotels under a common brand name.  Franchising scales up the worldwide exposure and there is a ready clientele.

Minimum risk for starters

Franchising is not a shield that can ensure risk-free environment. Having a hotel is one's own independent decision and it involves a lot of expertise to build and run a world-class hotel. There is some relief for an amateur or a first-timer, as there are companies that provide proven operational models to support the property owners, right from helping them to decide on the right inventory and brand for a particular location to providing training, distribution, sales and marketing support throughout the contract. One just needs to adhere to the procedures.

Global exposure

Generating revenue is the core concern of any business unit, be it franchised or a non-franchised.  Talking about tier-II, III cities (if not a tourist destination), it is not a cake walk to generate revenue to meet up with the fixed costs.  Franchising has made this trouble-free, wonder why? The answer is GDS (Global Distribution System), which enables property global exposure and ensures that clients get more than what they can fetch from the market. The major factor that affects the performance here is the brand and its recognition across the globe. Multinational brands or national brands have invested a lot of time, effort and money to get recognition. If one tries to have a well recognised brand all over the world or within the nation then it can cost a fortune, but it's just one shot away, by having the affiliation of such brands. With this affiliation one can get worldwide recognition.

Trends

= With changing infrastructure  there is a lot of scope in hotel franchising in tier II and III cities

= Franchisor are anticipating tier-II, III cities to gradually emerge as the future cities

= Budget hotels in these towns are in huge demand when it comes to corporate tours and domestic trave

Uphill task

Strong workforce: Taking up a franchise may solve the problem of training and equipping the staff with industrial etiquette, but from where to hire them? Presently, there are 25 institutes of hotel management and 180 institutes provide degree/diploma courses in food and beverage service, food and beverage production and housekeeping. These training facilities produce approximately 10,500 graduates in various courses every year. With more colleges, number of skilled professionals is also on the rise ensuring better human resource for the hotel industry and a win-win situation for franchisor and franchisee.

Land a big deal: Financial dilemma hovers around this industry. Land prices in India constitute almost 25 per cent of the cost of the property. On the contrary, it accounts for only 15 per cent to 20 per cent of the project cost overseas. This cost has only been on the upward side. Considering the sky-high property rates, there is no denying that franchising model is a best fit here.

Going the green way: In times when masses are ruled by organic food, green hotels are gaining momentum internationally and in the US where 415 hotel projects have achieved or registered for LEED certification with the US Green Building Council. With more governments promoting green building it becomes all the more important to look for more green renovations to take place.

Bottom line

In times of brands and recognition it's high time for change in the business model of not-so-branded hotels. In fact, this will be the only survival model for the non-branded hotels if they want to be in the industry in the coming years.

Despite slow progress in the economy, franchisors are anticipating promising growth in hotel franchise.

BOX_1

Eyeing the expansion and capturing masses is just the beginning. Now, the road to success doesn't stop at having a hotel, as competition in this industry is fierce and hotel owners are trying all the tricks available to capture the market.

BOX_2

Financial dilemma hovers around this industry. Land prices in India constitute almost 25 per cent of the cost of the property. On the contrary, it accounts for only 15 per cent to 20 per cent of the project cost overseas.

BOX_3

Making it big

= With changing infrastructure there is a lot of scope in hotel franchising in tier II and III cities.

= Franchisors are anticipating tier-II, III cities to gradually emerge as the future cities.

= Budget hotels in these towns are in huge demand when it comes to corporate tours and domestic travel.

BOX_4

Franchising in hotel industry

= Helps property owner to acquire a brand name with regional or national recognition.

= Connects the property with GDS (Global Distribution System) that helps in increasing sales and thus profitability.

= Provides assistance with on-site training, advice on purchasing furnishing and fixtures.

BOX_5

5 things to consider for hotel franchise

= Are you passionate about hospitality business?

= Are you ready to invest in a long-term investment commitment

= Do you have any previous experience in hotel industry?

= Are you willing to take moderate risk?

= Do you want to associate yourself with an established brand?

Forms of tourism that are gaining popularity in India

= Eco-tourism

= Wildlife tourism

= Adventure tourism

= India is also emerging as a preferred destination for medical treatment and medical tourism.

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