The Indian hospitality sector has diversified, with the main expansion coming in the business hotels category
Now there is talk of more such hospitality mega projects across the country. As the global economic pivot keeps shifting eastwards and businesses grow to impact deep into the hinterlands, there is a perceptible shift in the demand for business hotels right across the nation. In a hospitality scenario dominated for decades by top end hotels at one end of the spectrum and unbranded, basic lodgings on the other, India for decades almost ignored the star system of hotel grading followed almost universally across nations. There was not reason to. Nobody could confuse a Taj or Oberoi property with backpacker’s rooms at Paharganj, and there was nothing in between.
As the world economy, and with it the Indian, grew at an unprecedented rate in the years leading up to 2008, the demand for hotels at different levels began appearing in India too. Nor was the response slow, Indian hotel chains such as the Taj introduced Vivanta, Gateway and Ginger, ITC expanded to Fortune and even the Oberoi showcased Trident, though the positioning for that is disputed by some. The global majors – Starwood, Marriott, Hyatt, Hilton, Accor, Carlson, Intercontinetal and others, with decades of experience in positioning of focused brands, were as fast in launching a number of categories, with a huge focus on urban centric hotels catering to the mid market segment of those traveling on work.
The Indian hospitality sector, after a brief hiccup, is showing signs of confidence in its future. It grew at about 15 per cent last year, and is expected to maintain a 15 to 20 per cent growth rate in the near future. Well established domestic chains are expanding their business hotel portfolio fast, while newer domestic chains as well as international chains are expand by adding capacity to the cities and opening up in new areas. Conference facilities, internet access, business centres and lounges, tie-ups across sectors, even relevant retail to facilitate travel and stay – the business travel is today at the centre of attention, whether traveling individually or in groups. Despite cyclical challenges, the outlook for the sector remains positive. “India’s growth has been tremendous in its key cities and hence the growth of business hotels has followed likewise in the last five years,” says Rahul Pandit, President, The Lemon Tree & Red Fox Hotel Company.
Chender Baljee, Chairman and Managing Director, Royal Orchid Hotels Limited, agrees that there is a greater thrust in the expansion of business hotels in India. “One of the factors is growth in the Indian economy which has led to travel both within the country and from abroad. Over the years there has been a significant rise in the numbers of business hotels in the country in comparison to resort and luxury hotels.”
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| Sudhir Sinha, COO Best Western Hotels India points to the opportunities in the sector |
While in the past India’s top hotels have perforce been positioned as leisure hotels though patronized significantly by domestic and global business executives, the obfuscation of the lines will take time to die out. Today almost all top city hotels get most of their revenue from business related travel from the corporate sector, even when built often with touches of aesthetics and service that would be more in place in an upscale or even luxury leisure hotel elsewhere in the world. Average Room Rates or ARRs have dropped from their peak levels in 2007-08, but most concede that business hotels have been able to withstand the shock better than other categories of hotels.
Nigel Grocock, COO-IHHR Hospitality, which runs the Ista Hotels as well as Ananda in the Himalayas, says that the Indian hospitality sector is primarily a combination of both, business and tourism, “though you could say that the odds are in favour of business hotels. Most hotels now, based on the location, have a percentage of both, business and leisure travelers. Only the percentage share changes.” Ista hotels are primarily business hotels. “We cater to the section of people who look for 5-five star comfort without essentially wanting to pay a high price for it.” Deepak Ohri, CEO, Lebua Hotels, which has just opened its first property in India, says that the nature of the traveller has changed, and today most want to combine business with leisure. “For any hotel with more than 200 rooms, its success depends on the business traveller and over 300 on MICE business,” he says. “About 80 per cent of our guests are business travelers, though we are not positioned as a business hotel.” The hotel in Delhi caters specially to business guests needs by having banqueting on different floors, adding more business centres and lounges, 24 hour check in and check out
There are both positive and negative factors working for the rush of business hotels mushrooming all over. “Business hotels are one of the fastest growing segment in India,” says Shwetank Singh, Brand and Operations Director, Premier Inn South Asia. “If we were to analyze the supply the economy/budget segment (read business hotels) is expected to grow from 8,000 rooms to 24,000 rooms by 2014-15 a growth of 191%. This is topped only by 200% growth in the upscale segment.”
Business over leisure
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| Arjun Baljee's Peppermint is an emerging player |
Rajeev Menon, Area Vice President - India, Malaysia, Maldives and Pakistan at Marriott International points to the necessity of having adequate infrastructure for people to be able to access leisure destinations fast. “For people opting for a short getaway like a weekend need fast access, and leisure destinations in India have yet to by and large provide that.” He cites the example of Macau as destination where the hotels followed the development of infrastructure. Marriott has 15 operating hotels in the country, and another 50 in various stages of completion. While brand Marriott is perceived to be associated with business travellers, the group also has Courtyard by Marriott, which is targeted specifically at the business traveller as well as Fairfield, which Menon says are relatively easier to develop and can be put in secondary and tertiary markets. However Menon cautions that localization is very important. “There are about 600 Fairfields in the US, and none of them have restaurants as they are in areas where there are many F&B outlets. However in India, we will have to put in restaurants as that is the customer expectation, they also want some degree of service.” Besides these, the JW Marriotts and Renaissance brands also cater to different segments of business.
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| Interiors of Peppermint in Gurgaon |
“India is growing faster as a business destination vis-à-vis leisure,” says Sinha of Best Western. “As a result more and more multinationals are setting their offices in India. With more than 70 per cent of our hotels located in key business districts, Best Western in India is also focused to tap this segment to its full potential. Our concentration today is also on developing long term relationships with key national accounts in the corporate segment, who can patronize us for our current 26 properties in 23 cities. Since most MNCs, Fortune 500 and Canada Post 200 companies and also the 4,200 hotels in 102 countries already have long standing association with our parent company ie Best Western International, Inc. US, we will be leveraging on that strength to forge partnerships with their Indian operations as well. Best Western too has plans to reach a number of 100 hotels by 2017 and add Best Western Plus, which will be upscale four star and Premier, or luxury categories.
Hilton too is following an aggressive plan to ramp up its presence in major urban centres. “We presently manage six hotels in Delhi NCR, Hilton Worldwide will be the operator of the largest number of hotels in the city,” points out Rajesh Punjabi, Vice President – India Development, Hilton Worldwide. “The other hotels that we currently operate, in Mumbai, Chennai and Vadodara, are also business hotels.” Hilton expects to increase its presence in the country to 14 hotels by the end of this year and 50 hotels in five years. Its mid-market, focused-service brands are Hilton Garden Inn and Hampton by Hilton.
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| Rajesh Punjabi, VP–India Development, Hilton Worldwide points to the group's focus on mid market segment |
Another major global hospitality major, Starwood too has a wide range of hotels that that is bringing to India, most of which have the business traveller as a focus. Currently Starwood has 33 hotels under six brands in operation with 4 openings planned for 2012 – Aloft Chandigarh Zirakpur, Aloft Ahmedabad, ITC Grand Chola under Luxury Collection and Westin Chennai Vellacherry. “We have over 22 hotels under development and our goal is to have 100 hotels operating, under development or management contracts signed by 2015,” says a spokesperson for the brand. India is Starwood’s fourth largest market and will soon become its third largest market after China. “While most of the hotels we currently operate our business hotels located in cities, we do have a fairly good mix of leisure business coming into these hotels. Among Starwood’s popular brands catering to business travelers in the upper upscale segment include Westin, Le Meridien and Sheraton. Upscale hotels that are expected to play a major role for the group in the coming years include Four Points by Sheraton and Aloft, which have just four and three hotels in the country respectively.
Another group known for its mid range hotels is Carlson Rezidor, which through its Radisson Blu, Radisson, park Inn by Radisson and Country Inn and Suites by Carlson, is firmly targeting the mid market segment. It recently announced a joint venture with Bestech developers to launch 49 new hotels. Bestech will have exclusive development rights for Park Inn by Radisson in central and north India. “Business will continue to play a major focus as decision making is shifting to state capitals, SEZs and corporate clients,: says K B Kachru, Executive Vice President, Carlson Hotels. Carlson has 52 operating hotels in the country and 48 in the pipeline besides the hotels that will come up in association with Bestech. “There is demand for mid market hotels in India,” says Simon Barlow, President, Asia Pacific, Carlson Rezidor.
“Business Hotels are largely dependent on economic conditions that prevail not only within the country but also around the world, points out a spokesperson for the Starwood group. “With fast changing and ever evolving economic changes, the dynamics of business travel is highly volatile. We have seen how some markets like the US and Europe have been more severely affected by the recession, If we are not able to substitute those markets, it would be a huge challenge. For us, the whole question boils down to this: If the British, the Germans and the Americans aren’t travelling, then who is travelling? Clearly you can see a lot more Asians are travelling. So are we able to make inroads into the Chinese markets, the Japanese market, and the South East Asian market — what we call the intra-regional travel? To me, that is a huge challenge. We don’t see the reduction in demand from the traditional markets to be a big concern because they are clearly being substituted by the emerging markets within India and within Asia Pacific. Here lies the opportunity. In most of our hotels in the big gateway cities as well as in the smaller tier 2 markets, we have already begun to substitute a lot of the international business with domestic business.”
ITC’s Fortune Hotels, which is India’s fastest growing hotel chain, caters largely to the business traveller through a clutch of sub brands, which includes MyFortune for the upscale business traveller, Fortune Select at major city centres, Fortune Parks as a mid scale business hotel and Fortune Inn, usually smaller hotels also catering to the business traveller. Fortune has already opened 40 doors and another 26 are in the pipeline. Fortune is concentrating on the mid market to upscale segment, according to Suresh Kumar, CEO, Fortune Park Hotels.
Hongkong-based Shangri-La Hotels has created an elite retreat to familiarize today’s frequent business travellers with a higher standard of accommodation, customized service and a host of special privileges. The group has set up ‘Horizon Clubs’ in their various properties worldwide. These groups are designed exclusively for business travellers, and are intended to make their stay a trouble-free and comfortable one. Since 2009, all of the group’s 67 hotels globally offer free WI-FI and wired internet to every guest.
Factors leading to the increased demand
Global hospitality major Accor, while expanding across categories, has its mid segment brand Ibis clearly in focus. “In 2012 we wish to accelerate the emergence of the ibis brand and foster a preference for it openings in Bengaluru Hosur Road, Delhi Airport, Nasik, Navi Mumbai and Jaipur,” says Jean-Michel Casse, Senior-Vice President Operations, Accor India. “Accor’s strength is the fact that we offer a broad portfolio of products from luxury to budget. Most of our hotels in India are located in key gateway cities, so they tend to cater to business travelers across the different brands.” Ibis hotels have incorporated meeting rooms from small meetings to longer conferences and even optimized Ibis webcorner and offers an early riser breakfast from 04:00am to 06:30am for business travellers on the move.
“In today’s digital environment all services around the internet accessibility are simply second to none,” says Alexander Schneider, General Manager, Park Plaza Bengaluru. “You offer the most sophisticated soft-touches but if your internet line is not working your guest will not return. A simply self-explanatory wifi access at reasonable cost/ charges with a great and consistent bandwidth is what all business travelers are looking for. Secondly, MP3 players have given us the opportunity of travelling with our favorite music, which is usually a very emotional part of us, therefore cutting edge hotels should provide MP3 docking stations with great sound as we do.”
Royal Orchid’s Baljee stresses that facilities such as wi-fi enabled with high speed access, excellent quality in terms of room amenities, quality mattresses and bathrooms are a must for every business hotels. “Our USP is to mix the business requirements with excellent entertainment and dining options to help the traveller relax after a days work,” he says. Royal Orchid Hotels Limited has 23 existing hotels out of which 19 are business hotels.
A spokesperson for Four Seasons, which currently has one operational hotel in India in Mumbai, besides hotels in the pipelines in Bangalore and Delhi, says “These are all business hotels and we have a mix of leisure and business hotels currently under discussion. India is a very important market to Four Seasons since it has a lot of unexplored potential both in the business and leisure spectrum.”
“We need to offer all the facilities including latest technology to our patrons with separate board rooms, a large banquet area for conducting conferences and summits and a completely Wi-fi enabled atmosphere in every corner of the hotel,” says Shrikant Wakharkar, General Manager, The Grand, Delhi. “We facilitate round the clock dining keeping in mind the international travelers who frequently travel to the country from various time zones. It should be remembered that for a corporate traveller, the maxim ‘time is money’ applies and they expect quick and efficient blemish-free room service, which we provide without fail. To succeed the mantra to be kept in mind while servicing corporate traveler is that the five basic essentials they seeks from a destination hotel are bed, food, shower, gym and wi-fi.”
Marco Saxer, GM, Swissotel Kolkata, says his hotel draws extensive business due its proximity to the city airport, dedicated business centre, and location near IT hub.
Demand as much in Tier II, III towns
Expansion in Tier II and III cities, with some mentioning right up to Tier VI, is something many of the groups with a focus on mid market and budget hotels have in mind. Best Western for example has a special focus on key manufacturing and trading cities. “For this we have already identified 150 cities in India which have great potential for Best Western brand, says Sinha.
Significantly, it is domestic travel which is spurring the demand. “Primarily the demand is being fuelled by the domestic traveler as the numbers of international travellers into India has grown but not by a sizeable volume to support the additional supply, says a spokesperson for Fern Hotels, which has expanded into the business category by three star Fern Residencies, of which there are six now.
“We believe in the opportunities that lie in tier 2 and tier 3 markets,” says a spokesperson for Starwood Hotels. “Today’s tier 2 and tier 3 markets will be tomorrow’s tier 2and tier 1. We would like to leverage the first mover advantage in these cities and we believe these Hotels will generate demand for themselves. We see great opportunity in mid-market which we believe is under-hoteled in this tier. Indians want the predictability and quality of international hotels which they don’t typically get today, especially outside of the major markets. Starwood has a clear belief that many of the tier 2 markets are ripe to put up an upper upscale hotel.”
“There is scope in the lower category hotels,” says IHHR Hospitality’s Grocock. “The newer segments viz. budget hotels, that have come into the market will be the ones to expand more as they have just about addressed a fraction of the market. The rate of growth in smaller metros is higher than that of the metros thus making the demand there higher.”
“We strongly believe that there is a market for upper upscale hotels also in many tier 2 and tier 3 locations in India and we will look to gain a first mover advantage in many such cities,” says a spokesperson for Starwood Hotels. “We believe that the creation of a good 5 star hotel in a smaller market will create its own demand. A good example of this is a beautiful new Le Meridien we are about to open in Coimbatore. As larger cities grow and we see the emergence of micro cities within these tier 1 markets, we believe there is an opportunity to expand our footprint with our Select Services brands like Four Points and Aloft e.g. Delhi NCR.”
Opportunities and challenges in operating a business hotel
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| The lobby at Radisson Blu Indore |
As compared to a leisure property, the recovery period for a business hotel is usually lesser, agree most. “We achieve the operational break even within 8-12 months of the starting of operations while the payback periods is around five years for Best Western Hotels in India, says Sinha. Lemon Tree’s Pandit has a much faster estimate of “one year going up to 2 years”. Business hotels yield a far quicker return on investment than leisure destinations, though there are examples to prove otherwise, says Baljee. “Building leisure destinations involve building the entire ecosystem of airlines, rail, restaurants, tourism related activities etc, for hotels and resorts to come up in untapped locations, and India is only just seeing the tip of the iceberg on these developments.” Singh points out that “this is dependent on a variety of factors such as cost of land, cost of build, business levels, operational costs etc. Typically a hotel should start to hit operating profits within 1-2 years of commencing operation. Break evens at the Income After Fixed Costs (IAFC) however, cannot be expected before 6-8 years.” Almost all hoteliers agree that the RoIs from a leisure property would take far longer to recover, given the lack of infrastructure and seasonality of demand.
Lemon Tree is a domestic brand that has come to be known for its business hotels catering to the upscale and midscale segments. The group owns and operates three brands – Lemon Tree Premier, Lemon Tree and Red Fox Hotels in the upper-upscale, upscale and midscale segments respectively. “Our business model is unique and both corporate travelers and MICE play key roles,” says Pandit. “The opportunity is vast as corporate today are rationalizing all travel related expenses and this would mean a shift of volumes from 5-star and 5-star deluxe users to upscale hotels.” He says that some of the challenges faced include identifying and acquiring relevant locations for our hotels, executing hotel projects of high quality, on time and within cost and driving awareness for the brand by delivering a differentiated and consistent brand experience. “At Lemon Tree Hotels, we are able to attract and retain high quality talent through our Employee Stock Option Programme which creates a sense of ownership and motivates the employee partner to drive the company’s growth,” he says. By December 2013, the group plans to have 26 hotels and over 3600 rooms in 16 cities.
Premier Inn, UK’s largest hotel brand known for its mid market offerings, entered India recently with fairly aggressive expansion plans. “The big opportunity that exists with the business hotel is its ability to eat into both the budget segment as well as the luxury segment,” says Singh. “As we at Premier Inn are able to consistently deliver world class product and service at a value for money price point we have this fantastic opportunity available to us. The key challenge lies in fact that the segment is not very well defined in India and the guest expectation is not settled. The Indian guest however, is becoming increasingly savvy and brand/quality conscious as they step out and travel the world.” Premier Inn plans to have 80-90 hotels in the next decade.
MICE is nice
The importance of MICE industry is growing in India, and many hotels are being planned with the express purpose of hosting large conventions. India compares unfavourably to its eastern neighbours with respect to its large conference hosting facilities, and some hotels are looking to tap into this segment. Marriott for example is building a circuit of MICE hotels, informs Menon. A spectacular success has been the Marriott at Jaipur, which with over 300 rooms and a glass façade, was as far away from the palace hotels that otherwise dominate the city’s hospitality landscape.
“At Jaypee Hotels, we believe in providing an impressive combination of accommodation with wide range of conference facilities,” says Manju Sharma, Director, Jaypee Hotels. “Our one of the largest properties, Jaypee Palace Hotel & Convention Centre, Agra, had been awarded the ‘Best Convention Centre’, by the Ministry of Tourism, Government of India for 2010.” Jaypee, is launching a 650-room business hotel in Noida in 2014.
“Accor is rapidly growing the MICE segment with more properties catering this industry,” says Casse. “Accor is evolving and expanding its business in India with a bold growth strategy but the importance really depends on the brand and the location. In Hyderabad, we have 2 MICE properties – Hyderabad International Convention Centre (HICC) and Novotel Hyderabad Convention Centre. 30 per cent of the business comes from the MICE segment, which is quite high.”
“MICE is a growing segment in India and in metros it has grown even more quickly,” says Pandit. “This segment helps business hotels maintain strong occupancies through the year and that too at a healthy ARR. It is quite a profitable segment if the hotel company prices it right and offers them the facilities that they need.”
The days of walk-ins also seem to be a thing of the past. “Walk-ins form a very small component of our business. However they are larger portions of business for people at transportation hubs such as airports and railway stations,” says Baljee.
For Starwood hotels too, MICE is significant. Currently our share of revenue is more or less evenly balanced between MICE, Corporate and leisure travel,” says a group spokesperson. “This will continue to be the case however in certain locations or based on the kind of facilities that the Hotel provides the contribution from MICE maybe more.”
Hyderabad is the only city that has got a semblance of convention facilities that can look to be in the same direction if not match global standard setters for this arena. Hyderabad International Convention Centre (HICC) is India’s first purpose-built and state-of -the-art convention facility managed by Accor. Hotels that are just coming up, such as ITC’s Grand Chola in Chennai, which is also part of the Luxury Collection, have budgeted enormous space for conventions. Though India is well behind its regional neighbours, MICE could easily be crucial determinant in healthier RevPAR, or revenue per available room.
Food calls
Like the rest of Asia, and markedly unlike the European and North American markets, F&B and banqueting can often be as large a revenue generator as room rents. “Banqueting facilities can be a true business driver,” says Schneider of Park Plaza Bengaluru. “If you can offer a space that has great banquet halls, cutting-edge technical standards and a fantastic banquet food and beverage quality, you can be ensured to enjoy a good amount of business to come through your doorstep. In a metropolis, a hotel should feature a grand ballroom that can accommodate larger conferences and it should offer a generous amount of break-out facilities at the same time.”
With so many options vying for the guest’s attention, it will be interesting to see how hotels market themselves points out Grocock. “The challenge is to capture guest attention and attract him to your hotel.” Premier Inn’s Singh agrees that “banqueting is very important facility to have as the same space doubles for meetings as well as social occasions. The optimum capacity of banqueting is a function of the location and expected guest profile. However, not having a banquet/conferencing space is something any hotel can ill afford to do.”
“Banqueting can be a revenue generator both on the social (wedding, family, parties) front and on the business front (conference, trainings, seminars, etc.),” points out Pandit. “Any business hotel should cater to this segment to the extent possible (space available on the premises) as there is often a need for rooms too.” Wakharkar adds that the increasing demand for banqueting that has experienced a steady rise and “helps us gain an advantage over our contemporaries who lack residential banqueting facilities.”
Varadharajan points out that in a Tier II or III city, a business hotel may have just about 100 rooms, but the banqueting facility will cater to maybe 1,500 people, so half the revenue is from F&B, making it a very significant contributor.
A perusal of upcoming hotels statistics indicates a huge majority of the upcoming development to be in the mid scale segment, which will largely cater to the business traveller. How individual hotels are able to manage growth and competition might well determine the health of its RevPAR.
Suman Tarafdar
BOX
Best sleep and shower is what customers look for, say hoteliers. Here is a checklist of what a business hotel must have:
Business centre open 24 hours, and including net access, phone, copier, printer, fax
Wifi access in all public areas
Car rentals
24 hour coffee shop
Laundry services
Doctor on call
In the room:
Tea and coffee maker
Temperature AC and heat control
Television
Global device sockets
If possible, these features will be crucial add ons:
Valet services
Fitness Centre
Spa
Swimming pool
Store for basic utilities
Personal bar
Pillow menu
Electronic safe
News stands
Boutique
(This article was published in Business India dated 7 June 2012)
