Over the years, the Indian hospitality sector has grown the most rapidly in the tourism industry. Described as one of the pillars of travel and tourism in India, every major international hotel chain has entered the Indian market to enjoy the spoils of a burgeoning domestic market as well as an international footfall that is slowly but surely increasing in numbers. Every major international hotel chain is not just entering the Indian market, but is also expanding rapidly, planning and promising anywhere between 50 to 100 hotels in the next five years across India.
Despite these claims, most hoteliers reported a comparatively dismal 2012 in comparison to the years of hospitality boom the Indian market has grown accustomed to, with Q1 2013 being a sliver of hope for a better year ahead. While expansion plans have not been hit, occupancies and RevPAR did take a toll during the year. The silent winners in the mean time were the mid market hotels.
While the major chains in India battled a tough year for hospitality, mid market hotels met their bottomlines, their expected occupancy rates and also chalked out their expansion plans, hitting the jackpot by tapping tier II cities that are undersupplied. Concept Hospitality, for instance, recorded an average of 81 per cent occupancy in its properties last year, with the Q1 of 2013 beginning on a good note with occupancy and ARR benchmarks holding steady with improved results in some markets. Choice Hotels’ average chain wide occupancy was 75-80 per cent in first quarter of this year. Sarovar Hotels notched a 55 per cent to 80 per cent average occupancy depending on the location.
Keys Hotels had close to 90 per cent top line growth over the same quarter last year. This has been fuelled by inorganic and organic growth. The average occupancies were at 50 per cent. They were low on account of some new hotels that were added in the recent months thereby bringing the average down. The hotels that have stabilised their occupancy rates delivered occupancies between 60 per cent and 74 per cent. In fact, recording a sharp growth in their properties over the last few years and a doubling of their revenue, Keys is not just expanding but also launching a franchise model this year. This FY alone Keys Hotels’ will open 10 hotels across nine cities. Also, Keys will add another 12 hotels by next year, revealed Sanjay Sethi, MD and CEO, Keys Hotels.
Speaking about the trends witnessed in the mid market segment, PK Mohankumar, MD & CEO, Roots Corporation stated that there is a visible change in terms of the market segment mix with more meetings and conferences spreading out to tier I and II cities. “A lot of companies opt for locations with a comfort of booking into branded hotels like Ginger. We also believe that the younger generation is prone to travel more frequently to places like Bangalore, Trivandrum, Bhubaneswar and Delhi in their quest to explore newer destinations. There is also a growing trend for the wedding and family functions market,” he said.
Other mid market hotel operators also accepted and lauded the segment’s move to tier II cities. According to Kannampilly, tier III holds immense potential for mid market hotels. “With tier I cities getting expensive for hotel development and the rapid growth in demand in tier II cities due to development of micro markets and SEZs, encouraged the hotel developers to invest in hotel projects in mid market segment in tier II cities. Additional supply in tier II cities has provided options to travellers and early returns to developers as well in most of the locations,” opined Vilas Pawar, CEO, Choice Hotels.
Ajay Bakaya, Executive Director, Sarovar Hotels & Resorts believes that, for hotels, the move to tier II cities are a game of first mover advantage. According to him, when economic development takes place in these cities, people have to visit it and they need a place to stay. During the development phase they need basic facilities, so mid segment and economy hotels have a great demand.
Speaking about the year so far, Sethi stated that there has been a lot more stability in the recent months and the mood is upbeat. “I expect the coming season (second half of the FY) to be a good one. The mid market segment has several hotel brands vying for business and some of us have been able to do this more successfully than others. The way I see it, mid market segment will continue to be the largest business segment for the hotel industry due to its sheer size,” he said.
According to Param Kannampilly, Chairman & Managing Director, Concept Hospitality, the mid-market segment is the heart of this industry because it serves the largest market base. “This is a growth segment, without a doubt. The definition of ‘mid-market’ is a bit muddled right now, with very creative descriptions such as ‘upscale’ and ‘upper upscale’ in fashion. Along with mid-market, the budget segment has at least a decade of growth ahead,” he added.
Pawar stated that, as per a recent report, about 50 per cent of the expected supply of hotel rooms in next few years would in the mid-market segment. Choice Hotels India, he added, would continue to explore franchising opportunities to work with these owners. Mohankumar commented that occupancy is a major challenge for business hotels during this time, especially in the metros. However in the mid-market and the budget hotel segment there is a trickledown effect. The benefits of the trickledown effect and weekday corporate transient travel do contribute to sustainable occupancy levels
“Too many people are trying this segment out as they feel that it gives quick returns. There will be a lot of disappointments when they learn that it is tenacity that pays. The segment is growing rapidly. The coming years are tough due to a large number of new hotels coming up in this segment. Being an established chain we are confident of a 10 per cent growth in volume,” concluded Bakaya.
