The Indian hospitality industry is an ever growing one, albeit with a few challenges to face as is true of any sector in any part of the world. High service tax and the roadblock of an oversupply of rooms are constant guests in Indian hotels. Several years ago major hotel chains made the smart decision to start moving into tier II and III cities which faced a dearth of quality rooms. But quality also means expense, and the Indian purse strings are not so easily loosened.
Thus came the boom of mid market hotels. Catering to the need of quality accommodation while also not burning a hole in the customer’s pocket, this segment of hotels soon became the most successful faction of the hospitality landscape. Soon, every major hotel chain had a mid market brand under its belt, all notching business in even difficult markets.
“The mid market segment product addresses the needs of the business and leisure traveller, and are priced reasonably by offering value for money. Hence one anticipates mid market segment to grow ahead of other categories. In the recent past the mid market segment hotels have shown robust growth and we like to believe that this segment will continue to grow in metros, tier II and III cities as well,” said Param Kannampilly, Chairman & Managing Director, Concept Hospitality.
High expectations
The Indian hospitality industry has seen growth in the face of adversities over the years, with each company expanding its portfolio here. Accor, for one, has seen strong growth in the economy hotel segment which forms an integral part of its expansion plans. According to Jean Michel Cassé, Senior Vice President, Operations – Accor, India, ibis notched great levels occupancy across its properties in India, and also opened three new ibis hotels in key cities such as New Delhi, Chennai and Bengaluru, giving them a presence in all tier I cities in the country.
“India is one of the fastest growing markets and plays an integral part of Accor’s Asia Pacific’s growth strategy. We have a strong network of 31 hotels in India currently and we plan to double that in the coming years. We are excited with the growth opportunities in India and we realise the huge potential for the mid-market segment in the country. According to research by HVS India, of the 93,000 hotel rooms being added to the existing 114,000 hotels by March 2017 across major Indian cities, researchers foresee that 50 per cent will be in the mid-market and budget range. With the growth of international travel, the hospitality industry continues to see solid projections in the burgeoning travel and tourism industry,” he added.
Abhimanyu Kayastha, General Manager, Howard Johnson Bengaluru Hebbal opined that the segment has the maximum growth of 20 per cent increase every year and has the maximum potential of sustainability. “Mid market hotels are self sustaining, employees get more recognition than a larger set up, which results in more happy customers and incremental revenues,” he said, listing the segment’s advantages.
Ritesh Agarwal, CEO and Founder, OYO Rooms has observed an ever increasing demand for predictable stay experience in the budget segment. As the disposable income of the average household has increased, travellers are exploring more travel options. “Stay is a essential part of travelling; an unpredictable stay experience ruins the trip, so the travellers are looking for hotels which offer predictable experience at price which falls in their budget without hurting their pockets,” he opined.
He further informed that the company is witnessing an ever-increasing demand for high-quality budget accommodation. A majority of OYO Rooms hotels are recording room occupancies going above 80 per cent on a consistent basis, indicating an enormous demand for accommodation in the budget category across India, he said.
“The middle-market or business segment as Accor defines it, serves the largest market base. The mid-scale hotels in India offer lucrative investment propositions given the favourable demand-supply dynamics with an attractive build cost in operating returns. We have projected a strong future demand for mid-scale and full service hotels such as Novotel in India; we aim to develop more presence across key business hubs and secondary cities with quality hotels and the right demand drivers in place. Close to 70 per cent of our existing network is based in the tier I cities and with an advent of better locations emerging from tier II and III cities, we are now actively looking at the second generation with the development of Novotel and ibis brands,” said Cassé.
Customer trends
The Indian hospitality sector has seen one very major trend in the Indian consumers over the years – having travelled world over, they now demand quality. Be it business/industry cities or even religious/pilgrim destinations, the customer now looks for clean accommodations and good service. However, this demand is coupled with their inherent need for value for money products.
According to Cassé, Indian customers are taking more vacations, resulting in weekend getaways as a new business model. Today’s travellers, he opined, are an evolved lot and are looking at hotels that offer modernity, comfort, safety, and affordability.
“We see an increasing demand from the domestic business travellers seeking for international hotel brands with great value. Business travellers in India spend on average 27 nights away per year, the Novotel brand addresses the current gap with service value and convenience offerings,” he added.
Kannampilly opined that today’s customers are looking for quick service and expect all hotels to be technologically advanced. Rahul Pandit, President & Executive Director, The Lemon Tree Hotel Company stated that the mid-market to economy segments have huge latent demand and, given the right infrastructure and pricing opportunity, can drive huge growth a la LCCs. Domestic leisure is, similarly, a market poised for growth, he added.
“In the current scenario we have seen an unprecedented rise in online bookings; more travellers are opting for booking hotels online as they don’t want to go through the hassle of finding one in a new city. Customers look for hotels which has a predictable experience in the budget segment. We help hotel partners deliver a branded and therefore predictable guest experience across all our properties. The demand of predictable customer experiences will keep on increasing in the coming years,” said Agarwal.
Government measures
The government’s measures to boost inbound tourism has also given the mid market hotels segment a reason to be optimistic. With India’s reputation as an expensive country to visit, budget accommodations will be high on the travellers’ demand lists, and with several of the hotel chains present here being internationally acclaimed names, the tourist inflow can only help business.
“India is the second-fastest growing market and one of the key initiatives that we have taken is to expand our footprint in the country. As an emerging destination, initiatives such as the recently announced e-visa, structural plans for airport developments and the boosting of regional connectivity will drive inbound tourism. Tourism is one of the significant instruments for economic growth and employment generation in the country. Data released by the Ministry of Tourism noted that in December of 2014 the country saw a 421.6 per cent jump in tourist traffic compared to the same period in 2013. We are seeing a growth in tourist arrivals to key states such Gujarat, Karnataka, Kerala, Andhra Pradesh, Tamil Nadu, Odisha and Maharashtra,” said Cassé.
Howard Johnson Bengaluru Hebbal welcomes a lot of Americans and Europeans travelling into the city, and the ratio is 30 per cent expats and 70 per cent Indians, including a lot of Indians settled abroad, said Kayastha.
Kannampilly is expecting increased number of foreign tourist and business traffic with easing of visa norms. “The foreign to Indian ratio varies from destination. It is important to however note that the Indian traveller does contribute significantly to our hotels,” he added.
Agarwal opined that, with the government initiating ‘swach bharat abhiyan’ and the e-tourist visa scheme, the tourism in the country is bound to boom and bring cheer to the sector. “We have more than 10 per cent overseas travellers as our guests and have noticed huge demand of health-care tourists who look for budget hotels. In fact, we have OYO hotels near hospitals to cater to such demand. Since the government has extended the e-visa scheme to include more countries, this move is bound to increase the tourist influx and we will record a higher ratio of international guest bookings at the hotels.”
The road ahead
The optimism in the sector also means an expansion of portfolios, and not just in the mid market segment, but across the Indian hospitality landscape.
Accor, for instance, is encouraged by the successful run so far as they continue to expand their portfolio of hotels across the country. “This year, we have three new ibis hotels scheduled to open in Chennai, Goa and Hyderabad, taking our total hotel inventory to 14 hotels. ibis Delhi Airport, in the last eight months, has had an impressive ramp up in both occupancy and operations, and will be adding a new wing by the end of this year with 149 rooms to its current 316 rooms. We foresee urbanisation and a higher rate of domestic travel to newer tier II and III cities and beyond will continue to drive growth in the tourism industry. Given the growing Indian market, there is sizeable demand for more hotel development,” said Cassé.
According to Pandit, tourism currently contributes 6.4 per cent to India’s GDP and provides employment to 55 million people, accounting for 9.24 per cent share of total employment. All the above socio-economic trends will ensure that tourism’s GDP share will inch closer to its employment share. “The bulwark of the sector still rests on business demand. However, the sector is seeing the emergence of a millennial consumer and SME demand besides the rise of short haul leisure. Design of the habitat and the service experience have become important value drivers. The industry will have to rely on technology – data science and analytics – to deliver this unique intersection of service and value,” he concluded.
