Following a year characterised by cautious optimism, increasing competition, mergers, acquisitions and turnaround in consumer behaviour, the hospitality industry is better prepared than ever to look up and keep abreast with the next threat or opportunity that lies ahead. Which emerging trends will sparkle and which will fizzle out? Which departments in hospitality will require the most investment? Which offering will attract the most guests?
When Cushman & Wakefield presented us with their trending report, the Hotelier India team could not resist the opportunity to ask some of the biggest names in Indian hospitality to react.
Going domestic
C&W says: “Growth in domestic tourism is poised to be a major driver of occupancies, especially in the off-peak season.
The challenge is to attract this growing market to destinations in India and not lose them others in South-east Asia and the Middle East.”
This year as well, as domestic tourism continues to drive occupancies, more hotel companies in India are working their offerings to suit the guest.
Dilip Puri, MD for India and regional VP for South Asia at Starwood Asia -Pacific Hotels & Resorts, says: “Gradually, the domestic market is beginning to substitute the international market. It is five to six million inbound tourists versus 50 million Indian ones in the upper-middle class.”
In secondary or Tier II markets, the domestic guest is the major generator of occupancy. MICE will be the frontrunner, followed by leisure, corporate, religious and medical tourism.
ITC Hotels division COO Dipak Haksar says, “We are also seeing aspirational shifts, including utilisation of a higher category of rooms.”
Indian hotels are no competition to their neighbouring counterparts, especially Thailand, the UAE, Hong Kong or Singapore, in terms of rates and infrastructure. Trident Hotels president Rattan Keswani says that the trick is to simply set up right. “International travellers always enjoy great service but don’t like it to be personalised; they like to be left alone. Most Indians who come to a luxury hotel are accustomed to help and receiving a huge amount of attention at home. A hotel must be multiple levels better in order to command that rate,” he says, pointing out that India is on a learning curve.
Increased compensation for retention
C&W says: “Retention of talent will not only be led by HR practices but through improved compensation.
With supply expected to continue growing over the next five years, other contributors to talent retention would be increased mobility, faster career-track growth and training and development.”
“The battle for market-share in the future will not be over guests but over talent,” is Puri’s prediction.
HVS chairman Manav Thadani sees that 2012 will be stable in terms of salaries and jobs due to the recession. “Compensation may not go up during 2012 but will perhaps rise in 2013-14,” he says.
Hospitality consultant Homi Aibara of Mahajan & Aibara says that pay scales may climb up a few notches to to meet cost of living and international benchmarks. “Earlier, expats used to earn much more [than their Indian counterparts] but this is now being evened out or even reversing,” he says.
Being considered employers of choice is an ambition most hotel companies share.
Keswani says: “We believe that if you pay well and pay fair you’ll attract the best. Of course, it is a rising cost and that needs to be factored in to revenue plans.”
Hotels compete not only with each other but with other industries as well. “The government allowing 100 per cent FDI in retail is going to further affect the hotel sector’s loss of talent to retail,” says Thadani.
It is not the salaries alone that keep staff. Vijay Thacker, director of Horwath HTL, says: “Good talent stays for other reasons. Mentoring and caring is important.”
Hoteliers are trying to find answers in rewarding loyalty and training. Chender Baljee, chairman and managing director of Royal Orchid Hotels says: “Offer a retention bonus to staff when they complete two years with the company.”
Particularly at an entry level, hoteliers see training and hiring locally as the differentiator.
Destination hospitality products
C&W says: “Travellers are seeking destination hospitality products such as spas, adventure retreats and sustainable resorts. Many unique properties are in the pipeline. This seems to be a market developers are cashing in on.”
Hoteliers say that they are witnessing big bucks in resort business but the key to this piggybank remains location-linked.
KB Kachru, executive vice-president for South Asia, Carlson Hotels, Asia Pacific, cites an example of his company’s vastly successful Radisson Blu in Alibaug. “It is accessible within two-and-a-half hours by road – both from Pune and Mumbai – and 45 minutes by boat from Mumbai. People save time and money, which would have been spent on airfare,” he says.
Destination resorts within a 200-km radius of a city centre are already popular. “At resorts in a three-and-a-half to four-hour driving radius from a city like Bangalore, for at least 180 days of the year you won’t find rooms available. Rates have doubled in these areas indicating the potential for resorts,” Aibara says.
Baljee sees a culture- and wildlife-driven property in Mysore succeeding because of the possibility of day trips to neighbouring cultural sites and national park. ITC’s response to niche demand is the opening of a classic golf resort.
Untapped potential for MICE is another driver for destination hospitality products. ITC is opening the 600-room ITC Grand Chola in Chennai with an attached convention centre.
Aibara cites the example of the Novotel Hyderbabad Convention Centre. “It fills the whole city. And its biggest contributor is weddings,” he says.
Backed by numbers, Indian hoteliers are awakening to the potential of spa offerings. According to a study by HVS founder Steve Rushmore, a 200-room, Marriott type hotel operating in India at 71 per cent occupancy and an average room rate of $250 could make $950,000 per year on its spa.
Madhok is seeing partners asking for destination spa developments for the first time. Radisson Blu Alibaug is working towards destination spa status in the coming year.
However, a word of caution from Thacker, who says that a proliferation of hotels calling themselves destination products should not dilute the concept.
The big budget-economy story
C&W says: “The math for this is simple. These hotels cost less to build, get completed in less time, cost less to maintain and are considered value for money by the majority of corporate clients who have become more conscious of spending.
They are practical and easier to manage in Tier II and III cities. While luxury will never go out of style, this has become the hotel model of choice for developers seeking high ROIs.”
Budget and mid-market segments have been in hospitality headlines for a year now and are expected to continue to dominate development pipelines.
The Baljees have introduced Spree this year. But Chender Baljee says that the focus on Peppermint, which is in the mid-market segment, will continue. Similarly Sarovar has around 20 mid-market properties in
the pipeline.
Kachru says: “We’ll soon introduce brands between economy and first class hotels aimed at the domestic market. Park Inn by Radisson will come in during 2012.”
Aibara says this is about a shift from unorganised to organised in the budget and mid-market segments. “These segments are growing faster and the volume of demand is quickly absorbing supply,” he says.
Hospitality funds gaining ground
C&W says: “Despite there being many independent developers in the market, hospitality investment funds backed by global investors are emerging.
These funds are ROI focused and have initiated tie ups with international brands. The next year should see aggressive acquisitions on the part of these funds.”
Thadani, a founder of Samhi, which is focused on the development, acquisition and ownership of select-service, business-class hotels across India, says that institutional money is certainly going to be a big part of the hospitality picture in 2012.
“I think there’s going to be very few people out there who have the money to invest into hotels next year. They will be at an advantage because there is going to be a capital crunch,” he says.
Puri, who until the beginning of this year was heading Duet, foresees big changes in the way hospitality funds invest. “Private equity wants to get in at value and get out really fast, but hotels are long-term play. Funds need to stay for the medium-term, which is 8 to 10 years as against the current 5 to 7 years, which they are now starting to do,” he says.
Transaction-heavy, asset-light
C&W says: “With the majority of local brands realising the benefit of being asset-light, the next few years should see many transactions in the market. A number of hotel companies would exist as pure management or franchise firms.
Other reasons for transacting would be for equity infusions to complete projects/reduce debt, and sale of assets to generate revenue to promote future growth of the local brands.”
“Right now funds are expensive to get, so we’ll focus on asset-light,” Baljee says, adding that he finds it is safe to do this now since the group has built up a critical mass with 20 operating properties and 10 more in the pipeline.
The changing structures of bank loans along with high interest rates are said to be pushing hoteliers towards dilution, sale and joint ventures.
“I’ve seen more deals crossing my desk in the last six months than I saw in the year before that,” Aibara says.
The rise of the asset manager
C&W says: “The equation is fairly straightforward. Higher-value assets will sell for more in the market. As a result, asset managers will play a crucial role in increasing the total asset value of hotel developments to allow them to gain a higher price in the market.”
Mahajan & Aibara has recently forayed into structured asset management. “Owners should be willing to pay for these now. Many third-generation hoteliers don’t need asset managers but a first-time real estate developer might not push the right buttons to get sufficient juice out of his investment without the help of an asset manager,” says Aibara.
Thacker agrees: “It has started happening and it will grow. Individual owners are seeing the need for asset management and the value for it. And I see that it is a need that will grow.”
Cutting-edge F&B products
C&W says: “F&B is expected to be a major revenue generator in hotels not just in Tier-I cities but in smaller ones. The success of strong international restaurant brands and chefs, such as Megu, Morimoto, Le Cirque and Hakkasan, will provide the incentive for others to follow.”
Thadani, who is launching F&B services at HVS next year for standalone and in-house restaurants, says: “We’ll do everything from concept planning to development.”
Other concepts include franchising. Aibara says: “At the MGM Grand in Vegas, for instance, half the restaurants are not their own. We’re negotiating a contract for a new beer concept — though not a micro-brewery — for 2012 that will pay a franchise fee and stay in the operator’s hotel,” says Aibara.
The Westin Gurgaon has eight F&B outlets. “F&B is a $4-billion business at Starwood. It contributes to 35 to 40 per cent in Gurgaon,” says Puri.
Even for Sarovar, with its predominantly mid-market offering, Madhok says F&B is important. “Our brand Geoffrey’s has been very successful. We’ve been focused on developing hotels rather than spending time on expanding the F&B brand further. But now we’re going to take it nationwide.”
Whether it is ITC or the Oberoi, hotels are creating differentiated offerings. Keswani says, keeping it simple, “like mom cooked it”, is his philosophy — “whether you had an Indian mom or an Italian mom.”
Stability ARRiving
C&W says: “Major cities in India are poised to see an exponential growth in supply. Demand is also poised to grow albeit at a slower rate to supply. In the short-run, ARRs will drop. Once most of the supply has entered the market, ARRs will rise marginally and stabilise.”
This time, the hotels are prepared. “Post-October, the kind of growth we’ve expected hasn’t really panned out. Rates are either flat or seeing only a marginal increase,” says Haksar.
Keswani pegs the growth, if any, at 5 to 7 per cent, while Puri says: “Holding on to rates will be a
good thing.”
The good news is that supply is being absorbed, Aibara says: “In Mumbai, The Trident BKC, The Westin, The Courtyard by Marriott, the Holiday Inn and 300 additional rooms at the Renaissance came in at the same time. But all of that has been absorbed.”
According to Thacker, “We’ll continue to remain short-supplied in the medium term,” meaning that rates will rise again. “But not to the levels we asw in 2007-08,” he cautions.
CSR
C&W says: “Going green, sustainability and eco-friendly are the buzz words in the industry. Initiatives range from green building certifications to reduced carbon footprint of purchase, to employment opportunities for the under-privileged.”
Responsibility, saving or USP, CSR is becoming important enough for people to invest in. “In many of our projects, owners want their hotels LEED-certified. They are willing to put in that extra money,” says Madhok.
At HVS, Thadani is set to remind hoteliers of the cost benefits of going green. Aibara shares an anecdote about an investor deciding to forgo an opportunity with a big private equity fund company on the basis of CSR alone. “He didn’t get the money. The point is that now he will do CSR,” he says.
The growing sentiment is that CSR must go local. “We encourage each hotel to work within the needs of its own neighbourhood, with orphanages, blood banks, and educating street kids rather than the corporate office attaching itself to a big NGO and publicising that,” Kachru says.
