As dynamic as a business’ ecosystem may be, certain set patterns occur irrespective of the industry. Just like every new product, an industry, too, goes through a life cycle consisting of discernible events.
When a new industry takes root, it is often fragmented as fresh entities sprout up regularly. Eventually, as the sector matures, there is a period of consolidation. This is when various entities fuse together and the number of separate organisations is reduced to a few, fierce competitors.
This period of strategic mergers, acquisitions and consolidations can currently be seen in the rapidly-evolving Indian budget hotels sector. However, as far as the budget hospitality space is concerned, consolidation will not just be based on market maturity, but will also be driven by current market conditions occasioned by the unrelenting pandemic.
COVID-19’S IMPACT ON SMALLER HOTEL CHAINS
That the COVID-19 outbreak has disrupted the hospitality industry’s growth trajectory would be an understatement at this juncture. Small and medium hotels and hospitality groups are bearing a sizable chunk of the blow dealt by the outbreak. The lockdown and strict curbs that are likely to recur in the foreseeable future have likely to bring the sputtering business back to another complete halt, after the recent jumpstart.
While the daily active caseload has shrunk considerably and hotels are seeing an increase in footfalls due to pent-up demand, total recovery is nowhere in sight. As a result, smaller names with less financial runway to cover their losses are likely to be looking for exits.
This is where the acquisition model comes into play. According to projections, larger hotel chains are keen to acquire smaller hotel groups. This inorganic growth route can help them bolster their operations by extending standardisation practices and letting them offer high quality stays to guests.
ROAD TO RECOVERYÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
Over the past few years, larger hotel chains and investors have continually displayed trust in budget hotels, as per market trends. So, what makes them place their faith in this space?
The shock delivered by the pandemic affected every household in the country and led to a significant loss of income. At the same time, it has caused pent-up travel demand across the socio-economic landscape.
Against this backdrop, it is safe to say that budget hotels will be the foremost choice for travellers looking for quick getaways, staycations or ‘workations’. New-age budget hotels not only offer a cost advantage to travellers but also provide a host of amenities from fast wireless connections to top-notch F&B services.
This brings us back to the idea that the industry is currently ripe for consolidation. In doing so, distressed hotels can curb their losses while others can continue their growth journey by tapping into new geographies and target audiences. This can lead to quicker recovery of the hospitality sector, contributing immensely to the economy.
While consolidation is expected for the budget hotels industry at the moment, it might not just be a natural progression. In today’s highly unpredictable market, this could well emerge as the strongest growth strategy for front-running players helping them retain their leadership position and tapping into further expansion opportunities.
While this plays out, the ultimate winners will be the end-customers. They will get access to budget-friendly stays with best-in-class amenities, whenever and wherever they travel.
