As travellers turn away from five-star properties, the mid-market offers exciting potential as a stable platform for growth. We talk to Jean-Marc Busato, managing director, Asia Pacific, at Carlson Hotels Worldwide and others on their plans for the sector
When one door closes another usually opens. That is certainly the case in the hospitality sector in India today.
The credit crunch means many five-star and other upscale properties have seen occupancy levels drop, as travellers, both corporate and tourist, scale down their travel spends.
Instead guests are checking in to three- and four-star properties, and like any good business sector, hoteliers are starting to follow.
The mid-market sector in India will see the highest levels of investment in the whole hospitality industry over the next two years. The latest annual report from the Ministry of Tourism shows that there are 598 three- and four-star properties in India as classified by the Ministry, compared to 185 five-star and five-star deluxe properties. And although the number of rooms that these represent is roughly equivalent, at 30,000, analysts think the major investments will now be heading into the middle segment.
Some foresee a doubling of the sector, from the one-third of India’s total hotel capacity that it currently holds.
“Despite the rapid growth in this mid-sector over the last two years, the latent demand continues to grow slowly but steadily. The sector is expected to double in capacity over the next three years,” says Sunil Rao, executive director for Q S Consultants India.
And there is good reason for this. “In the current fiscal environment developers tend to lean towards mid-market hotels, primarily due to the lower investment required towards construction,” says Ratnesh Verma, in charge of real estate and development in South Asia for Hyatt Hotels.
One of those leading the charge is Carlson Hotels Worldwide, and spearheading its expansion into India is Jean-Marc Busato, managing director, Asia Pacific. Busato took over the position in January 2009, and has considerable experience in tapping unchartered territories, having worked extensively in Egypt and in various locations in Europe. “India remains one of the world’s fastest growing hotel markets with an inherent appeal as a tourist, medical and cultural heritage destination choice,” he says.
The company plans to launch 50 new mid-market properties in India by 2012 under their brands Radisson Hotels and Resorts, Park Plaza Hotels & Resorts, Park Inn and Country Inns & Suites by Carlson.
But Busato will not have it all his own way. Domestic brands such as Gateway (Indian Hotels Company Limited), Lemon Tree Hotels, Fortune Hotels (ITC Welcomgroup), Royal Orchid Hotels, Sarovar Hotels and Resorts and the Lalit Hospitality Group are all looking at expanding their portfolios in this segment.
In addition, international players such as Hyatt, IHG, Starwood, Marriott, Wyndham, Hilton, Accor, Pullman Hotels, Langham, Amari, Vikram Chatwal Hotels, Berggruen and Dusit have announced plans to expand their mid-market portfolio in India.
Busato’s plan though is to establish an advantage by maintaining a tight hold on costs.
“It is important to have a well thought out and executed hedging strategy which will allow us to maintain, if not increase market share,” he says. “Cost management is key in this hedging strategy, as we re-strengthen our focus on costs and introduce substantial cost-saving plans.
“There is enormous potential for Carlson to develop its portfolio here. My role is to take the driver’s seat, and together with my team, lead the group towards our target of doubling our portfolio across the region by 2012.”
This will be achieved, he says, by targeting non-metro cities, which are comparatively under-developed and where real estate costs have not yet spiralled out of control.
Analysts agree. “This will be a more viable business model in tier-two and tier-three cities where the cost of land as a proportion of the total project cost is reasonable,” says Verma.
Verma adds that experienced chain operators will also have a better chance of providing the service levels that will win loyalty. “Currently there is a lack of consistency in product and offering especially in this segment, and this presents opportunities for all brands that will be able to introduce and deliver consistency in product.”
Busato is not expecting miracles during the early days. But with the development of new properties takes anything between three to five years on average, this should allow the hotels to be in good stead when the economy picks up.
“While there have been some immediate business implications in the aftermath of the credit crunch, Carlson Hotels Worldwide remains positive about the India hospitality outlook in the long term, and we will continue to push ahead with our expansion plans,” he says.
And the mid-market is by many accounts the best place to do so. Though Taj Hotels Resorts & Palaces refuses to classify their Gateway brand as mid-market, Ajoy Misra, senior vice president sales and marketing, says the sector in which it competes is headed for significant growth. “The segment is highly underdeveloped in India. We believe that in the coming years, this segment will see one of the fastest growth rates in terms of new inventory,” he says.
Rao suggests hoteliers that start investing now will be very well placed in the future. “The mid market segment has seen an average growth rate 2% higher than the luxury market over the last two years,” he says.
“This pattern has been reflected both in times of a booming economy and in the face of the global economic crisis. So it seems unlikely that the mid-market segment will take a back seat in the immediate future.”
Carlson by the numbers
Brand names: Park Plaza Hotels and Resorts, Park Inn and Country Inn & Suites Hotels
Number of properties operational in India: Six Park Plaza, two Park Inn properties
Existing locations: Agra, Lushiana, Gurgaon, Noida, Jodhpur, Mussoorie, Lucknow and Goa
New locations: Sahibabad, Gurgaon (for Country Inn & Suites by Carlson)
Proposed numbers of keys to be added: 672 keys (Park Plaza) 391 keys (Park Inn) and 15 Country Inn and Suites under development
IHCL by the numbers
Brand names: The Gateway Hotel
Strategy: Owned and Management Contracts
Number of properties operational in India: 18
New locations: Jalandhar, Pune, Kolkata, Chennai , Chennai (Sriperambadur), Raipur, Navi Mumbai, Bangalore, Gondia, Mysore, Cochin, New Delhi
Projected growth: Currently at 30 including projects. Short term growth target of 50
Number of keys to be added: Current 12 projects are around 2000 keys
Projected Investment: Mentioned above
Hyatt Hotels and Resorts by the numberS
Brand names: Hyatt Place and Hyatt Summerfield Suites (these are our mid-market brands)
Strategy: Predominantly management
Number of properties operational in India: Five in the full service segment
New locations: Gurgaon, Lucknow, Indore, Hyderabad, Mysore, Managlore
Projected growth: Six under development. 14 others under the Park Hyatt, Grand Hyatt and Hyatt Regency brands
Number of keys to be added: Approximately 950 keys
Projected Investment: As above
IHG by the numBERS
Brand names: Holiday Inn Hotels and Resorts
Strategy: Management
Number of properties operational in India: 11
New locations: Over 30
Projected growth: Development pipeline of 31 hotels (across 3 brands)
Number of keys to be added: Over 7,600 rooms
Projected Investment: NA
Wyndham by the numbers
Brand names: Ramada, Days Inn and Super 8
Strategy: Franchise organisation with management capabilitiesNumber of properties operational in India: Ten Ramada hotels, two Howard Johnson hotels
New locations: Delhi, Gurgaon, Mumbai, Jaipur, Varanasi, Khajuraho, Goa, Bangalore, Cochin, Ooty, Mysore
Projected growth: Don’t want to comment
Proposed number of keys to be added: NA
Projected Investment: NA
Langham Hotels by the numbers
Brand names: The Langham, Langham Place and Eaton
Strategy: 9 owned and 6 managed
Number of properties operational in India: None yet
Existing locations: Auckland, Melbourne, Hong Kong, Shanghai, Beijing, Pune, Boston, Pasadena, London, Phuket, Guangzhou
Projected growth: 30 hotels in five years
Number of keys to be added: NA
Projected Investment: NA
Sarovar Hotels and Resorts by the numbers
Brand names: Park Plaza, Sarovar Portico, Hometel and Park Inn Strategy: Hotel Management Company
Number of properties operational in India: 35 hotels and resorts
New locations: 29 cities including Agra, Ahmedabad, Badrinath, Chennai, Corbett, Durgapur, Gangtok, Goa, Gurgaon, Hosur, Hyderabad, Indore, Jodhpur, Jaipur, Kochi, Kolkata, Lonavala, Ludhiana, Manali, Mussoorie, Mumbai, Pondicherry, Noida, Rishikesh, Shirdi, Thiruvananthapuram
Projected growth: 29 Hotels are in the development phase
Number of keys to be added: 2915 rooms by 2012
Projected Investment: Around 50 lakhs, per room minus land cost for Park Plaza Brands; around Rs. 35 lakhs, per room minus land cost for Sarovar Portico and Park Inn brands and around Rs. 20 lakhs, per room minus land cost for Hometel brand.
Vikram Chatwal Hotels by the number
Brand names: Dream, Night
Strategy: owned and managed
Number of properties operational in India: 1
Existing locations: Bangalore, Chennai, Hyderabad, Jaipur, New Delhi and Kochi (second preoperty)
Projected growth: 5 hotels by 2010
Number of keys to be added: 2000
Projected Investment: Rs. 5,000 crore
Choice Hotels by the numbers
Brand names: Comfort, Quality, Sleep Inn, Clarion
Strategy: Sales, marketing, branding and management
Number of properties operational in India (total): 25
Projected growth: 20 % year on year
Number of keys to be added: 2000 additional rooms in the next two- three years
Projected Investment: CHI is pure Sales and Marketing, Branding and Management Company. As a company policy we don’t invest in real estate.
Royal Orchid by the numbers
Brand names: Royal Orchid Hotel and Royal Orchid Central
Strategy: Owned, Management, Lease, Revenue Sharing
Number of properties operational in India (total): 12 Hotels
New locations: Bangalore, Pune, Jaipur (Current); Ahmedabad, Navi Mumbai, Mumbai, Delhi, Hyderabad (under Development)
Projected growth: We do not project revenues
Number of keys to be added: 1000 keys over the next 18 months across the group
Projected Investment: Rs. 500 crore total investment across the group
Marriott hotels by the numbers
Brand names: Courtyard by Marriott Strategy: Management
Number of Courtyar properties operational in India: One at the moment
New locations: Pune, Gurgaon, Mumbai, Ahmadabad, Hyderabad, Mumbai, Amritsar, Lucknow, Calcutta and Cochin.
Projected growth: 24 hotels till 2012 of which 14 will be Courtyard by Marriott properties
Proposed number of keys to be added: 8000 keys to be added by the end of 2012
Projected Investment: NA
