Budget hotels should prosper in India but for rising real estate prices
“Seeking Fortune”- is what a lot in hospitality industry
seem to be doing these days. Raison d’être, driven by huge surge in both business and leisure travel, the industry is on a roll. And with over $2 billion waiting to be roped in the next three years, the sector seems hot among investors. However, interestingly, most of the treasure hunt happens to be in the mid-size and low-budget segments.
While international hotel chain Accor has already entered into a joint venture with Emaar MGF to bring its Formule 1 brand of budget hotels to India, Ginger , a subsidiary of Roots Corp owned by Taj Hotels, too, has confirmed its presence and plans to open 30 more in tier I and tier II cities, adding 3,000 rooms by the end of 2008. Even domestic players like Sarovar Hotels and South India-based Choice Hotels are leaving no stone unturned in making their presence felt in a big way.
Fortune Park Hotels, a subsidiary of ITC Ltd., has recently announced plans to augment its presence from 21 hotels and 40 signed alliances across 34 cities at present to 60 hotels in 65 cities in next few years. Fortune, whose expertise lies in the business of managing hotels, also plans to set up its own hotels investing about Rs.1.3 billion in next few years. Moreover, according to industry sources, as many as 40 brands are expected to set-up budget hotels in the next five to seven years in India.
Indeed a well thought off strategy by these players! As the domestic market continues to expand, the escalating economy has provided a growing and newly prosperous middle class population, many of whom are accessing travel for the first time, further raising the need for mid market and functional hotels. The demand for these hotels for corporate and leisure customers at affordable price, while maintaining the benchmark standards is also gaining popularity and the next few years are expected to see more such growth.
“There is tremendous growth opportunity as in the next 3-4 years India will need over 1,00,000 lakh additional rooms, and maximum should be contributed from three-four star hotel category.” says Girish Solanki, who is a hotel analyst. According to HVS International, the quality room supply in India is shockingly low at below 40000. Moreover, as per the report, budget hotels should account for an overwhelming 50.7% of all new hotels in India over the next five years. Players want to capitalize on it by creating a strong presence across with specialised products designed to suit the specific needs of various segments viz. business, leisure, pilgrims, adventure et al. “The segment of budget hotels has always existed; it’s only that big players are now moving into this segment and standardising the product offering with a view to capture the large mid-market segment,” Amol Rao, a hotel analyst at PINC Research, makes his point.
Surge in real estate prices is bound to act as a big obstacle. Initially, even a cluster of brands in a particular location are bound to co-exist without much ado. But as the hunt for low budget fortunes gets fiercer over the years, this industry might just see the same churn currently witnessed in the aviation sector.
For Complete IIPM Article, Click on IIPM Article“Seeking Fortune”- is what a lot in hospitality industry
seem to be doing these days. Raison d’être, driven by huge surge in both business and leisure travel, the industry is on a roll. And with over $2 billion waiting to be roped in the next three years, the sector seems hot among investors. However, interestingly, most of the treasure hunt happens to be in the mid-size and low-budget segments.While international hotel chain Accor has already entered into a joint venture with Emaar MGF to bring its Formule 1 brand of budget hotels to India, Ginger , a subsidiary of Roots Corp owned by Taj Hotels, too, has confirmed its presence and plans to open 30 more in tier I and tier II cities, adding 3,000 rooms by the end of 2008. Even domestic players like Sarovar Hotels and South India-based Choice Hotels are leaving no stone unturned in making their presence felt in a big way.
Fortune Park Hotels, a subsidiary of ITC Ltd., has recently announced plans to augment its presence from 21 hotels and 40 signed alliances across 34 cities at present to 60 hotels in 65 cities in next few years. Fortune, whose expertise lies in the business of managing hotels, also plans to set up its own hotels investing about Rs.1.3 billion in next few years. Moreover, according to industry sources, as many as 40 brands are expected to set-up budget hotels in the next five to seven years in India.
Indeed a well thought off strategy by these players! As the domestic market continues to expand, the escalating economy has provided a growing and newly prosperous middle class population, many of whom are accessing travel for the first time, further raising the need for mid market and functional hotels. The demand for these hotels for corporate and leisure customers at affordable price, while maintaining the benchmark standards is also gaining popularity and the next few years are expected to see more such growth.
“There is tremendous growth opportunity as in the next 3-4 years India will need over 1,00,000 lakh additional rooms, and maximum should be contributed from three-four star hotel category.” says Girish Solanki, who is a hotel analyst. According to HVS International, the quality room supply in India is shockingly low at below 40000. Moreover, as per the report, budget hotels should account for an overwhelming 50.7% of all new hotels in India over the next five years. Players want to capitalize on it by creating a strong presence across with specialised products designed to suit the specific needs of various segments viz. business, leisure, pilgrims, adventure et al. “The segment of budget hotels has always existed; it’s only that big players are now moving into this segment and standardising the product offering with a view to capture the large mid-market segment,” Amol Rao, a hotel analyst at PINC Research, makes his point.
Surge in real estate prices is bound to act as a big obstacle. Initially, even a cluster of brands in a particular location are bound to co-exist without much ado. But as the hunt for low budget fortunes gets fiercer over the years, this industry might just see the same churn currently witnessed in the aviation sector.
Source : IIPM Editorial, 2008
An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative
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