The hospitality industry has gone through a major disruption in the year 2017. One on side of the coin the Government is aggressive to grow the inbound numbers, whereas on the flipside the Government has taken certain steps which are tourism dampeners. The year 2017 opened with the aftershock of demonetisation, which impacted the hospitality industry, like others, for a temporary period. Demonetisation seriously injured the MICE segment than the leisure market. Next move was the Liquor banning within 500 meter range of national and state highways; this once again dampened the hospitality business sentiments in the country.
Post this silence in the industry, the government implemented the GST, which was well received by the nation. But, due to higher bracket taxation it once again came as challenge for the hospitality, only until it was revised.
Despite, all these challenges hospitality industry witnessed a strong demand. Occupancies were up, Average Daily Rate (ADRs) were up. According to a report by JLL, The strong growth was an outcome of strong demand and a dip in the development and opening of new hotels in 2017...Clearly the positive gap between demand and supply in 2017 resulted in the improved performance of hotels, and this trend is expected to continue in 2018 as well.
In terms of growth, 2017 was a strong year for the hospitality industry. Nationwide, hotels have witnessed robust growth of over 65 per cent in terms of occupancy. Even there has been a slight growth in ARR, but still not up to the mark.
Speaking about the growth S N Srivastava, President & Co-founder, Clarks Inn Group of Hotels, “We have continued to improve in terms of hotel occupancy, ARR and RevPar. Our overall occupancy last year was 68.5 per cent with a healthy ARR and RevPar. Going forward in 2018 we are expecting our overall occupancy to increase by four to five per cent. However, growing ARR can be challenging as the competition grows and new supply are added to the existing inventory. But we are hopeful that our RevPar will improve by 4-5 per cent riding on better occupancy in 2018.”
The rising disposable income of the middle class has aided exponential growth in the inbound tourism and narrowed the gap between the lean and peak time further strengthening the demand and gap supply. Speaking about the trend, Vimal Singh, MD, Golden Tulip Hotels and Resorts stated, “There has been an overall increase in the occupancy and ARR across the Industry, the nationwide occupancy crossed the 65 per cent mark for the first time since 2007/2008 and the occupancy was further complimented by an increase in the average rate. There are other drivers that fuel the growth of the Indian hospitality market such as India as medical tourism destination, steady growth of MICE segment and the increase in the young travellers. We closed our yearly occupancy with 81per cent which was higher by three per cent over previous year, this came at an ADR which was higher by five per cent over last year. We are expecting 2018 to further consolidate our occupancy and are projecting an increase of 3-4 per cent with an ADR raise of two per cent.”
In the last couple of years, India has witnessed a lot of growth in terms of new hospitality brand forays and expansion. This trend is set to continue and will only become more intense. But, as per industry experts the core growth area today is the mid market hotels segment. Global chains are today eyeing India for this particular segment. A lot of global chains have in the recent announced major expansion plans in India. This is the segment where our Indian regional chains are strong at. Indian chains, if not more, are equally on an expansion spree.
Speaking about the trend in the mid market segment, P R Bansal, Chief Operating Officer, Lords Hotels & Resort said, “Without the mid-market segment, the new traveller class wouldn’t have a choice in decent, budget accommodations. A major section of travellers today, both international and domestic are price sensitive or rather are more value conscious. With the frequency of travel increasing one does become cost conscious after a while and does not always have the liberty to splurge. There has to be a cost-effective option which also satisfies the ambience quotient and the mid-market segment of hotels offers just that. This segment is the driving growth of the hospitality sector and we foresee that it will remain in the driving seat for at least the next two decades.”
No doubt the demand for this segment has started to burgeon, but even the hoteliers have a keen interest as the midscale segment is one of the most profitable areas.
Suhail Kannampilly, COO, The Fern Hotels & Resorts said, “Absolutely the profitability margins are better in midscale, primarily since the luxury market in India is selling at midscale rates and not able to drive profit to the developers, my take on this is clear India is a huge market, there's room for all categories of Inventory to flourish. Our A category cities can still cater to many new upscale and luxury hotel and they will soon move the needle upwards with their rates and drive bottom line margins. The B &C category towns can all take midscale inventory.”
Singh feels that the rising purchasing power of the middle class, surge in the domestic travel, the fading line between the peak and the lean time are few factors that are fuelling the growth of the mid market sector. The industry is witnessing a lot of opportunity in the mid market segment and now international chains are tapping these untapped markets with the launch of their budget properties in Tier II and III cities. He further said, “We see a great potential for bread and breakfast concept in India in both budget and mid market sector and hence we are working very closely with our parent chain to bring Campanile, Premiere Class and Kyriad in India.”
In the coming couple of years, the market is set to witness an upsurge in terms of expansion. Last year, due to many challenges greenfield developments witnessed a stunted growth. Indian chains like The Fern Hotels are betting big in this market with a target of 100 hotels by 2020.
Speaking about the pipeline Kannampilly said, “We currently have 54 hotels in operation, with 32 hotels signed to open in the next 2 years. In the current financial year we are opening 15 hotels. Our target for 2020 is 100 hotels.”
Today, Indian chains are carving their own niche by expanding into unexplored territories. Lords Hotels & Resorts are one of the groups who are exploring religious destinations for expansion. The group is aiming to become a 40 property group by 2020.
Bansal explained, “Today we are operating 27 hotel properties and there are 10 more in the pipeline which will become operational later this year. We are aiming at becoming a 40 properties hotel chain by the year 2020. From here we are hoping for the brand to go into auto-pilot and the development and franchise opportunities to grow organically. However while we are entrenched in the West and to an extent in the North and South, we are yet to step foot in the Eastern markets. We are making efforts to penetrate this region and have identified potential entry points in Kolkata, West Bengal and Bhubaneswar, Orissa. Many of our hotel properties have found resonance with guests as great hotels for pilgrimage tourists. We want to build on that reputation and capitalise on the pilgrimage tourist market. We are also focusing on adding hotels in Katra, Mathura, and Vrindavan among others. While we may be an affordable mid-market chain, our services are best in its class and so to maintain the balance and not dilute the value proposition, our properties are limited to 60 – 90 keys per hotel.”
Presently, Tier II and III cities are the engine for growth for hospitality chains. These markets have a comparatively lesser real estate cost, operational cost and also yield good returns. Golden Tulip hotels which currently operates 26 hotels in the country is eyeing for expansion in the smaller markets.
Singh stated, “We currently operate 26 hotels in the country, we recently opened Golden Tulip in Khajurao and signed up over 8-10 Golden Tulip hotels in various cities. Currently we are planning to increase our foot prints in Jeolikot (Nainital), Khajuraho, Kota, Rajkot, among others. Our expansion plans are aggressive and we aim to open 10-12 hotels in next two years. We are further working to introduce three more brands in India- Premiere Classe, a limited service budget hotel that focuses on comfort, connectivity and convenience. Campanile and Kyriad are other mid-market brand that we plan to bring to the region soon.”
Similar Srivastava said, “Clarks Inn Group of Hotels is one of India’s fastest growing hotel companies with a country-wide presence in the mid-market and budget segments. The company boasts of an overall portfolio of 87 hotels, including 47 in operation, spread across 18 states in India and one in Kathmandu Nepal.”
Disruption and alternate accommodation
In the recent years, the hospitality industry has witnessed severe disruption in the changing accommodation game. Players like airbnb, Oyo and other players have clearly pumped in inventory into the market. Players like airbnb have introduced the concept of shared accommodation, whereas Oyo has been streamlining the unorganised hospitality players.
Speaking about the competition with these players, Singh said, “We see them as aggregators and now we don’t see them as threats as they are tapping the unorganised market that we can’t tap as some of these smaller hotels cannot be converted to our standards, some might not come into our brand for cost reasons while for some the cost-to-conversion would be too high.”
Some of the hoteliers believe that these players are not a threat to traditional hoteliers as long as they are on a level playing field. The government regulations should be applicable for these players as well. Bansal stated, “While online booking site offer accommodations, they aren’t really part of the hospitality segment. These stays are supposed to be a room and a roof at a stranger’s house with breakfast option. However, under the garb of such house sharing model of accommodations, some are operating like full-fledged hotels. This is unfair for the organised hotel industry that pays taxes, obtains and renews licences to operate, maintains security and follows compliances as laid down by the law. So when such disruptors disrupt, they are managing to do so by circumventing the rules, regulations and costs that a hotel has to invest in. We don’t perceive any competition as threat so long as it’s playing on a level field.”
Echoing similar opinion Kannampilly, “I always maintained, not seeing them as a threat is just denial. However, unlike Oyo who is creating very little new inventory, Airbnb is bringing otherwise unused inventory into the foray, they are also doing this under every category from Budget to Luxury. I do believe that we need to be on par in term of government regulations & licensing.”
Apart from the disruptors, today alternate accommodations like service apartments are making a mark in the country. Service apartments are not only economical but also suitable for long stay guests. Currently, there is a shortage of 190,000 rooms in the entire nation; such alternate accommodation can complement this shortfall.
Negating the fact that it won’t complement the requirement, Bansal said, “Service apartments are more cost effective especially for long stays. But it can’t complement overall room supply in India since service apartments follow fixed pricing while hotels have a dynamic pricing system. Also it’s easy to book a room in a hotel and the risk is limited in terms of stay, and in terms of amenities hotels have certain amenities like swimming pool, gym, health centre which serviced apartments don’t.”
Some of the hospitality players like Golden Tulip have themselves invested into this segment. Singh feels that due to the globalisation, there has been a rise in the expatriates coming to India for long stays, as the duration of these stays are longer- it makes sense for them to stay in Service apartments than the hotels. He further said, “We believe it’s a profitable market to focus on, we have recently launched our brand Golden Tulip Suites- that has 106 rooms, out of which 74 are suites with kitchenette, specially designed for long staying guests.”