Indian hotel chains show better growth than ever, Hospitality News, ET HospitalityWorld
India is the third most strategic market, after the United States and China. An increase in domestic travel and government initiatives such as Make in India, Digital India and the e-visa system could be some of the reasons behind the demand for hotel rooms.
In 2002, international brands accounted for less than 20% of India’s 25,000 branded rooms. International chains currently represent around 50% of the current supply of 1,23,000 branded rooms, and by 2020 they will represent 76% of the supply. In terms of room inventory, five of India’s top eight hotel brands are global brands. In 2016, international hotel brands subscribed 11,831 keys, while national brands subscribed 4,781 keys. In 2017, international brands booked 8,868 rooms, while national chains booked 7,152.
The trend of expansion of international hotel chains was due to the fact that international hotel chains only manage hotels. While Indian hotels focused more on owning and operating their hotels. Rising land costs and rising debt levels were also major concerns for local hotel brands. These require them to adopt an asset-light mode of operation and rely on expansion through management contracts.
Recently, local chains have started to turn to management contracts and franchise models as a growth model that gives them a strong competitive advantage over international chains.
International hotel companies currently dominate the luxury space, but have yet to achieve the same level of success in the mid-market/budget space. As India’s middle class grows, disposable income rises and aspirations change, future growth will come from mid-market/budget segments for brands that can aggregate or expand their capacity with the right economic conditions as and when. as the next million rooms are built.
Non-metros are the next battleground for national hospitality players against international chains. While there are many opportunities for hotel development in India’s key cities and micro-markets, hoteliers are focusing on Tier II-III cities to meet the growing demand, especially with an increase in inner journeys. And Indian chains have easily penetrated these markets.
Major Indian hotel companies have also changed their profit strategies. They have been forced to reduce their assets, either by selling some properties to reduce debt or by combining owned and managed hotels. The truth is that hotel businesses around the world have shifted from owned to managed offerings, and the evolution of Indian businesses in this direction was only natural.
Playing on legacy is a good strategy as Indian hotel businesses are deeply rooted in the local environment and have a solid understanding of local markets, guest behavior, business cycles and trends. This provides them with the tools they need to compete against international competitors that bring global best practices, loyalty programs and reservation networks.
Local chains have tried, among other things, to revamp their digital channels and reservation systems to compete with foreign peers and online travel agents, who are both a boon and a bane to the hospitality industry.
The domestic hotel industry faces many challenges. The GST is a major deterrent, with serious ramifications for tourism. Moreover, several Indian tourist destinations are overcrowded. However, demand should catch up with supply within two to three years. With this in mind, an increase in competitive intensity becomes even more critical.
Loyalty programs are definitely a key growth driver for international brands which can also be a game changer for international brands. Local players are still in their infancy in terms of global realignment vis-à-vis loyalty programs.
One of the biggest benefits of partnering with a national brand is a lower overall operating cost. National brands have a broader market presence and better penetration in small businesses and local businesses, as well as national travel agencies. National brands have a better understanding of the local essence, which allows them to cater to domestic travelers. Since domestic brands have been around much longer than international brands, their penetration and presence is now greater in Tier II and Tier III cities.
With India’s GDP growing at one of the fastest rates in the world and not even approaching its potential, and a shortage of hotels to meet the needs of domestic and international travellers, the hospitality industry is ready for a wild ride.
The author is the founder and CEO of Cygnett Hotels & Resorts.