Mid Tier Competition in small town India
The 26/11 hit Taj Hotels have two brands competing with ITC’s Fortune and others in the mid-market segments like the Quality Inn. However Only Fortune and Taj’s Gateway have plans to be in the Tier II towns dotting the country’s landscape like the pilgrim towns and those with significant merchant trade. The Taj Gateway for example wants to add 30 new hotels by 2015 in locations like Jalandhar, Mysore, Raipur and Gondia ( Mint – November 18 )
Lalit Suri Hotels and Intercontinental have indicated plans to add 20 hotels each for a budget of Rs 800 -1000 crores(($200-250m). Jyotsna Suri, the current chairperson has indicated that 2-3 are expected live in 2010
The answer is not that simple however. The available accommodation would definitely make a profitable niche but will not reduce the shortage of boarding and lodging nor will it address viability concerns of the Taj and ITC Hotels, not to mention home grown players like East India Hotels and the Club Mahindras.
Indian consumer spending in B towns is definitely slated to pick up and double in every 2-3 years for some time to come, but this country has been in the midst of such boom and not seen enough clientele in this industry yet. Business Travellers and the 5% of GDP that is accumulated by Tourism remain formidable targets to maintain each year even during the good time, Costs of Real Estate, F&B related inflation, wage inflation and the seasonality of tourist arrangements coupled with India’s non voice in international leisure and lifestyle forums , lack of negotiated tarriffs in travel and hospitality all count towards a tremendous dearth of new traffic for any such tourism business. A lot remains to be done and while more and more deluxe 5 star facilities are slowly becoming available because of rush hour and the consequent unavailability that plagues travellers scheduling a trip, too many ventures like the recent Indian Maharaja ( TC/Cox & Kings IPO now open) trains and the 15 year old plans of Gateway and ITC fortune have been non starters. Costs for 5 stars have easily climbed to an average of Rs 5 Crore per room, while the Marriott has managed the same in Mumbai for less tan 3 crore and the Fortune and the Gateway chains have to manage with Room Rents of not more than Rs 800000 to 1000000 per room and 20-30% contribution from F&B implying a 100 room hotel cannot earn a topline of more than $2.7 million a year, a measly Rs 12 crores, a pretty small cake for the employee family. A cosmopolitan venture like Ginger on the other hand would not be acepted easily outside the metros of DElhi, Mumbai, Chennai and Bangalore.
Also a significant competitor to these brands would be Oakwood and Marriott Suites that provide furnished flats for unlimited duration as they would segment that population of expats that need such spacious living and confine their target market to backpack tourists and pilgrimage bound couples/families
Enough of the challenges, however. What we need is the magic wand that gives us a hyper growth market designation in many new markets and use it to extend India’s Tourist traffic to 12-15% of GDP earning us $200 billion plus from lifestyle tourists and business travellers alike in tune with the $225 billion consumers would be spending on Peps i, Dinner and LCD TVs ( and thus excluding what they spend on their dream flat and a big car/Nano) Then we could really witness this property taking off into a new realm and the answer in the B towns lies in that capacity to spend and grow to the higher form of cities as shown during the 2008 recession as well.
Towns like Jalandhar, Ludhiana in Punjab, Jaipur and Agra on the Golden Triangle and such state capitals, heritage and business towns like Ahmedabad, Surat and Nagpur present a unique opportunity for Indian hospitality business to scale up, esp as Indian railways, india’s aviation footprint and the road infrastructure will follow in step with the boom.
Note: The Indian Maharaja with TC, Maharajas Express with Cox & Kings, and the other two luxury trains have started first season bookings quite well and money is being spendt to add gym and pool to the Palace on wheels as well ( More here ) Golden Palace started from Bangalore is not doing so well apparently. The Maharajas Express for example is 84 persons at an average of $1000 per night for a 7 day- 8 night tour between Mumbai and Delhi
Cox & Kings is raising an unprecedented 600 crores from the market in a current IPO at absurd valuations despite 10 months receivables as the listed TC is doing so well, other follow up articles on Marriott, Fortune also at http://india.advantages.us
