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Taj, Oberoi under pressure from foreign hotel chains

Last updated on: July 17, 2012 15:00 IST

Taj, Oberoi under pressure from foreign hotel chains

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Swaraj Baggonkar in Mumbai

Two years ago, Vivanta by Taj, Pune, (formerly Blue Diamond) sold its base inventory at Rs 17,000 per night. The same room is currently being offered at Rs 5,850 per night. Part of the cause for the correction could be competition from Marriott International, which opened a premium property within 6 km and offers rooms starting at Rs 5,900.

The influx of such international hotels chains into India over the last two years has led to a sharp correction in room rates, not just in Pune but also in other hot spots like Bangalore, Mumbai, Delhi and Goa.

Marriott, Hyatt Hotels Corp, InterContinental Hotels Group (IHG), Hilton Worldwide, Accor SA and Starwood Hotels and Resorts Worldwide, which are already present in India, have joined hands with several developers and investors to open scores of properties across the country.

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Photographs: Courtesy, Taj Group of Hotels

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Estimates compiled by market research agency Icra and the industry suggest more than 850 new properties will be opened in India by these international hotel chains over five-eight years, adding around 65,000-100,000 new rooms to the existing capacities.

"India has often been cited as one of the most lucrative albeit difficult markets to develop properties in with a long development cycle of three-five years, adding to the cost. Despite this, India houses all the big hotel groups in the world. Of the top 20 global brands, around 18 brands are already present in India," an Icra note said.

Taking note of such hurried activities, two of India's leading hotel groups -- Oberoi and Taj -- have cautioned shareholders in their latest annual reports about the intensifying competition in the coming days.

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Photographs: Courtesy, Taj Group of Hotels
Tags: Oberoi , India , Icra , OIndia

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"There are some immediate concerns with major international brands expanding their presence in India. In the luxury segment, supply exceeds demand in several cities," an analysis in EIH Ltd's annual report said.

EIH operates hotels and cruisers under the luxury 'Oberoi' and five-star 'Trident' brands. EIH presently has 20 hotels in India under both brands.

Similarly, the Mumbai-based Taj Hotels Resorts and Palaces, which mainly operates through four brands and 93 properties in India, is expecting the increased presence of international hotel chains in the domestic market to impact its operations.

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Photographs: Courtesy, Oberoi
Tags: EIH Ltd , India , Oberoi

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Indian Hotels Co Ltd (IHCL), which owns the Taj Hotels brand and other brands such as Vivanta by Taj, Gateway and Ginger (through Roots Corp), is heavily dependent on its luxury inventory for revenue generation.

"The Indian subcontinent, Southeast Asia and AsPac (Asia-Pacific) with high growth rates have become the focus area of major international chains. Several of these chains have announced their plans to establish hotels to take advantage of the demand supply imbalance. These entrants are expected to intensify the competitive environment," said IHCL's latest annual report.

International hotel chains are not just targeting the luxury and premium segment, but also the upscale, mid-scale, budget and upper budget segments. Some of the brands are also funding their expansion, a break-away from their traditional model of going only the management route.

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Photographs: Courtesy, Oberoi

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For instance, the US-based IHG and Marriott are pooling funds in separate joint ventures with Indian groups for setting up a chain of Holiday Inn Express and Fairfield branded hotels, respectively. These two brands operate in the mid-scale category.

"Despite its size, India's tourist inflow is paltry. This number is expected to increase in coming years with improving infrastructure. International travellers are accustomed with these international chains and so it will be difficult for Indian chains to break into their league," said a hotel expert.

However, to fight competition, both Taj and Oberoi are looking to add newer properties, ranging from the budget category to luxury.

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Photographs: Courtesy, Taj Group of Hotels
Tags: Oberoi , IHG , Marriott , US

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EIH will open two hotels in Hyderabad with a total inventory of nearly 550 rooms. A jungle lodge in Karnataka and two branded residence will also come up.

IHCL will open new properties at Lonavala (Maharashtra), Guwahati (Assam), Dwarka (Delhi), Gurgaon (Haryana) and Coorg (Karnataka) will open under the Vivanta banner. Further, 10 hotels will be opened under the Gateway brand and 65 under the Ginger brand.

"The success of the Taj Group will be dependent upon its ability to compete in areas such as room rates, quality of accommodation, brand recognition, service level, convenience of location and to a lesser extent, the quality and scope of other amenities, including food and beverage facilities", added the Taj report.


Photographs: Courtesy, Oberoi

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