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Foreign hotel chains push Indian majors on back foot

By Swaraj Baggonkar
October 20, 2016 13:14 IST
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Marriott-Starwood, Carlson Rezidor and others are winning the tug-of-war for customers with local hotel chains as they add new properties at a breakneck speed.

Marriott’s acquisition of Starwood Hotels has made it the largest hotel chain in the country: with nearly 18,000 rooms. This has upset Tata Group-promoted Taj Group of Hotels’ decades-old streak of market leadership.

Including the budget segment brand Ginger, the Taj Group, which comprises Taj, Vivanta by Taj and Gateway brands, has a room inventory of 16,640.

At 79, the Marriott-Starwood combine trails the Taj Group which has 120 properties -- more than anyone else in India.

However, a further 79 new properties with 16,000 rooms from Starwood and Marriott are set to open in India over the course of next three years, most certainly higher than any other hotel company operating in India. This expansion will make sure the duo remains in the lead and command a lion’s share of the business.

Both Marriott (33 hotels) and Starwood (46 hotels) have seven operational brands each in India across mid-market, upper-upscale and luxury segments. At least 30 per cent (36 hotels) of the Taj Group’s hotel inventory comes from the low-margin Ginger brand as its three premier brands together have only 84 operational properties in the country.

“We have always been very bullish about the Indian market. This is the second most important market for us after China. India has a decade-long growth story ahead of it,” says Rajeev Menon, chief operating officer (Asia-Pacific), Marriott International.

On an expansion spree

Another American hotel giant, Carlson Rezidor, has quietly strengthened its presence in India, to an extent that it dethroned Kolkata-based ITC from the second spot before the Marriott-Starwood deal was signed.

Carlson, which has five operational brands in India, has 77 properties and as many as 40 in the pipeline. The company is believed to have over 8,200 operational rooms in the country, whereas ITC has less than 8,000 spread across four main brands.

Radisson Blu, Radisson, ParkPlaza, Park Inn by Radisson and Country Inns & Suites are the brands operated by Carlson in India. Two other brands Radisson Red and Quorvus Collection will make their debut over the next two years.

Raj Rana, chief executive (South Asia), Carlson Rezidor, says, “While we will have at least 120 hotels operational by 2020, we will have 50 more properties in the pipeline by then.”

The breakneck speed at which foreign hotel companies have grown in India over the last five years has put enormous pressure on their domestic counterparts. As of August, only four Indian companies -- Taj, ITC, Sarovar and Oberoi -- featured in the top 10 list of India’s biggest hotel companies, according to data compiled by research and consultancy company HVS.

There are as many as 15 foreign companies, including Shangri la, Four Seasons, Fairmont Raffles, and Kempinski, to name a few. More companies such as Jumeirah and Mandarin Oriental are set to enter the country. Both Taj and ITC did not respond to a request for comments.

A booming industry

And why is India becoming so hot a destination for international hotel companies? The growth seen by the Indian hotel industry over the past two decades outpaces the growth reported by most overseas markets. From around 120 hotels and 18,000 branded rooms in 1995-96, the country closed last financial year with 887 hotels  having 113,622 rooms.

Further, despite the huge increase in new room addition, the demand for rooms has remained strong. According to HVS, the nationwide revenue per available room (revpar) was Rs 3,512 last year, which was six per cent higher than the preceding fiscal. The nationwide weighted occupancy (63.4 per cent) improved six per cent.

“Based on our city-wise analysis, our research estimates pan-India occupancy of about 60 per cent, with marginally higher average room rates (ARRs) of Rs 5,300 during Q1 FY2017. This trend is expected to strengthen during FY2017 across several markets, barring Kolkata,” says ICRA.

The biggest growth would come from the mid-market and upper-upscale segment where there are brands like Four Points by Sheraton, Courtyard by Marriott, Gateway, Vivanta by Taj and Welcome by ITC, Holiday Inn and Radisson, among others.

Stay with us

Business from loyal members forms a major chunk of revenues for hotel companies. For instance, at least 50 per cent of Marriott’s guests are member of its loyalty/rewards programme. The company has a worldwide membership base of 85 million, making it the largest in the world; of these 1.5 million are in India.

What will hurt Indian hospitality companies more is the loyalty strength of foreign companies. Their rewards programme has already become a top draw for at least corporate travellers. Frequent business travellers usually stay at those hotels with which their companies have tie-ups. Indian hotel companies have scanty presence outside the country and this has restricted growth in their loyalty memberships.

A study by US-based Center for Hospitality Research says that once a guest is signed up to a hotel’s loyalty programme, the frequency of stays booked by that guest at that hotel chain rises by an average 49 per cent. In the case of corporate engagements, the benefits could be several times more.

Foreign hotel companies have expanded in India without investing much in real estate. A significant majority have tied up with developers to run their hotels under a management contract entailing a fixed fee. This has allowed them to remain asset-light and, thus, avoid putting any stress on their financials.

On the other hand, Indian companies such as Indian Hotels Company, EIH and Hotel Leelaventure invested heavily in buying real estate and building hotels. Because of this, they have remained asset-heavy, and have a  strained balance sheet. IHCL and Hotel Leelaventure, for instance, have not reported profits since 2011-12.

Both IHCL and Leela have a debt of Rs 8,000 crore. These two chains have had to liquidate their assets, including landmark hotels in key cities and off-load equity shares in foreign companies, in order to reduce the debt pile.

However, Indian hotels are fighting back. Many are looking at overhauling their loyalty programmes to woo more customers.

The Taj group of hotels, for example, has partnered with Vistara, the airline promoted by Tata Sons, for packages offering 50 per cent bonus points to guests who use both the services. These points are applicable across Taj properties and can be redeemed in other countries too. Taj deposits the points in the accounts of its guests even when the stay is sponsored by their employers.

According to the company, new enrollments have increased four times as a result.

Image: J W Marriot in Mumbai. Photograph: Marriott Hotels.

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Swaraj Baggonkar
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