“The supply of ‘Margarita, The Benjamin’ with a composition of a special Cuvee of Grand Marnier… finished with Louis XIII Cognac… is limited, but the demand is getting up. Let’s have some tequila shots instead!” – were the words of a hospitality consultant explaining the shift towards the fertile markets of Tier II cities to keep up the demand. While the hospitality business is moving to Tier II cities to tap the growing demand, better connectivity & infrastructure, advent of MNCs and rising lifestyle of middle class in Tier II & III cities have opened new markets not only for hotel chain operators but also for the cleaning industry. Suprita Anupam explores…
Slowing economic conditions posed a threat to the hospitality industry with occupancy rate dipping in the last few years. HVS Hospitality Services, a leading consultant, estimates that while hotel supply across major cities witnessed a growth of 15% in 2011-12, demand exhibited a strong increase of 12% during the same period. Thus, although nationwide occupancy decreased in 2011-12, it is vital to note that it was primarily due to supply pressure and not due to an absolute decrease in demand.
The influx of business class hotels in smaller cities accompanies quality service in tune with the guest’s corporate lifestyle. Maintenance and cleaning go hand in hand. Do cleaning schedules and maintenance standards differ in Tier II city hotels? Well, it differs from hotel to hotel, while Marriott invests highly in property, the cost of expenditure on cleaning and maintenance is much the same between 4-5%, be it in Tier I or II city property. However, chain of hotels like Ginger on an average incurs a spending of 16% of the total cost in Tier I cities and 19% in Tier II cities.
New Market Equations
Each property is distinctive and designed keeping in mind the local flavour and charm.
It provides everything you need to work productively… all at an exceptional value
– Vijay Sethi
In the past five years, margins have dropped from 37% to 18%. In Tier I cities, the uncertain demand owing to the dropping growth rate of foreign tourists, travellers & meetings, interviews, conference/conventions, events (MICE) activities has majorly contributed to the downslide. Explaining the shift towards smaller cities, Vijay Sethi, Chief Operating Officer, Berggruen Hotels Pvt Ltd avers, “The Tier II & III cities are rapidly emerging as business hubs with substantial development in connectivity from Tier I or Metro cities. Therefore, these cities are increasingly becoming a popular choice for business development given lower land cost and unit cost of power supply. Eventually it is a potential business proposition that supersedes the decision making to venture in these cities.”
World’s largest hotel group, Wyndham Group has announced plans to expand its presence in India with a non-exclusive development agreement to launch the iconic Howard Johnson® brand in India with 3,000 rooms across 35 new properties by 2017.Eric Danziger, President and Chief Executive Officer, Wyndham Hotel Group says, “Given the rise in tourism, the hospitality segment in India is full of growth opportunities. Expansion in Tier II and III cities is very important and franchising work extremely well in such market places.” The most important factor to consider while expanding in these cities is to find the right property, or a location to put the right brand depending upon the consumer demographics that are driving the franchise business in that particular market place.
In smaller cities, branded hotels too are getting affordable, Indian Hotels Ltd with Ginger and Gateway brands, Wyndham with Ramada, Royal Orchid, Marriott are no more secluded from the middle class developments.
PRP Ramakrishnan, Area Director of Engineering-India, Maldives, Singapore, Malaysia and Indonesia-Marriott International Inc says, “We are exploring our presence through Fairfield and Ritz Carlton as well. Our presence in India is scheduled to grow from 22 to 50 in the next four-five years.”
Some of the benefits that smaller cities offer over the Tier I cities are low investment costs in terms of infrastructure set up or rental costs; easy and cost effective marketing with low competition, marketing & promotional expenses, wider reach; and easy labour availability at low cost. Given the beneficial factors and the demand for cleaning and maintenance with the growing hospitality segment in Tier II & III cities, establishing the cleaning business in smaller cities is more productive and cost effective.
Factors influencing the shift:
• Uncertain demand conditions from Tier I cities
• Supply additions – The year 2012 saw an addition of around 9,000 branded rooms – representing an increase of around 11% over the previous year and 138% since 2006-07.
• Negative outlook for the hotel industry during 2013-14
• Increased down-cycle, which has now stretched to five years compared to the one-two years of global hotel industry cycles
• Sharp decline in RevPAR
• Slow growth of International tourism: As per the latest ICRA report, the Q2 growth rate of foreign tourists arrival in 2013 has been around 2.82% which is quite low compared to the 8% of the last year, over the same period.
• Healthy domestic demands from Tier II & III cities
• Globally weak macroeconomic scenario
• European sovereign debt crisis
• Geo-political turmoil in the Arab countries
• High interest rates, inflation and a muted domestic corporate performance sapping the industry’s ability to sustain inflation and adjusted Average Room Realizations (ARRs).
Expansion of Global hotel chains in India
| Brand present in India | Existing Hotels | Planned Hotels | By | Some of the development partners for India | Expansion category | New Brands being launched in India | |
| Inter Continental Hotels Group | Holiday Inn hotels & Resorts, Crowne Plaza Intercontinental | 12 | ~150 | 2020 | Deut Hotels (with equity infusion), Nama Hotels | Mid Market | Holiday Inn express |
| Wyndham Hotels | Ramada, Days Inn, Dream | 14 | ~60-70 | 2017 | Chatwal group, non-exclusive development agreement with Unique Mercantile India Private Limited | Mid Market | Howard Johnson |
| Marriott International | Courtyard, Renaissance, JW Marriott, Marriott, Marriott Hotels and Convention Centre, Marriott resort & Spa, Marriott executive apartments | 22 | ~50 | 2015 | SAMHI Hotels Private Limited-a hotel and investment company | Across segments | Fairfield, Ritz |
| Hilton Worlwide | Hilton Hotels & Resorts, Hilton Garden Inn, Double Tree by Hilton, Hampton by Hilton | 8 | ~50-60 | 2016 | Eros Resorts & Hotels | Luxury/ premium and mid market | Hilton’s full-service brands-Hilton and Double Tree, as well as its mid-market, focused-service Hilton Garden Inn and Hampton. The company also plans to introduce its luxury Conrad and Waldorf Astoria brands |
| Accor Group | Ibis, Mercure and Novotel | 13 | ~90-100 | 2015 | Exclusive agreement with Interglobe Enterprises Limited (with equity infusion) for Ibis properties. Formule 1 properties to be owned by Accor. Non exclusive agreements with Shree Naman developers and Brigade group | Luxury, mid scale and budget | Formule 1, Sofitel and Pullman |
| Choice Hotels International | Quality,Comfort,Clarion | 27 | ~100 | 2017-2018 | Royal Indian Raj International Corporation(RIRIC) | Mid Market | Sleep Inn, Cambria Suites,Econo Lodge |
| Best Western International | Best Western, Best Western Plus | 34 | ~66 | 2017 | – 3/ 4 and 5 star | Best Premier | |
| Starwood Hotels | ITC luxury Collections, Le Meridian, Westin, Four Points by Sheraton, Sheraton Hotels & Resorts, Aloft | 33 | 50-60 | 2015 | Non-Exclusive Master Agreement with D.I.H (Cyprus) Limited (an affiliate of Duet India Hotels Ltd.) and JHM Interstate Hotels India Pvt. Ltd, Jaguar Buildcon Private Limited | Across segments | St. Regis, W |
| Hyatt Hotels Corporation | Hyatt Regency, Grand Hyatt, Park Hyatt | 8 | 50 | Hyatt Place, Hyatt House (extended stay) |
India has an estimated 170,000 hotel rooms of which around 60,000 are branded. Even with the expected addition of another 60,000 hotel rooms (across segments) over the next three to five years, the industry is expected to fall short of meeting the long term demands of an economy growing at 7-9% p.a.
– Indian Credit Ratings Agency (ICRA)
Talking about the Indian brands expansion plans, Anirudh Katre, Senior Associate, HVS Hospitality Services says, “To keep pace with the international offering, Indian hotel companies too, have jumped on the bandwagon of lower positioning hotels. The Taj Group with its Gateway brand, ITC Hotels with its Fortune Hotels brand, Sarovar Hotels with their Portico and Hometel brands and Royal Orchid Hotels with their Regenta Central brand are competing head-on with their international counterparts and have seen the addition of several properties in smaller cities across the country.” P K Mohankumar, MD & CEO, Roots Corporation Ltd (Ginger Hotels) says, “We have major plans for growth and expansion over the next three years and Ginger plans to open and grow from the current 2700 to over 8000 rooms by 2016-2017. We are observing a trend in the mid-market segment wherein primarily the business travellers, the SMEs and the unorganised sector business people are moving to newer towns and cities owing to business investment and expansion. This fits in very well with the Ginger strategy which offers branding products and services to this segment.”
The real potential growth of India now lies in tier II & III cities. Marriott with its different brands is set to establish its wings at Amritsar, Thiruvananthapuram, Raipur, Bilaspur, Agra and other smaller cities.
– PRP Ramakrishna
Tapping the Untapped
In the past five years, while the big cities such as Bangalore (74-59%), Hyderabad (63-55%) or Mumbai (80-73%) have shown a big drop in occupancy, small cities such as Kochi (75-81%), Bhopal (70-76%) have registered a positive demand despite the increased supply.
Anirudh opines, “The decision to develop hotels in any city is determined by the demand and supply scenario in the city and the type of product, corresponding development costs and expected ROIs from the project. Most small cities in the country are in a growing phase either from a Commercial or Industrial standpoint or from a leisure demand perspective. Should the city attract a fair quantum demand from either of these segments, it would perhaps make sense to develop a hotel project there. However, if the location is remote or unique, an inward looking development that makes the proposed hotel/resort a destination in itself may also be considered. Some hotels/resorts currently located in locations like Rishikesh, Kanha and Ranthambore are examples of the same. Additionally, a large scale convention centre development will more often than not induce demand in any market given the lack of quality large scale convention facilities in the country.”
We are observing a trend in the mid-market segment wherein primarily the business travelers, the SMEs and the unorganized sector business people are moving to newer towns and cities owing to business investment and expansion.
– PK MohanKumar
So, which are the smaller cities that have been the main attraction for the hospitality sector & why? Anirudh says, “Smaller Indian cities like Jaipur, Agra, Chandigarh, Surat, Kochi, Udaipur, Vadodara, Vizag, Amritsar, Shimla, Indore and so on already have a fairly large inventory of branded hotel rooms. These cities are either important destinations from a leisure demand point of view or are developing Commercial or Industrial zones that cater to demand from the Commercial segment. Going forward, as these smaller cities continue to develop and evolve, we anticipate hotel demand and supply to keep pace with each other.”
Markland Blaiklock, Senior VP, Sofitel Asia Pacificcounts the reason behind, “The growth in Tier II cities offer large untapped potential, as they already possess the basic amenities required to establish businesses. The ample availability of resources like land, skilled labor with the provision of connectivity helps set up shop for service providers. A 2010 study on these emerging Tier II cities of India by the UK Trade & Investment Board gives a summary of why developing partnership with companies in these cities would be beneficial in the long run.”
The growth in Tier II cities offer large untapped potential, as they already possess the basic amenities required to establish businesses.
– Markland Blaiklock
Cost management & Quality Assessment
Brands throughout the world maintain a certain level of quality in service delivery which adds a significant extra amount to the guest pocket which middle class Indian people still won’t be able to pay. Talking about the cost management practices done at Ginger Hotels, PK Mohan Kumar avers, “We are creating a culture of cost management in the system. We employ austerity measures across various departments such that there is smooth functioning of the hotel without compromising on the service quality.Some of the initiatives are cost-cutting in payroll, energy conservation and getting the right source of funding.
Tier II & III cities lack Cleaning & FM suppliers
While shifting its base to tier II & III cities, hotel operators’ priorities change, cleaning and maintenance department has to deal with new problems such as the lack of desired manpower, lack of the availability of right cleaning equipment, chemicals, and accessories. In case of budget hotels with 24 hr working environment (in three shifts), outsourcing the facilities has become a need to fulfil the demand within the budget assigned. Surface cleaning has been practiced once a day while super cleaning, a thorough cleaning of everything done at weekly basis. Budget hotels have to practice all this to cut the ARRs particulary when they are located in smaller cities.
After having worked at budget hotels as well as five star hotels across the country, Manish Jain, Executive Housekeeper – The Lalit, New Delhi avers, “ Five star hotels essentially prefer not only skilled but well-educated manpower which is difficult to meet in tier II & III cities. Getting the vendors and necessary equipment are the other hurdles that need to be addressed as it delays the hotel routine at times.”
Hence easier the cleaning companies and suppliers extend their availability in Tier II & III cities, sooner will they be able to tap the market.
Markland speaks about the Sofitel practices and its sustainability through maintaining the excellent services, “Sofitel’s strength lies in its French heritage amalgamated with the local culture which helps us build our own brand differentiation and identity. We are focused on keeping our ear to the ground and delivering excellence be it in terms of F&B, design, MICE facilities or cultural events.”
With QoS ↑ Here Comes Cleaning & FM Industry
In five star hotels, Quality of Service (QoS) comes from their turned down services – the kind of Wine, Martini they offer to their guests – with a blend of their own culture or tradition which guests are willing to experience. “Each property is distinctive and designed keeping in mind the local flavour and charm. It provides everything you need to work productively, maximize down time, eat well and sleep soundly, and keeps your stay going smoothly, all at an exceptional value,” says Vijay.
It’s difficult to calculate the exact figures as rooms’ expenses include cleaning expenses, f&b expenses include cleaning expenses ….. Repairs & Maintenance charge for a stabilised property can range from anywhere between 4-5.5% of the gross hotel revenue depending on the positioning of the hotel.
Anirudh Katre
“Value-added features hotels offer today are inclusion of breakfast and wi-fi access in the room rate. Additionally, some hotels may offer airport or office transfers, discounts on laundry, F&B, and other hotel services and so on,” says Anirudh.
Ramakrishnan says, “At Marriott, we are the highly managed, profit oriented team managing the best of QoS. To keep altogether intact, we are now outsourcing parts of facility services such as laundry. With modern design and amenities, Marriott is known for providing consistent and reliable service at an exceptional value. We provide frequent travel programs that allows members to earn hotel points or airline miles for every dollar spent during each stay.”
All this abuzz, Hospitality sector might play the role of harbinger with over 300 brands coming to India with a projected investment of over US $200 billion creating US $10 billion business for Cleaning & FM Industry.