The Indian hospitality industry has metamorphosed from the days of dominance of traditional luxury hotel brands to the growing mid-market and budget hotel segment in the past few decades.
P.K. Mohankumar, Managing Director and Chief Executive Officer of the Ginger hotel chain, run by Roots Corporation Ltd, a unit of Indian Hotels Co Ltd, talks to Business Line about the evolving hospitality sector, the growth in various segments and the challenges before the sector.
Mohankumar has been associated with the hotel industry for about 40 years in most segments of hotel groups.
He started his career with the flagship hotel, Taj Mahal Palace, Mumbai, in 1974.
How has the hospitality sector grown in the last few decades? How did the restructuring of various categories of hotels like luxury and mid-market happen in India?
The birth of hospitality industry happened in the 1960s in a structured manner. A few legendary hotels like The Taj Mahal Palace Hotel in Mumbai and the Great Eastern Hotel in Kolkata were the iconic ones that were present during the British era. These were the few hotels that used to receive overseas visitors. The sector grew after India became a Republic. Growth in tourism sector and the concept of hotel as a business sector came up only in the 1960s.
At that time, hotels catered to only overseas tourists and visitors. Tourism was looked at as a source of foreign exchange earning and a source of income and employment in India.
Most overseas tourists came from the affluent West, who demanded upscale luxury property. Demand obviously creates supply. At that time, luxury hotels mushroomed as that was what India needed to address the overseas tourists’ demand.
The luxury segment of hotels grew and anyone who wanted to get into the hotel business started with five-star hotels.
There was no such thing as a four-star hotel in the 1960s.
The Taj, the Oberoi and ITDC (India Tourism Development Corporation) were the major players that were present in the hotel industry sector at that time.
ITDC opened up avenues for other private hotel operators to expand in places like Kashmir and Kovalam.
In the years that followed, the metro cities of Delhi, Mumbai, Kolkata and Chennai which were the gateway cities to India, saw many luxury hotels come up. These luxury hotels also catered to the MICE segment. This nascent industry grew in the luxury category in the metro cities till the early 1980s.
At that time, hotels only catered to the high-end luxury travellers. India became the most expensive destination during that phase. There was also a monopoly in the hotel industry with the absence of foreign players in the sector. The liberalisation move and free market economy of the early 1990s brought about a change in the sector. A whole lot of new players entered different sectors.
The natural outcome of that was the growth in overseas tourists, not just tourists, but also business travellers and investors. While the demand grew, there was inadequate capacity in the hotel industry, which resulted in room tariffs going up.
Bangalore was the best example for that. Room tariffs shot up from Rs 300 to Rs 1,000 within a period of one month. In the 1990s, major IT companies came up in Bangalore. This threw up a huge mismatch between supply and demand. It was much cheaper to stay in Chennai and travel to Bangalore for meetings.
The hospitality industry went through major transformation during that time and there was restructuring at different levels. However, it took a while before the international hotel brands looked at India and for them to realise a market for luxury and mid-market hotels in India.
What was the impact of 26/11 on the hospitality sector and how did it bring about a change?
The year 2008 was the best time for the hospitality sector, because there was a huge demand and less supply. Most hospitality companies were making good profits as a result of this. Occupancy levels were over 80 per cent. However, international communities felt that India was an expensive destination. We had fewer rooms in India than Upper Manhattan or Singapore. The cost of land was very high here and hotel projects were slow to come up.
But after 26/11, the heavy dependence (almost 60 per cent) on overseas travellers emptied out the hotels in India. That’s when the hotel industry got together to figure out a way to survive and the survival strategy came in the form of the domestic market.
At that time, domestic travellers were dependent on unbranded category of hotels as they could not afford the luxury ones. So, if one had to go to Coimbatore or Mysore or Chandigarh, there was no presence of branded hotels there. In fact, it was cheaper to go and stay in Bangkok or Kuala Lumpur than many places in India. Therefore, the need to develop mid-market and budget category hotels developed.
The price structure of hotels was revamped. Hotel groups like Taj and Oberoi introduced differential rates for Indian travellers to cater to the domestic market.
These were the major milestones in the hospitality industry that churned the sector.
When did the MICE (meetings, incentives, conferencing, exhibitions) segment take off in India and how did it affect the hotel industry?
Opening up of airports, entry of new airlines and the new generation of modern Indian travellers who were in their 20s and 30s spurred the growth of the MICE segment. Domestic travel started growing in leaps and bounds during that time, which in turn created a need for branded hotels in differentiated segments such as upscale, mid-market and budget hotels. But since major hotel groups of India did not restructure their brands in new segments, domestic family brands came up like The Orchid and The Park group of hotels.
How did the Taj group enter other categories of hotels?
Changing demographics and growth in domestic travel created a need for the Taj group to also enter other categories of hotels. We launched The Gateway brand of hotels, Vivanta by Taj and Ginger group of hotels and discovered new segments in the hospitality space. However, the sector is still evolving. Over the last 20 years, the industry gave shape to different segments - the upper upscale, upscale and mid-market and budget segments. Slowly it is evolving into creating clear differentiated products for each segment.
When did the international hotel groups foray into the domestic market? What are the implications?
It took a while before the Government of India opened up the hospitality sector. Even today, FDI has not really come in a full-fledged way in the sector. Fifty one per cent of Indian holding is required in any project. That in a sense gave the major domestic hotel groups to expand and occupy prime locations in every city in India. International hotel brands started coming up in India only in the last 10 years. But many of these groups, especially from the US, have deep pockets.
They played the waiting game for a while and observed how the growth in the sector happens in India. They came up with premium products so that they can create the differentiation and dominate within the hotel segments. For example, a Courtyard by Marriott in India will be a superior product than the same brand in the US. Mergers and acquisitions have not really happened in the Indian hospitality sector. This is because most international hotels expanded in India through asset-light management contract routes. The question is whetherthe existing Indian hotel groups can match up to the huge international hospitality giants coming here with their massive loyalty programmes.
The Indian major brands will face this difficulty where they will see overseas travellers preferring international hotel groups in India, who give them mileages through loyalty programmes internationally. There could be a major shift of preference, which will be challenging for the Indian hotel groups.
What are the challenges before the hospitality industry?
Lack of proper infrastructure is one of the hindrances to the growth of the hospitality sector. India is a country blessed with beautiful locations for attracting overseas travellers and holidaymakers. But infrastructure growth has been sluggish. Availability of low-cost land in prime space for development of hotels is another major challenge. Approval process should also happen within a three-month window period.
But today, it takes a minimum of 24 months to open a 100-room Ginger hotel. A luxury hotel would take about four years, with all the environmental clearances and licences to get. The construction industry also needs to modernise itself and bring in a lot more technology to match up to the international quality. Today, the industry is dependent on specialised architects from overseas which again increases the costs.
The industry is also dependent on the import of a lot of operating equipments from overseas, especially on countries like China. So the Indian hospitality industry is still very nascent and it is evolving, especially in the allied services industry.