Why Indian Hotel Brands are Fast Embracing the Asset-light Model
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Indian industry sector is going asset-light with every passing day! The hospitality sector, especially the hotels are adopting the model fast. From global brands to national star hotels to the mid-segment luxury or budget hotels - the emerging drift is to shy away from property ownership towards just managing and running them. Experts and analysts in the hospitality sector feel that Indian brands were actually compelled to adopt the asset-light model. The ever-rising cost of land and growing levels of debt helped them recognize the need to grow by means of management contracts.
Taking Sole Responsibility of Managing the Properties and Ensuring Growth
Today the global hotel brands are seen expanding at a fast pace as they are taking the sole responsibility of managing the properties and not owning them. Whereas, major hotel groups of India including ITC, Taj, Oberoi, and The Leela, have always been particular about owning and operating their hotels. In a recent move, the homegrown brands have started exploring management contracts as a potential escalation model of business. International hotel brands have championed this model for decades while India is still in an inchoate state.
Kolkata recently got a 281-key hotel with 50-unit services residency (called Vivara) from Nasdaq-listed Marriott International Inc, the world's largest hotel chain headquartered in Maryland, US. The real-estate of Vivara is owned by two major players of the eastern region -Mani Group and Sattva group with a total capital outlay of INR 1200 crore.
Last year the InterContinental Hotels Group (IHG), another Goliath amongst the world's largest hotel chains, also inaugurated its first Holiday Inn in eastern India. Akin to Marriott, IHG partnered with a prominent developer of the region, the Jain Group, in order to come up with their first brand in the eastern part of the country.
Local Brands Follow Suit
Interesting a relatively new hospitality management company of the country is found to be embracing the asset-light model, albeit in a different way. Initiating its journey as an India master franchisee of a well-known US hotel brand the company has moved towards developing its personal brand and is also offering franchise opportunities.
Cygnett Hotels and Resorts, a fast growing hotel brand with six sub-brands in six different categories is now targeting fresh private equity and venture capital funds. It is also aggressively promoting its brand- Cygnett. The company enjoys India master franchisee rights with 'Red Lion Hotel Corporation', the US hospitality group with brands like Jameson Inn & Suites, 'Jameson Inn'.
"We are talking with a number of PE and VC funds. As we get a new inflow of investment into the organization, we will target launching a couple of top-notch properties under our umbrella. This will facilitate further strengthening and upscaling brand Cygnett," notified Sarbendra Sarkar, founder and managing director, Cygnett Hotels and Resorts.
By 2020, Sarkar is planning to launch over 103 hotels with more than 5000 keys in 75 Indian cities. He has also crossed the borders and has forayed into Nepal. If things go as planned he will soon start operations in Bangladesh, Sri Lanka, Middle East, Morocco Vietnam and the Middle East.
The Demand Supply Dynamics
The increasing adoption of the asset-light model by both large and smaller brands is not random. Hotel booking in India is expected to rise by 12 to 15 per cent in next 3-4 years, but the supply scene is not seeing the corresponding growth. Hotel booking in India crossed 60 per cent by 2016 riding on improved market sentiment. Increase in domestic travel coupled with initiatives like Make in India, Digital India and e-visa scheme will, by all means, steer the demand for hotel rooms.
"The expansion of the hospitality industry is pegged on the international travellers who visit India. It is being said that the number of foreign tourists visiting India will reach a 10 million mark by the year 2017 and 15 million by 2020. This will call for another 180,000 rooms in all hotel segments by the end of 2020," opined Tejinder Singh Walia, vice president, FHRAI and managing director, Hotel Walson.
Great Opportunity for Medium-Sized Brands of the Country
A recent FHRAI study states that India has only 103,000 hotel rooms in all categories compared to the Bangkok city which alone boasts of 125,000 rooms. As many as 7.7 million international tourists visited the country in 2014. Whereas according to a Deloitte report the number of domestic tourists in the country stands close to 563 million against the inbound arrivals of five million passengers. The country's sturdy GDP growth strongly indicates increased business travel and hotel bookings.
Whereas another survey by HVS South Asia, the leading global hotel consultancy firm, India, presently, has 125,000 branded hotel rooms, which will increase to 155,000 by 2020. At this time about 50 per cent of these rooms are controlled by international hotel brands. Hence an enormous scope exists for the native brands to escalate.
"Interestingly Beijing has got more hotel rooms than India. Since the overheads of building hotels in the country are fairly humble and the expenditure of buying land per room quite low, there is a great opportunity for medium-sized brands to make it big," concluded Partha Roy, Owner Dreamland Group of Hotels.