Budget Hotels Give Supply Shock to the Hotel Industry

The industry needs promise getting delivered, which will help to earn the customers' loyalty and stabilize the market

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By Madhurima Roy


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The concept of a budget hotel has changed the country's hospitality industry. Being a country with a population in billions, people grasp every opportunity and blend it with ideas of their own to their advantage.

Previously, people mostly used to visit places where they have relatives. However, that has altered over the years. Now, other than families, couples, friends and solo travellers travel very frequently. Efficiency will be the mantra for the coming years. A rise in domestic tourism resulted in individuals to convert their homes, apartments and look-alikes into hotels. They are cheap but come with many compromises. Since they are not designed to be hotels, several of these buildings are not even fire-compliant and many a time they are entirely illegal. But customers don't know about all these because they avail online bookings nowadays. The rapid yet random emergence of hotels has also led to a supply shock in the sector and it will take some time to cool down. Until things stabilize, this imbalance in the demand and supply quotient will continue to persist.

Keshav Baljee, the Managing Director of Spree Hotels and owner of Royal Orchid hotels from his more than a decade's experience in the hotel industry, points out that the situation was very different a few years back, especially when internet and smartphones were not in everyone's hands. "You couldn't discover the non-hotels before. Earlier hospitality meant only hotels. But now it includes home stays, serviced apartments and guest houses. Staycations have also started." he says.

In a discussion with Entrepreneur India, Baljee elaborates more about the altered picture of the hospitality industry and its potentials.

Rise in the Domestic Hospitality Sector

Technology has been the biggest disruptor in the industry. Technology is powering all hotel bookings. With the emergence of smartphones and rise in the availability of the internet, online travel agents have come to the fore with their apps and websites. They are the actual disruptors of the industry. "Now, you just don't enter a hotel and say, 'Hi! I want to book a hotel room,' "states Baljee.

It has reduced the requirement of manpower and cost and in turn, increased efficiency. Positively, they have allowed a lot of people to make hassle-free bookings from anywhere and anytime. Comparing with the previous scenario, Baljee recalls, "There was a time when you had to make bookings by calling the hotels directly and you had to visit travel agents for every booking. This has also reduced the frictions in hotel bookings, meeting travel agents, waiting for a day or two only to get your booking confirmed. But as we have gone online it has become convenient, seamless and instantaneous."

The second factor that has also assisted in the enhancement of the sector is that the customers now are very price sensitive as they can now easily check and compare prices online. 10-12 years before discounts were not much of an option, but now it has become widely prevalent everywhere. There are now so many non-hotels competing with the actual hotels that price competition has also increased. It has been a boon for the tourists and has eroded a lot of the profit margins for the hotel industry.

The recent years have seen a rise in hyper-funded venture start-ups. These hyper-funded VC-backed companies are obviously giving cash back and discounts. There are wallets and tie-ups for which the customers get discounts and this also stimulate certain amounts of demands. Discussing the price-sensitivity, he highlights, "It is undoubtedly creating quite a bit of demand but at the same time, customers get unrealistic ideas and they think for INR 699 or 799 they will get hot water, sumptuous meal, wifi, etc. But they don't understand that at this price the actual hotels cannot offer anything because it is lower than the running costs of the hotels."

Adding to the competitive distress of price, he says, "But hotels can't compromise on the costs. So, we figured that unless we are significantly reducing the expenses behind employees, HR, electricity, water, rent, real estate, we can't do anything. But some of them are very sticky and is very difficult to fix."

However, as every hiccup has a solution, he indicated that there are some "cool innovations" going on, where hotels have condensed many of the operating costs to stay competitive in the market.

A Skillful Construction of the Hospitality Industry will Also Help in Nation-building

The hospitality industry is very much reliant on tourism. India has all the necessary elements that are required for thriving tourism industry. It has historical places, beaches, mountains and forests, everything that's needed to scale up tourism. Yet the country's tourism story has a long way to go. Although in the domestic front the industry has grown, when it comes to foreigners visiting the country, it will need certain restructuring. "Tourism in India is ready to serve kind of industry. We have countless tourist places, buildings and monuments. The industry has survived some serious blows like a recession, slow down, a spike in oil prices; yet it has marched on. The industry needs a bigger nudge." Baljee points out.

What he sees, there is the need of some sort of government supported manpower training. Talking about the need of the hour, he states, "I would argue hospitality can be the largest industry manpower sort of industry in this country. We need a stable source of manpower. As much training and team building, what we are doing it is insufficient.

All we need right now is manpower because massive wage inflation is going on and we are unable to retain them because all the trained personnel go to retail, airlines, BPO, etc."

He sees the country's soaring population not as a problem but as an opportunity. Population in billions means billions of probable entrepreneurs, who can adopt the right model and strategy to enter the sector and upgrade it. Then the whole scenario can be revamped merely in a few years. And, finally, with the hoteliers arranging the most reliable, consistent hotel experience for the guests, the hotels will be able to build a strong band of loyal customers, who won't think twice to come back again and again even when a hotel has a comparatively higher price. "Promise getting delivered is the most essential element customers look for and that earns loyalty," Baljee concludes.

Madhurima Roy

Senior Correspondent, Entrepreneur India

A journalist for more than 4 years, I have been covering businesses & start-ups, technology and business leaders. While writing is my only language, I also indulge in dancing, painting,.. and anything creative!

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