International hotel chains make a beeline to India

As the number of middle-income families going on domestic vacations and business travellers on a tight budget keeps rising, international hoteliers are rushing in to capture the mid-market segment bridging the gap between luxury and budget hotels in India.

The concept of mid-market hotels is relatively new to India. Industry experts say there exists a whole range of tourists between the budget travellers and the well-heeled.

The bulk of leisure travellers are from the middle class and a large proportion of corporate travellers in India is mid-level executives. They want all the trappings of a luxury hotel but at an affordable price.

"With companies continuing to be more cost-conscious, and leisure travellers looking for value-for-money options that do not compromise on quality, there is a clear gap in the mid-scale market," said Chris Moloney, chief operating officer, South West Asia, Intercontinental Hotels Group (IHG).

One of the key drivers behind the booming Indian tourism, Moloney told IANS, was the burgeoning numbers of middle class "which has incredible headroom for growth".
A recent survey by the Confederation of Indian Industry and PricewaterhouseCoopers also identified the mid-market and budget segments as growth areas.

IHG has signed a joint venture with Duet India Hotels Group (DIHL) to develop 19 new Holiday Inn Express hotels in more than 12 key cities by 2016 to cater to this segment.

"We have taken 24 percent equity stake, making a multi-year investment of $30 million into the partnership," said Moloney.

According to the data released by the government's tourism department, 740.21 million Indians travelled inside the country in 2010 (up by 18.8 percent against 2009) while foreign tourist arrivals (FTAs) were 5.78 million (up  by 11.8 percent against 2009). These numbers are expected to go up to 1,451.46 million and 11.24 million respectively by the end of 12th Plan.

In comparison, the country has just 15 percent of its 117,800 hotel rooms that fall under the mid-market segment, compared to 43 percent in the United States and 35 percent in Britain.

"There is a huge demand-supply gap in the Indian market. And with increasing opportunities even in tier-II and tier-III markets, I am optimistic that by 2015 all the international brands will be in India offering services at different price points," said P.R. Srinivas, senior consultant, research and advisory firm Deloitte.

Mid-market hotels, which bridge the gap between luxury and quality budget hotels, are also a win-win proposition for owners and operators because of lower cost of construction and services, especially in smaller cities.

Sonia Mohindra, director, Under One Roof Hotel Consultants, said the cost of land was far more cheaper in smaller cities. Land was also more easily available there as compared to the metro cities, which is driving these international chains to establish their business in the mid-market segment there.

Srinivas also said big brands were venturing into India because of China, which he said had already achieved its peak with over one million rooms. "In a product life cycle, if international chains feel they have set up enough hotels in the market, they will go to other markets."

Brand building was another major reason for international hotels venturing into India. "A majority of customers who pay Rs.4,000 or Rs.6,000 for these rooms are frequent foreign business travellers. These hotels find it easy to give them a taste of their services in India, so that when they go abroad their brand loyalty exists," said Srinivas.

Last month Starwood Hotels & Resorts Worldwide, which  operates 33 hotels under brands such as Le Meridian, announced setting up of  20 new hotels by 2015.

Another top global hotel chain, Accor, has also said it will launch over 80 hotels in India by 2015. It currently has nine hotels under the brand name Mercure, Ibis and Novotel.