We will Fo­cus on Man­age­ment Con­tracts for Growth: Oberois

The Economic Times - - Business Of Brands -

Nearly 13 months ago, Vikram Oberoi took over the cor­ner of­fice at EIH (for­merly East In­dia Ho­tels) from his leg­endary hote­lier fa­ther PRS Oberoi. Un­der him and cousin Ar­jun Oberoi, joint man­ag­ing di­rec­tor for de­vel­op­ment, the group has charted out an ag­gres­sive growth path for both The Oberoi and Tri­dent brands. Vikram Oberoi, Ar­jun Oberoi and group pres­i­dent Kapil Cho­pra talk about the group’s fu­ture plans in an in­ter­view to Di­vya Sathya­narayanan. Edited ex­cerpts:

In the first few months af­ter tak­ing over as MD, what have you tried to change and what parts have you left un­touched? VIKRAM OBEROI: In our 75-plus years, what we have said is, let’s fo­cus on our guests, let’s fo­cus on our peo­ple and let’s al­ways do what is right. Let’s fol­low the val­ues that were started by Rai Ba­hadur Mo­han Singh Oberoi, re­in­forced by Mr PRS Oberoi and now en­shrined in our Dharma (The Oberoi code of ethics). When we have to take dif­fi­cult de­ci­sions, our ap­proach is al­ways to take the right de­ci­sion, not the eas­i­est de­ci­sion.

Tourism has been one of the main fo­cus ar­eas for the govern­ment and a slew of new ini­tia­tives were launched in the past year. Do we see any changes on the ground? VIKRAM OBEROI: We have an in­cred­i­ble country, huge di­ver­sity, so much to see and ex­pe­ri­ence. The ques­tion is what can we do more to com­mu­ni­cate how spe­cial and won­der­ful In­dia is to the rest of the world. Tourists need to ex­pe­ri­ence it or hear about it, which they can from peo­ple who have al­ready vis­ited In­dia. But tourist ar­rivals are not big. The govern­ment can play an im­por­tant role in pro­mot­ing In­dia in key source mar­kets. We, and other ho­tel com­pa­nies and travel part­ners, will be more than happy to sup­port that. To­day, tourism is not viewed as an elitist in­dus­try be­cause there is a re­al­i­sa­tion of its enor­mous po­ten­tial to gen­er­ate em­ploy­ment.

The Oberoi Group, like most hos­pi­tal­ity ma­jors, hasn’t been able to get back to the prof­itabil­ity lev­els of 2008-09. What are the fac­tors af­fect­ing prof­itabil­ity and what are you do­ing to fix it? KAPIL CHO­PRA: If you look at us, the last three years for us have been fan­tas­tic and the num­bers cor­rob­o­rate that. Our prof­its dou­bled three years back, which was the last year of the UPA govern­ment. With the right fo­cus and in­ten­sity, and by at­tract­ing the right kind of guests, we have grown. The over­all mar­ket, un­for­tu­nately, is not grow­ing very fast. The room rates need to in­crease and we have taken the lead in that. Our suc­cess over the last three years has been the abil­ity to drive value for guests, which has led to ex­po­nen­tial rise in rev­enues and prof­its. From just the in­crease in av­er­age room rate last year, the con­sol­i­dated ho­tel divi­sion made .₹ 69 crore. When you are able to re­alise more from the ARR (av­er­age room rate), then you are able to de­liver more value to the fi­nan­cial stake­hold­ers. This di­rectly goes into the bot­tom line. An­a­lysts say that three prop­er­ties — Delhi, Gur­gaon and Mum­bai — make up for a big part of your profit. Do you see other prop­er­ties do­ing bet­ter on prof­itabil­ity? KAPIL CHO­PRA: That’s not true. Gur­gaon is a man­aged prop­erty and doesn’t give us a large share of rev­enue. It contributes less than 3-4% of our to­tal profit. Our real growth has not re­ally come from th­ese mar­kets, but from Oberoi COM­PANY PHOTO Re­sorts. To give an ex­am­ple, Oberoi Udaivi­las (in Udaipur), an 87-room prop­erty, has the same profit as the 250-room Oberoi Mum­bai. Leisure, along with cities, is driv­ing growth. Of our en­tire port­fo­lio, 10 ho­tels are driv­ing the en­gine. If it was not, then we could not have taken the risk of ren­o­vat­ing The Oberoi, New Delhi. It would have been pro­fes­sional sui­cide.

Sev­eral ho­tel chains have taken to the as­set-light model of growth. Will you fol­low this strat­egy or are you open to in­vest­ing in fu­ture projects? AR­JUN OBEROI: Our port­fo­lio is pre­dom­i­nantly owned ho­tels, many of them are joint ven­tures where we have a ma­jor­ity stake. We have high de­gree of in­vest­ment in th­ese as­sets. Our bal­ance sheet is healthy and there is no doubt that we can in­vest in fu­ture projects as well. But if we are go­ing to ex­pand at a faster rate, we will look at man­age­ment con­tracts be­cause that’s the best way to lever­age our good­will and brand. Most of our up­com­ing ven­tures are go­ing to be as­set light. But that’s not to say that we won’t in­vest money in one or two projects. There is sur­plus within the bal­ance sheet, which we will look to in­vest in cer­tain unique projects. Are you also open to mid-mar­ket brands?

All seg­ments are im­por­tant. We need to keep an eye on how the mar­ket is de­vel­op­ing. But lux­ury is in our DNA and that re­flects in our ca­pa­bil­ity and ex­per­tise. That’s where our fo­cus has al­ways been. Not to say that we can’t do other types of ho­tels or seg­ments.

Would you con­sider strate­gic al­ter­na­tives to bring in liq­uid­ity by di­vest­ing your stake in any owned prop­erty?

We are al­ways open to ideas. It’s not that it’s never been as­sessed ei­ther. Th­ese are dis­cus­sions that have taken place in the past. We built a lot of equity and value in th­ese prop­er­ties. There is also an ad­van­tage to own­ing prop­er­ties. You can do things quicker and in­vest in sus­tain­ing the brand much more ef­fec­tively. We have a strong bal­ance sheet, so at the mo­ment we don’t need to take cash out.

Hav­ing said that, our fo­cus is on growth through man­age­ment con­tracts. And when we look at a po­ten­tial ho­tel, we look at the lo­ca­tion, peo­ple we would work with and we take a de­ci­sion to say that the ho­tel needs to work in the long run and be prof­itable.

What are your plans for the next five years?

Oberoi Sukhvi­las will open in Chandi­garh later this year. This is purely a man­age­ment con­tract where we are as­sist­ing the owner in the de­sign and ex­e­cu­tion of the project. The Oberoi Al Zo­rah is a nat­u­ral beach re­sort in Ajman, UAE. Again, this is a pure man­age­ment con­tract. In the Mar­rakech (Morocco) ho­tel, there is some in­vest­ment from our side. We own 30% stake in the project. But be­yond the ho­tel, there is real es­tate op­por­tu­nity in that and there will be vil­las for sale. We need to open a few more Tri­dents in In­dia. There will be some Oberoi Re­sorts as po­ten­tial lo­ca­tions be­come more ac­ces­si­ble. Be­yond that, we are look­ing at the Mid­dle East. Casablanca will open in two years’ time and that will ex­tend our pres­ence in Morocco. We are show­cas­ing our brand closer to our source mar­ket. There is no doubt that we need to be in Lon­don, New York and Paris, some of the big cen­tres. But the cost of en­try in th­ese mar­kets is very high. So, man­age­ment con­tract is the best way for­ward. We have been close to es­tab­lish­ing a pres­ence in Lon­don for the last year or two. Per­haps, we will have some­thing to an­nounce in the near fu­ture. Th­ese are the gate­way cities of the world, where the brand needs to now have a pres­ence. Hong Kong, Sin­ga­pore and China are cen­tres which lend them­selves well to our ethos and de­vel­op­ment strat­egy. We have eight acres of land near Heb­bal Lake in Ben­galuru. That would be a mixed-use de­vel­op­ment with ho­tel and res­i­dences for sale.


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