Mid-segment branded hotels reach for the stars

In 2002, there were 26,000 branded hotel rooms, of which some 6,000 were mid-market. Today, the number has jumped about five times to 125,000 branded rooms, with 53,200 rooms, or 43 per cent, being mid-market, according to the data from Horwath HTL, a global hospitality advisory firm.

While the growth was spread across smaller towns and cities, much of the action has been in Mumbai, the National Capital Region (NCR), Kolkata, Chennai, Bengaluru, Hyderabad, and Goa. In general, the mid-market, or mid-priced, segment refers to hotels that straddle two-, three- or four-star properties — categorised as business hotels, resorts, boutiques, havelis, and full-service or limited-service hotels — and are broadly priced at ~4,000 and below.

The chain-affiliated room supply grew at 11 per cent every year between March 2002 and March 2017, while the mid-priced segment grew rooms at a compound annual growth rate of over 15 per cent, according to the data from Horwath HTL.

Chander Baljee, managing director, Royal Orchid Hotels, said he added 10 properties in the past year through the management contract route in Ranthambore, Kanpur, Pushkar, the Jim Corbett Park, and other cities. On average, Royal Orchid’s hotels are priced at ~3,000 and offer standardised amenities such as quality mattresses, a mini-bar, tea and coffee hook-ups, and a full-service breakfast buffet. “Hotels in India are among the cheapest in the world for the value that they offer,” he said, adding that Royal Orchid, which reported around ~3 billion in revenue, planned to add another 15 hotels in 2018 with a focus on smaller towns and cities.

Like Baljee, Patu Keswani, chairman and managing director of Lemon Tree Hotels, has also been on a ramp-up drive, adding 14 hotels over the past year, and the company will soon be coming out with its initial public offering.

A senior executive at a mid-market hotel chain said that beyond just a swell in travel and economics, it was also the customer that had evolved. “The earlier preference to stay with family and friends has transitioned to value-for-money branded hotels,” he said, adding that a lot of that had to do with the change in lifestyles, demands of professionals who travelled, and the spread of business in smaller cities.

Historically, mid-market brands fell short on standardisation. A market analyst, who declined to be named, said, “It was like an airline that used a Boeing 747 for travel between Delhi and Mumbai, a Dakota from Kolkata to Delhi, and a Dornier for Bengaluru to Pune.” A traveller just never knew what to expect.

Accor's economy resort brand Ibis Styles, which was launched in Goa in 2016, is just one example of how brands over the years pushed to assume a more uniform product profile with product coherence and consistent hotel specifications. In part, blame that on the unorganised nature of the hotel industry, where wealthy businessmen with little experience in hospitality set up hotels with “RoE”, or “Return on ego”, being the driver. That’s changed with the advent of international brands, which now control close to half of the market, as well as investments made by private equity players.

Partha Chatterjee, a veteran hotelier who was part of the management teams at both Ginger Hotels as well as Keys Hotels, said the past few years had seen an influx of around two dozen mid-market brands, with international ones such as Garden Inn, Hyatt Place and the Courtyard by Marriot all expanding. The important thing to remember, Chatterjee said, was that the average cost of building a mid-market room was between ~3 million and ~7 million, which breaks even in six years, compared to ~15 million and above for a luxury fivestar room, which takes as long as 12 years to realise which is what investors also look at, ultimately.

Occupancies have been higher than 65 per cent for the first time in a decade, and average room rates have grown by 8 per cent. In addition, supply is growing by 8 per cent but demand is growing at twice that rate so occupancy is likely to grow even more, said Achin Khanna, managing partner - strategic advisory, Hotelivate, a consulting firm. He added that barring external factors, “it’s an upcycle phase and is a good time for hotels across segments for the next three to four years”.