Opportunity to migrate unorganised hospitality sector to an organised one
The Indian hotel industry has been largely dominated by unorganised players. There are approximately one million hotel rooms available in the country of which only 160,000 rooms are of the organised players both domestic and international combined. Even in the organised space, international chains have continued to dominate the share. It was back in 2008/09 when the domestic chains started expanding and increasing their share in the pie. For independent hotels, it is going to be a hard time ahead even in the post COVID-19 era and it is time for them to tie up with a branded chain to get more value and benefits.
The average pan India occupancy dropped significantly from 65 per cent in 2019 during the current pandemic. The organised players are currently operating at 20-30 per cent of occupancy which is getting generated from the people cited above. Noesis Capital Advisors conducted a consumer survey during the lockdown which indicated that 73 per cent consumers are looking at branded hotels for their upcoming vacation plans and business needs and are ready to pay a premium of 15-20 per cent in room rates to ensure health and safety of themselves and their family members are not compromised.
The trust that the consumer has on the organised player’s adaptation of SOPs and highly maintained hygiene is shifting the demand towards the organised players as they feel their health will not be compromised at these properties. As an early sign of revival, we have already started witnessing demand for organised hotels on the outskirts of NCR where the local population from NCR has restarted travelling to escape the four walls of their house for even a weekend or so.
With about 16 per cent share of branded hotels in India, the branded chains bring multiple benefits to the entire tourism ecosystem: all stakeholders and owners, guests, hotel employees, financial institutions, the government, vendors, neighbourhood businesses, etc.
With an organised proper framework in place, it allows all the stakeholders a better experience in terms of services, credibility, financial stability, better taxes, better vendor management, and increased business for neighbourhood entrepreneurs.
Tying up with a branded chain for an independent hotel brings additional perks for the independent hotel as below:
• Easy recruitment and training programs as getting associated with a branded chain help an individual with a career path and development.
• Access to regional sales offices as setting up multiple sales offices across different cities for an independent hotel is not convenient.
• Setting up, revenue management services will help the hotel to break its room inventory into different categories and allows them to maximize the revenues.
• Provides marketing support and increases focus on digital marketing.
• Branded hotel loyalty programs allow loyal guests revenue to come into the hotel.
• The brand value attached to the chain enhances the independent hotel’s presence and attracts a better demand for the property.
• Have maintenance protocols in place which ensure the asset is properly maintained and upgraded.
• It becomes easier to bring in corporate business at the property as a company has annual contracts.
• It brings more technological expertise to the hotel. A branded chain has a bigger exposure towards the usage of technology inside the hotel like different payment gateways, mobile app-based check-in/check-out options, etc.
These benefits and perks attached to the branded hotels allow the independent hotel to improve on their profitability and ultimately increase the ROI and its valuations. Improved valuations allow the hotel owner a better opportunity to raise funds from financial institutions.
During the last 36 months, nearly 9,500 rooms have been re-branded or converted from an independent hotel to a branded chain or from one brand to another. Looking at the added benefits the hotels get after getting associated with international or domestic chains, many hoteliers have started exploring this opportunity for the last three years.
A 72 room hotel in Viman Nagar, Pune was converted under the brand tie-up by Noesis Capital Advisors. Surprisingly, within one quarter itself, the hotel witnessed a strong growth of 31.3 per cent in room rates to INR 4,200 per room per night significantly improving the profitability. The entire cost of renovations that went into rebranding the hotel was just 2 per cent of the asset value.
Looking at the current pandemic situation, many domestic and international brands are already evaluating multiple proposals at various locations to tap the current opportunity. The hotel owner and the branded chains to enter into agreements will benefit both and revive the hospitality ecosystem at a much faster rate.
We at Noesis are now working on more than 100 hotel brand conversion projects and we continue to receive more requests from hotel owners to help them find the right brand partner for them.
Nandivardhan Jain is the Founder & CEO, Noesis Capital Advisors.