After taking a few knocks, the Tata group-owned no-frills hotel chain is putting its expansion plans on the fast track
The Rail Yatri Niwas outside the New Delhi railway station has the best occupancy figures in the country. Each of the 108 rooms, managed by Tata Group-promoted Ginger Hotels, is fully occupied every single day, with guests sometimes booking rooms nearly a month in advance.
Well-appointed rooms, equipped with WiFi, Tata Sky-enabled LCD television sets, air conditioners, coffee-makers, mini refrigerators are provided at rates that are less than a fourth of those charged by others offering similar features. The no-frills hotel charges Rs 1,300 (excluding taxes) per night for rooms at the Rail Yatri Niwas. Ginger hotels elsewhere have consistently recorded 75 per cent occupancy.
So despite a strong brand pull and inventory demand in the market, why did Ginger slow down on its expansion drive? The brand, controlled by Roots Corporation, a 100 per cent subsidiary of the Tata Group-owned Indian Hotels Company, has only 24 operational properties even though it launched eight years ago. That’s just three new properties a year.
The track record in the last three years has been even slower: Ginger has added only seven new properties since 2009, and that includes just one last year. This is against its original plan to have 30 operational properties by 2010. Many say Ginger has lost its steam — something the management, predictably, dismisses.
Ginger says it has stepped on the gas and will have 80 properties by 2015. To begin with, it has lined up 18 hotels which will come in less than two years, collectively adding over 1,800 rooms. Dozens of other properties have been signed up where construction is set to begin.
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Prabhat Pani, chief executive, Roots Corporation, defends the slow start. “In the beginning, you are selling the concept and the brand, so that takes time. During the period of getting clearances for the properties, we learnt how to manage a new concept like this. We have now moved to a phase where the rollouts would be much faster. When you have covered many of the locations, you have a closer understanding and setting up the second hotel gets that much easier and quicker”.
There has been a big change in strategy as well. In the initial stages, land was acquired or leased to build the first set of hotels. The new hotels follow different approaches – hotels on top of shopping malls, redevelopment of existing government properties in a public-private partnership model, joint development with real estate players, etc. Ginger is also exploring the possibility of entering into management contracts with property owners and even looking at a smaller model than the current 100-room format.
While the focus is to make up for lost time, Ginger has simultaneously gone for a face-lift in its operations and offerings. One of the biggest changes is the addition of full-service restaurants for which multiple partnerships have been put in place.
The new additions along with increased land costs have almost doubled the tariffs. Launched with an attractive price tag of Rs 999 per night eight years ago, the average room rate at Ginger today is Rs 1,800-2,000.
Ginger claims this was done after extensive research which showed consumers do not mind paying more, as Ginger remains a benchmark in the budget segment, where organized players are absent. The only competitor for Ginger is smaller local players offering bed and breakfast service.
Pani says demand has forced the company to look at having multiple properties around a designated area to allow it to better tap consumer needs. For instance, the company is looking at having about a dozen properties in the Delhi NCR region alone.
Some analysts say such large scale expansion will bring in the much-required scale, but funding will be a problem, given that its parent, Indian Hotels, has gross debt of Rs 3,805 crore as on March 31, 2012.
Pani, however, says funding is not a constraint at all as Roots Corporation has minimal debt, giving it enough financial headroom to grow.
What gives Ginger comfort is that Roots has managed to break even at the profit before tax level for the first time, aided by an increase in operational revenues and divestment of non-performing asset. "We are cash positive right now", Pani says.
Some of its competitors also grudgingly acknowledge that Ginger is on the right track. A senior executive of Formule 1 Hotels India says the company “cannot go to the level where Ginger operates because the lower you go, the more difficult it is to generate returns”. But, he says, Ginger has an advantage because of its very good land bank. “That’s a sure winner, as land price constitutes 30-50 per cent of the total property cost for budget hotels,” he says. Formule 1 started with rooms priced at Rs 2,112, slightly higher than those offered by Ginger.