 "Great value stay")
Merwin Thomas is director of sales at a mid-sized consumer goods company. He is entitled to business travel and five-star stay on official trips but in a slowdown-battered economy he has decided to avoid any such ostentation. If he has to travel, he chooses to fly a low-cost airline and stay at a no-frills hotel.
Just look around you. You will see this is a growing tribe - people who have a fair idea of what star-rated service companies can offer but opt for more "value" options to avoid running up a huge bill. And it is this category of consumers that has been driving the growth of the no-frills or budget hotel segment in India like many other parts of the globe over the past few years.
Consider this. Last year, hotel supply across major cities witnessed a growth of 15 per cent; while the premium and mid-sized segments have slid by eight per cent and four per cent respectively, the budget segment has grown by five per cent. A range of international players like Starwood, InterContinental Hotels Group (IHG), Marriott among others have thrown their hats into the ring. As a result, the number of rooms went up from 71,531 in 2010 to 84,313 in 2012, according to a report by global hospitality services company HVS.
To understand how they are doing it, we have to first understand the cost structure in the business. Broadly, the cost of running a hotel can be broken down under two heads: infrastructure (60 per cent of the cost on an average) and food and beverages (40 per cent). Infrastructure is largely a fixed cost and comprises things like the establishment cost, decor, staffing, security, house-keeping etc. Food and beverages, though the smaller element in the mix, can really make or break a hotel brand.
Analysts say that there are only so many things a hotel brand can tinker with to keep the costs down. Decor and staffing are the first things that come under the scanner; and then the restaurant business - if one can do away with it one can slash 40 per cent of the final price in one stroke. The smart thing is to not do away with any of these elements completely; the formula is to offer more spartan amenities, and, if you can, stay away from the hustle and bustle of high street.
One answer is outsourcing
The first brand to offer a no-frills experience was Ginger Hotels. Started in 2004 by Tata Group, Ginger Hotels aimed at offering a slice of branded experience at an affordable price. With tariffs as low as Rs 1,000 then, this could only be achieved with a tightly managed cost-led model. Keeping the tastes of Indian consumers in mind, the hotel chain realised that room service and 24x7 coffee shops are indispensable even in a budget hotel. While the in-house restaurant took care of breakfast, lunch and dinner arrangements, Cafe Coffee Day was roped in to set shop in 16 Ginger properties. Besides, guests had and still have the option of ordering food from restaurants in the vicinity without paying any convenience fee to the hotel.
The year 2009 was a landmark in the brand's history. To focus on expansion, the hotel chain decided to outsource services like security, engineering, house-keeping and catering. Initially outsourcing looked like a challenge and opportunity at one go. Says PK Mohan Kumar, CEO and MD, Indian Hotels subsidiary Roots Corporation, the company that operates Ginger Hotel, "We realised how only a handful of regional vendors could provide quality services consistently. Left with no option, we worked with a range of vendors across different markets. Budget hotels are in constant need of one or two vendors who can manage their facilities in different locations."
Taking a step in this direction, the company has roped in international facility management companies ISS and OCS last month. Going forward, certain services across all Ginger Hotels will be managed by these two companies. Kumar says while outsourcing has not made a significant difference to the final cost, it has certainly helped the company scale up faster. RedFox, part of Lemon Tree Hotels, follows a similar model and has also outsourced security and some components of the house-keeping function.
According to Rahul Pandit, president and executive director, Lemon Tree Hotels explains how budget hotels are attracting demand which is trickling down from mid-segment hotels and moving up from guest houses. “Indians are spoilt for services and expect a certain standard even at a no-frills hotel,” he says.
* Due diligence should be paid in creating the right design for the hotel, especially for rooms. No need to waste money on building an impressive facade
* Expanding your footprint will result in profitability as the hotel chain will be able to attract bulk corporate deals
Kaushik Vardharajan
MRICS, MD, HVS Global Hospitality Services - South Asia
The other is spartan amenities
As part of a partnership with Duet Hotels, InterContinental Hotel Group launched its no-frills hotel Holiday Inn Express in Ahmedabad last year. With rooms priced between Rs 3,500 and Rs 4,500 a night, the hotel offers limited services. For instance, there are no porters to carry luggage for guests and room service is extended on special request only. And so Douglas Martell, vice-president, operations, South West Asia, IHG, was not surprised to see the mixed reactions of the first few guests in the early days. "At the outset there were apprehensions about our business model as people in this country take room service for granted. We also learnt how free breakfast and fast internet speed are great value propositions for the Indian consumer," he says.
IHG's market research established how Indians are obsessed with food and usually eat at odd hours. Really odd even if you compare with even a neighbour like China, the fastest growing hospitality market in the world. There, the average dining time is 6:30 pm, whereas in India its can be any time between 8:30 pm and 12 midnight in India. "In other markets, we would not worry about having meals delivered to rooms at Holiday Inn Express. But here we have a partner restaurant to serve lunch and dinner. This doubles up as a 'grab and go' counter serving snacks," he says. IHG's Generation Interviews (a survey conducted by interviewing people from different age groups) proved how the younger generation is receptive towards new concepts and brands in hospitality. On the contrary, older people are not open to changes in how evening meals are served.
The guest-room to employee ratio at Holiday Inn Express is 1:0.35, whereas in a full-service set-up it is usually 1:2 or 1:4. This has helped the hotel save a huge amount on staffing cost. Martell shares how the experience of building the brand in China came in handy when the group decided to launch Holiday Inn Express in India. In China and, in fact, the world over, IHG spends 50 per cent less on employee compensation when compared to India. The only way out is to drive efficiencies in operations and this is where training comes into the picture. All the employees are trained to handle a range of jobs.
Typically, a hotel employee in India spends five years in the same job profile. While multi-skilled employees bring down the cost of manpower for the hotel, a system like this also improves their prospects in the job market. "Despite these efforts, labour costs for IHG India increased by 12 per cent last year. So we have a long way to go. Also, labour market will become competitive with hotel chains poaching for talent more than ever. Going forward, we will hire for personality and train for skills," adds Martell.
Talent retention is a major challenge for no-frills hotels even as they hire fresh graduates who are expected to stick around to gain experience. "Unfortu-nately freshers pick up skills and take early exit for lucrative offers. One reason for this can be the low compensation in the budget segment when compared to mid-premium or luxury hotels," says Kumar of Roots Corporation.
In sum, the basic strategies to run a no-frills set-up successfully or the challenges before them are much the same as in any other business. It is also true that keeping a tight leash on costs is no rocket science. But as an owner there are two things you should always be thinking. The first is whether you can find ways to do what you are currently doing more efficiently, and that boils down to ergonomics, work flows and scheduling, investment in the right kind of equipment (energy-efficient for one), and being able to constantly spot the inefficiencies and reason out a better method. The second is, you need to be able to see what is there right under your nose-most hotels see a flurry of improvements at one go and let things chug along until the next thing falls apart. That's a mistake; keep looking for the small issues that need to be fixed so that they don't blow out of control and throw all your cost calculations awry. A programme of continuous improvement takes a mind that can spot potential and opportunity as a matter of course.
Just look around you. You will see this is a growing tribe - people who have a fair idea of what star-rated service companies can offer but opt for more "value" options to avoid running up a huge bill. And it is this category of consumers that has been driving the growth of the no-frills or budget hotel segment in India like many other parts of the globe over the past few years.
Consider this. Last year, hotel supply across major cities witnessed a growth of 15 per cent; while the premium and mid-sized segments have slid by eight per cent and four per cent respectively, the budget segment has grown by five per cent. A range of international players like Starwood, InterContinental Hotels Group (IHG), Marriott among others have thrown their hats into the ring. As a result, the number of rooms went up from 71,531 in 2010 to 84,313 in 2012, according to a report by global hospitality services company HVS.
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This trend has great significance for the so-called budget segment of the hospitality business. It means to compete successfully they have to up the level of their offering to a certain level and still keep the prices below a threshold limit. Not an easy thing to pull off but there are brands that seem to be making the cut.
To understand how they are doing it, we have to first understand the cost structure in the business. Broadly, the cost of running a hotel can be broken down under two heads: infrastructure (60 per cent of the cost on an average) and food and beverages (40 per cent). Infrastructure is largely a fixed cost and comprises things like the establishment cost, decor, staffing, security, house-keeping etc. Food and beverages, though the smaller element in the mix, can really make or break a hotel brand.
Analysts say that there are only so many things a hotel brand can tinker with to keep the costs down. Decor and staffing are the first things that come under the scanner; and then the restaurant business - if one can do away with it one can slash 40 per cent of the final price in one stroke. The smart thing is to not do away with any of these elements completely; the formula is to offer more spartan amenities, and, if you can, stay away from the hustle and bustle of high street.
One answer is outsourcing
The first brand to offer a no-frills experience was Ginger Hotels. Started in 2004 by Tata Group, Ginger Hotels aimed at offering a slice of branded experience at an affordable price. With tariffs as low as Rs 1,000 then, this could only be achieved with a tightly managed cost-led model. Keeping the tastes of Indian consumers in mind, the hotel chain realised that room service and 24x7 coffee shops are indispensable even in a budget hotel. While the in-house restaurant took care of breakfast, lunch and dinner arrangements, Cafe Coffee Day was roped in to set shop in 16 Ginger properties. Besides, guests had and still have the option of ordering food from restaurants in the vicinity without paying any convenience fee to the hotel.
The year 2009 was a landmark in the brand's history. To focus on expansion, the hotel chain decided to outsource services like security, engineering, house-keeping and catering. Initially outsourcing looked like a challenge and opportunity at one go. Says PK Mohan Kumar, CEO and MD, Indian Hotels subsidiary Roots Corporation, the company that operates Ginger Hotel, "We realised how only a handful of regional vendors could provide quality services consistently. Left with no option, we worked with a range of vendors across different markets. Budget hotels are in constant need of one or two vendors who can manage their facilities in different locations."
Taking a step in this direction, the company has roped in international facility management companies ISS and OCS last month. Going forward, certain services across all Ginger Hotels will be managed by these two companies. Kumar says while outsourcing has not made a significant difference to the final cost, it has certainly helped the company scale up faster. RedFox, part of Lemon Tree Hotels, follows a similar model and has also outsourced security and some components of the house-keeping function.
According to Rahul Pandit, president and executive director, Lemon Tree Hotels explains how budget hotels are attracting demand which is trickling down from mid-segment hotels and moving up from guest houses. “Indians are spoilt for services and expect a certain standard even at a no-frills hotel,” he says.
| Tips to run a no-frills hotel successfully Expert Take * Cut down on your capital expenditure by opting for a lease contract. Half an acre is good enough to build a budget hotel * It’s wiser to take space inside a commercial complex. Retail rentals drop beyond the third floor and so it is easier to negotiate prices for the lease contract. Space can be evenly distributed across different floors. This way one can also save on the additional cost of setting up a restaurant or outsourcing as guests have the option of walking to a restaurant within the complex |
* Due diligence should be paid in creating the right design for the hotel, especially for rooms. No need to waste money on building an impressive facade
* Expanding your footprint will result in profitability as the hotel chain will be able to attract bulk corporate deals
Kaushik Vardharajan
MRICS, MD, HVS Global Hospitality Services - South Asia
The other is spartan amenities
As part of a partnership with Duet Hotels, InterContinental Hotel Group launched its no-frills hotel Holiday Inn Express in Ahmedabad last year. With rooms priced between Rs 3,500 and Rs 4,500 a night, the hotel offers limited services. For instance, there are no porters to carry luggage for guests and room service is extended on special request only. And so Douglas Martell, vice-president, operations, South West Asia, IHG, was not surprised to see the mixed reactions of the first few guests in the early days. "At the outset there were apprehensions about our business model as people in this country take room service for granted. We also learnt how free breakfast and fast internet speed are great value propositions for the Indian consumer," he says.
IHG's market research established how Indians are obsessed with food and usually eat at odd hours. Really odd even if you compare with even a neighbour like China, the fastest growing hospitality market in the world. There, the average dining time is 6:30 pm, whereas in India its can be any time between 8:30 pm and 12 midnight in India. "In other markets, we would not worry about having meals delivered to rooms at Holiday Inn Express. But here we have a partner restaurant to serve lunch and dinner. This doubles up as a 'grab and go' counter serving snacks," he says. IHG's Generation Interviews (a survey conducted by interviewing people from different age groups) proved how the younger generation is receptive towards new concepts and brands in hospitality. On the contrary, older people are not open to changes in how evening meals are served.
The guest-room to employee ratio at Holiday Inn Express is 1:0.35, whereas in a full-service set-up it is usually 1:2 or 1:4. This has helped the hotel save a huge amount on staffing cost. Martell shares how the experience of building the brand in China came in handy when the group decided to launch Holiday Inn Express in India. In China and, in fact, the world over, IHG spends 50 per cent less on employee compensation when compared to India. The only way out is to drive efficiencies in operations and this is where training comes into the picture. All the employees are trained to handle a range of jobs.
Typically, a hotel employee in India spends five years in the same job profile. While multi-skilled employees bring down the cost of manpower for the hotel, a system like this also improves their prospects in the job market. "Despite these efforts, labour costs for IHG India increased by 12 per cent last year. So we have a long way to go. Also, labour market will become competitive with hotel chains poaching for talent more than ever. Going forward, we will hire for personality and train for skills," adds Martell.
Talent retention is a major challenge for no-frills hotels even as they hire fresh graduates who are expected to stick around to gain experience. "Unfortu-nately freshers pick up skills and take early exit for lucrative offers. One reason for this can be the low compensation in the budget segment when compared to mid-premium or luxury hotels," says Kumar of Roots Corporation.
In sum, the basic strategies to run a no-frills set-up successfully or the challenges before them are much the same as in any other business. It is also true that keeping a tight leash on costs is no rocket science. But as an owner there are two things you should always be thinking. The first is whether you can find ways to do what you are currently doing more efficiently, and that boils down to ergonomics, work flows and scheduling, investment in the right kind of equipment (energy-efficient for one), and being able to constantly spot the inefficiencies and reason out a better method. The second is, you need to be able to see what is there right under your nose-most hotels see a flurry of improvements at one go and let things chug along until the next thing falls apart. That's a mistake; keep looking for the small issues that need to be fixed so that they don't blow out of control and throw all your cost calculations awry. A programme of continuous improvement takes a mind that can spot potential and opportunity as a matter of course.