So what if the global economy is not in the pink of health? India's growth story seems still very credible to global corporations looking to grow beyond their borders. The world's largest hotel chain Best Western International Inc, USA, has down up plans to expand its presence in the country with an investment of Rs 1,600 crore in the hospitality sector. In an exclusive discussion with Rajarshi Bhattacharjee, David T Kong, president and CEO, talks about his confidence in the potential of the Indian market, Best Western's strategic advantages and much more. Edited excerpts.
The internet has radically altered how the whole service business works. How do you think it up-ended the traditional hospitality model?
I think internet is the future. People are going for the internet as it empowers an individual to do the research, do the booking in his own time, in his own pace. That’s why the internet has become such a prominent booking channel. Worldwide, the internet accounts for almost 48 per cent of Best Western’s bookings, tough it’s not quite the same in India. For this reason, we invested about two million dollars to upgrade the infrastructure and complete the enhancement of the website. We are also getting ready to launch a new website in the first quarter of next year. Not just the internet, we consider the mobile and the social media as essential tools. We have iPhone and iPad apps, we have directed our important hotel websites in facebook and we are among the first adopters of twitter. This goes to show that we are ahead of the curve by embracing the new and emerging technologies.
Where does India stand in your global scheme of things?
India is among the top three countries Best Western International is focusing on now. India has an impressive population and GDP growth. We did an analysis wherein we used factors such as the adoption of technology, internet penetration, levels of education, demand, airline lift factors etc and found India among the top three countries. China, obviously, is among the top also. What’s interesting is, five of the top 10 countries Best Western International is focusing on are in Asia. Clearly, the focus of tourism globally is shifting towards the East.
The hospitality industry in India has been eroding its competitiveness as a cost effective destination. What is your take on this?
If you look at the rates charged at the five or six-star luxury hotels, you can say that India is among the most expensive in the world. But if you look at the mid-scale and up-scale hospitality segments, India is quite affordable. I think growth is going to come from tier-2 and tier-3 cities. The 45 cities of India that have more than a million population have the most growth potential in the hospitality sector and we will perform best in these emerging markets.
Many international budget hotel chains are foraying into India with an eye specifically at this segment. How does that affect your prospects?
We like competition: competition is good, it tends to make one better and eventually the cream rises to the top. The fact that global budget hotel chains are foraying into India motivates us to be vigilant and do better job. We are never concerned about competition — brands that turn out to be strong are going to be the most relevant. Basically, we want to make sure we deliver on our brand promise-we want to ensure every guest has a comfortable sleep every night, everything in a hotel is in a working order, rooms are immaculately clean and we believe on the overall product experience that we promise.
We also want to make it really easy for everyone to do business with Best Western. Take our website which has won an award in 2011 as the best of the web. In fact, our website also has direct connect capabilities with other websites. It not only benefits our guests, but others who can access the portal from their company portal and access relevant Best Western business information etc.
We believe education and training is important for our employees and we offer intensive training chalked out according to one’s needs and requirements. So by equipping employees to provide superior customer care, providing support in marketing, operation and networking support through our hoteliers, we have earned strong faith among our customers.
What is your assessment of India’s potential in the leisure and business travel segments?
I think the potential in India is huge on the corporate business travel side. India has a very impressive GDP, huge population, fairly educated work force, and for these reasons there is an influx of international investments into the country. All businesses want to tap into the huge consumer base that exists in India. For those reasons, corporate travel will be very strong in India.
On the leisure side, India has an endless variety of landscapes, cultures and interesting places to see. There is also emerging possibilities in rural tourism, health related tourism and much more. In other words, India has a lot to offer both from corporate and leisure travel side. India, in fact, has a growing tourism business, meaning that the demand and supply is quite strong in this segment. If you look at the trend, the mid-scale and up-scale segments in particular have been very strong. The trend in the luxury segment is also quite promising.
That said, the luxury hotel industry has been hit by the recession — the spending cut backs and the job losses are for all to see. How do you convince people to spend more when everyone’s knee jerk reaction right now is to spend less?
You can look at this from the consumer’s angle and the developer’s angle. From the consumer's angle you are right. The economy is soft, people are more conservative and companies are tightening up their belts. So they are downsizing their trading expenses — they are going from luxury to up-scale, up-scale to mid-scale. That’s why Best Western does particularly well during the downturn because of its strong foothold in the up-scale and mid-scale hotel segment. In the long run, things even out. If you look at the United States, for example, during the recession of 1997, the luxury hotel segment almost got killed. They were down by around 10 per cent in occupancy. The mid-scale and up-scale segment were down by around 4-5 per cent. But now the economy is rebounding in the United States and in 2011 the luxury segment went up by around 9 per cent in terms of occupancy.
So, it is an economic cycle that the industry goes through and traditionally the luxury segment fluctuates the greatest. The mid-scale and up-scale segment are more stable, more resilient. For developers, it is a cycle that they see throughout their history — it is always going to be about experiences of robust growth followed by phases of slump. These cycles are very normal...
What is the kind of investment you are looking at to achieve your expansion targets in India?
Most of our investment is in the Best Western brand. For example, if we are looking at 10 to 15 hotels every year, our estimated investment for one hotel is around Rs 30 to 35 lakh per key initiative; that makes an investment of around Rs 35 crore per hotel in a year in India. Going by that average, say for around 10 hotels every year, we are looking at around Rs 350 crore every year in India.
Over the next five years Best Western International plans to invest Rs 1,600 crore in the Indian hospitality sector. While the new growth drivers will be four and five-star categories of hotels, the focus will be on growth opportunities beyond the Indian metros, where quality hospitality is just emerging especially-say, in the tier-2 and tier-3 cities.
In short, you are bullish about the India growth story...
The global economy might be in a slump, but India’s GDP is growing by 7 per cent. Even though it’s also a bit slow in India, but the growth rate is the second highest in the world. The best part is, it is forecasted to do better in 2012 and the year ahead. So, looking at the growing economy and the future potential, we are making investments in the hotel industry for the long run. In fact, for the long run, the potential of India in the hospitality segment is tremendous.
The hotel business is very different from any other service business in the sense that it is all about ‘personalised’ service. What is your strategy to achieve Best Western’s five-year mission to lead the industry in customer care?
If you think about the hotel business, things are often quite complex — a lot of people worry about channel profits, distribution, inventory management etc and they tend to forget what this industry is all about. We are the home away from home for travelers. That means we are in a hospitality industry and not in a management industry. Hospitality and caring is the essence our business. And if you think about it that way, what enables us to be successful is providing superior personal care. For that reason we focus on training and education of staff; also there is a sense of pride that we instill in our organisation that we can do this better than anybody else. This is the reason, we are successful.