Priya Paul is credited with turning Apeejay Surrendra Park Hotels around after she took over the reins in 1990. She runs six boutique five-star hotels under the Park brand — derived from the chain’s first location at Park Street in Kolkata — in Kolkata, New Delhi, Vishakhapatnam, Navi Mumbai, Bangalore and Chennai, and a luxury cruiser called Apsara in the Kerala backwaters. Three more hotels are expected to commence operations soon, one each in Hyderabad, Pune and Kolkata. Most of these have a downtown location — a distinct advantage for business travellers. Paul has tried to add an element of design and create well-known restaurants and fun spaces. The closely-held company has grown so far on its own cash, though Credit Suisse bought a small stake (between 10 and 15 per cent) in mid-2007 for $55 million. A public offer could happen in the next few years. Paul tells Bhupesh Bhandari her strategy so far and the road ahead.
What is your business model? How is it different from others?
We have our own niche. The company is over 40 years old. When I got into business 20 years ago, we had three hotels in Delhi, Kolkata and Vishakhapatnam. The question was, how do we stand out. I wanted to do hotels in a different way. I wanted to make our rooms, restaurants and everything look a little different. I looked at what was happening in the US. There were some boutique properties that had started. I said I don’t have to do hotels in the same boring manner. That was the genesis of it. We then started using design as a focus area and then designed spaces for young affluent Indians.
By the time we started doing this in 1993 to 1995, we had captured successfully the needs of the young affluent Indian traveller. With our restaurants, we were able to provide him avenues to spend money. By then, because of the economic liberalisation, people had money to spend. And we gave a new type of five-star hotel — one that was fun, vibrant, not just a place where you had to be hushed and proper. There were nice bars and restaurants and yes, there were rooms as well. You were not in some dull or boring hotel.
By 1995, we had our mission statement ready which was leadership through differentiation. We wanted to create a collection of boutique hotels and restaurants. We call ourselves a collection of hotels because we want to make sure that each hotel has its own identity. With our Bangalore and Chennai properties, we came to be seen as a national player. We have our own loyalists who enjoy what we are doing. The customers we have are confident about who they are, what they are doing, and where they want to be. The hotel is a validation of their lifestyle.
Is your average customer still the young affluent Indian?
It’s also the international traveller. What we captured through the entertainment concepts and bars & restaurants was the young affluent Indian. As India has opened up to many more international travellers, it is now those also.
The hotel business has seen a lot of volatility in recent years. How do you make your business recession-proof?
When I joined the business as marketing manager in Delhi in 1988, there were seven or eight rooms occupied that day. That is recession. The hotel was newly launched and the market was hardly active. Ours is a family business. We have always watched our cost structures. We haven’t gone over the top when times are good so that you can’t scale back when times are bad. We have had wage and hiring freezes since September 2008.
You have gone for properties in downtown areas, which can be very expensive.
It’s about buying at the right time. The Navi Mumbai land, for instance, we have had for 20 years. The thumb rule is that real estate costs should be 12 to 15 per cent of the total project cost. In India, it is much higher. In Mumbai, it will be 40 to 50 per cent. Projects are still being done and will probably be viable in the long run. That’s what you have to pay to be in the Mumbai market. For us, the missing property is Mumbai. Even though we are prepared to pay a significant amount, we can’t find the right property.
What part of your income comes from rooms and how much from food & beverages? What is the ideal combination?
The thumb rule is that 60 per cent should be room revenue, 35 per cent should be food & beverage and the balance 5 per cent all the minor departments like spa etc. It’s a function of your product and mix. In our Kolkata hotel, for instance, 50 per cent is room revenue and 50 per cent comes from food & beverage. In Bangalore, room revenue will be 80 per cent because our room rates are so high.
Of the two, which one is steady?
In a market like this, nothing has been steady. In a slowdown, people spend less on banquets, companies cut down on training programmes and events. There has been such a shake-up in the last one year that I don’t think any revenue can be counted as steady. When a hotel stabilises, you have constant revenue streams. That breakeven point is what everyone aspires to. Then if you go above 55 to 60 per cent (of occupancy) that is when the profits start coming in.
We want to have 20 properties by 2020. We want to have properties that grow with our balance sheet and management bandwidth. All the properties are driven by me from the design point of view and we want to create unique spaces, and you need effort and time to do that. For me to do 25 hotels in five years, it will have to be a different type of a company. That’s the difference between us and others. Whether they like it or not, I am involved even in choosing a hook.
You need to institutionalise that. What if you were to take a holiday for a year or two?
I will make sure there’s no opening at that time — only construction. A lot of things are institutionalised and the operations are institutionalised. All the systems and operating procedures in all the hotels are in place. We have sophisticated processes for managing the properties. My job is to create unique and different products. I am not in the replication business. That is not interesting and challenging. With every new product, you can improve. You need to work with what is the best now. People know when they are in a Park, though each has a different feel.
Rising real estate prices, extra design element and downtown locations would drive up your cost per room?
One thing we have been working with the government on is to get land from it on lease or form joint ventures with it. We are working out a model with the various (state) governments to try and put that into place. The second element is the FAR (floor area ratio) or FSI (floor square index). (These determine how much development can be carried out on a piece of land.) In a place like Delhi, it is still just two. Mumbai has gone to five, Hyderabad is unlimited. So, even if I pay extra for land, because of high FSI my project can become viable.
We do a lot of the hotel construction and project management ourselves because the family has been in these areas for a long number of years. This way we are able to control costs. To do a five-star hotel in a city, excluding the land cost, we would spend anything from Rs 1 crore to Rs 1.5 crore per room. That’s the minimum. Others probably spend up to Rs 3 crore. Because we are in downtown locations, our hotels are much tighter. So, our cost per room is lower.
How many of your existing properties make money?
All of them make money.
You have gone beyond hotels now and are running independent restaurants.
We want to have a collection of boutique hotels and restaurants. Even before I joined the business, my father and uncle always had hotels and restaurants. In Kolkata, apart from the Park Hotel, we had three or four restaurants including Flury’s. Most of these have closed, and only Flury’s remains. It has expanded in Kolkata and will hopefully go national soon. We have never been averse to managing restaurants outside hotels.
You have had properties like Someplace Else or Fire in your hotels. What is the life of such properties? How frequently do you need to revisit these?
Someplace Else in Delhi had a short life but the one in Kolkata has celebrated its 15th anniversary. It has a faithful fan following. It has become a place where you go to listen to live music everyday. The one in Delhi lived its life and died. I would say in restaurants every five or six years one has to change. Internationally, it is three to four years.
You get a lot of business from companies. How has it been in the last one year? What has been the pressure on you to cut rates?
Of course, there has been a lot of pressure. First, a lot of companies cut travel. There was a huge scare from October (2008) onwards. Then there was the terrorism scare and people began to hold back on travel. I think it started coming back from July onwards. Still, there has been a lot of pressure on rates. And rates have moved down. Occupancies are high in almost all hotels, barring Navi Mumbai. It has begun to pick up now. It went through a bad year because of the SEZs (special economic zones) that got cancelled, the uncertainty over the airport and the situation that emerged after 26/11 which dried out business for a few months. Our sales team has to pound the streets more for business. It is a business destination. If there aren’t enough business drivers in the market then the whole industry suffers. Occupancy across Navi Mumbai has suffered.
How much time have you given your sales team?
They can’t put up the SEZ. They have to achieve the targets, otherwise the property is a drag on everybody. Everyone has to hold on to the targets for March 31.
What if the targets are not met?
Well, a lot of things don’t happen then. The team has to make every single effort. If there is 7 per cent (gross domestic product) growth, then there are no excuses for the sales team.
How much time to do you give to a property to break even?
Normally, it is two to four years, depending on the project cost, rates and size of the property.
What happens if Navi Mumbai doesn’t break even in four years?
We are in the hospitality business, and it’s also the real estate business because you look at long-term appreciation in the value of the asset. We are not in the business of getting in and out. The business will go through many cycles. It takes good three to four years to put up a five-star hotel. There are a minimum 42 licences. The barriers to entry are high. So, you don’t get out of the business so fast. People hold on to land for long and develop it when they have the bandwidth to do so or when the market picks up.
Are the room rates at 2007 levels?
Maybe less than that. But our rates were not so high that we have had to cut down drastically. We have been hit 20 per cent or so.
You obviously have an eye on resorts as well. That’s what the Kerala property tells us.
I think we have got hotels in most (large) cities now. For us, the next level will be to get into resorts around these cities to provide a more varied and interesting portfolio. I see that as an interesting extension of our brand. We don’t need to do very large resorts, for us it will be more intimate and boutique. Not more than 50 or 60 rooms. Kerala is a learning experience on how we position these small properties.
