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Ratan Tata, the erstwhile chairman of the Tata Group, once fondly referred to Ginger, its budget hotel chain as the 'Nano' Taj. Only a few months ago, Tata had launched the Nano, the world's cheapest car, amid applause.
But it was a different story when the car hit the showrooms. Its price-tag actually made it non-aspirational for its target audience. Experts now fear the same may happen to Ginger, given its exacting focus on affordability. "We run a tight operation. This has enabled us to dramatically cut cost and offer rooms at affordable rates," says P K Mohan Kumar, managing director and CEO, Roots Corporation, that is a part of IHC, and owns and operates the Ginger chain of hotels.
But in its zeal for being a cost leader, Ginger runs the risk of becoming a brand that customers would skip at the first opportunity. "We Indians want to make a statement, regardless of the price we pay. This makes it necessary for a brand to look and feel aspirational. Ginger is too functional for that," says Kaushik Vardhrajan, managing director of HVS Hospitality Services, South Asia.
For IHC, the stakes are high. With rates as low as Rs 1,499 per night, Ginger is the cheapest branded hotel chain in India. It has opened a whole new market for IHC with its spartan rooms now accounting for nearly a fifth of the Taj group's inventory of around 14,000 rooms.
The tide in the Indian tourism industry is gradually turning in favour of domestic travellers. The majority of domestic travellers cannot match the purchasing power of foreign holidayers or their corporate counterparts. But for every foreign tourist visiting India, there are 135 domestic tourists. In the last five years, foreign tourist arrivals have grown at 7.2 per cent, while domestic tourist travel has grown by 13 per cent, according to the Ministry of Tourism.
Established hotel chains have so far focused excessively on luxury and high-end business travellers. Yet, hotel companies like the Taj group don't want to lose out in the race to woo the budget traveller.
With low pricing and standardised service across the chain, Ginger was to bring branded hotels within the reach of a large segment of domestic travellers. Over a period of time, these guests were expected to upgrade to Taj's premium brands such as Gateway, Vivanta by Taj and ultimately, Taj itself, in step with the growth in their income.
Ginger has had a good run so far. Seven years after the opening of its first property in Bangalore, it has a national presence with 27 hotels, spread over 19 cities. With an inventory of nearly 3,000 rooms, Ginger is by far the largest budget hotel chain in India with 60 per cent market share in the organised segment.
"Occupancies and room tariffs at Ginger have been more resilient in the economic slowdown. This has softened the blow for IHC, caught in headwinds in its bread-and-butter luxury and premium segments," says Apurv Prasad, hotels analyst at ITI Securities. According to him, Ginger has consistently clocked occupancies of over 70 per cent, against 60 per cent by IHC's luxury properties. Ginger's room rates have also stayed firm against the 7-10 per cent decline in the premium segment last year.
The stinginess didn't matter when Ginger was the only player in its segment. But now, it is up against a slew of new entrants, many of whom have been positioned at a premium to Ginger. French hospitality major, Accor Hotels has launched its premium budget brand IBIS, while Marriot is set to launch its first Fairfield Inn in India. Home-grown Lemon Tree Hotel has entered the fray with Red Fox chain of no-frills hotels too.
Such competition means a prospective Ginger customer can switch to slightly premium brands by spending 15-20 per cent more. "Incumbents always run the risk of losing customers to new entrants, especially if they come across as more aspirational but only mildly expensive," says Harish Bijoor, CEO of marketing consultancy, Harish Bijoor Consults Inc. If Ginger's customers defect on a mass scale, it could jeopardise IHC's strategy of using Ginger as an entry point to its hotels network.
When it was conceived nearly 10 years ago, Ginger was supposed to be an upgrade to trainee executives and business travellers from unbranded lodges. Experts, however, doubt if it is so. "Ginger does not provide room service and there's nobody to carry your luggage to the room. This is hardly an upgrade, since these services are taken for granted at unbranded hotels," says Vardhrajan.
Kumar differs, "Ginger is frequented by business travellers pressed for time. For them a good night's sleep, clean rooms and a hassle-free check-in are more important than bells and whistles." But he accepts that the brand has suffered from inconsistency across the chain: "We know that some of our properties, especially the older ones, need renovation and we plan to do it in a phased manner."
The company has ruled out an outright competition with premium brands in the budget category. "Ours is a modular and scalable model. We can't change our configuration and costing only because others decide to outspend us," says Shishir Mathur, head of business development, at Roots Corporation. He insists IBIS or Fairfield Inn belongs to a different segment: "IBIS' development cost is nearly two times that of ours. Its staff ratio per room is nearly double that of Ginger and it has bars which we don't. We are talking of two different segments".
So far, Ginger has adopted the capital-intensive route of investing nearly Rs 300 crore in greenfield hotels. Albeit, it has provided Roots Corporation with a bankable asset base. But it is an expensive route to take in a market where hotel brands are increasingly opting for managed properties. The asset-light model is on the cards for Ginger's expansion. "We are now getting a lot of enquiries for conversions from family-owned or independent hotels. We are also exploring management contracts, revenue-share agreements and flexible lease rentals," says Kumar. Prasad says that Ginger has the potential to cushion IHC's finances in the next downturn, provided it is scaled up faster.
The biggest challenge for Ginger will be India's two biggest cities - Delhi-National Capital Region (NCR) and Mumbai. According to experts, these two generate nearly 80 per cent of all business travel in India. They also provide visibility and mileage across the country.
But Ginger has only a skeletal presence in these two metros with four properties in the NCR and just one in Mumbai. The company now wants to build more. "Our Mumbai property at Andheri is operating at 100 per cent occupancy and the demand is equally strong in New Delhi. Besides, demand doesn't dip on weekends or in an off-season, unlike smaller cities," says Kumar. But then, competition is also the toughest here and big-city customers are hard to please, with their fuss over amenities. This mismatch between the customer's expectation and brand-offering could make it tough for Ginger to build a loyal clientele.
Ginger will have to find a way to make its founding philosophy of servicing the bottom of the pyramid in hospitality work well with the increasingly demanding domestic traveller.
