Leading hotel chains are set to launch new sub-brands to tap the space between the budget and upscale segments.
The question – where do I stay if I cannot afford a five star, and don’t want a budget hotel? – will soon be answered by leading hotel brands, almost all of whom have aggressive plans to enter what they call the mid-scale segment. Leading the pack are Intercontinental, Indian Hotels (which operates the Taj chain) and Marriot.
For instance, the Taj group is busy studying this market, which experts say will be the fastest growing segment in the hospitality sector. Indian Hotels currently owns four brands in India—Taj, Vivanta by Taj, Gateway and Ginger and will add another brand, which will be between the Ginger (budget) and Gateway (upscale 3-star) – that will cater to the needs of the Rs 3,000-4,000 a day segment.
Raymond Bickson, managing director, Indian Hotels, says, “In between the economy and upscale, there is a mid-scale segment. There is a gap there. We are in the process of building a prototype for the new model”.
But the race is already hotting up for Bickson. Marriott International’s project targeting this segment is already in the works. The hotel chain will launch a customised version of its successful Fairfield Inn & Suites brand in India before the end of next year. However, with room prices of Rs 4,000- 5,000 per night, it is looking at the premium segment in this space.
David Townshend, senior VP, Global Sales, Marriott International, says, “While we are based in the US, most of our growth is occurring outside, mainly in China and India. The Fairfield brand will be serving a tier which is under-served in India. It won’t be a significant revenue driver but it will certainly be a major contributor. It will have full service restaurants, pools with 150 rooms”.
For the Indian venture, Marriot is creating a redesigned Fairfield Inn & Suites brand – a first for the group in any foreign market and calling it just Fairfield by Marriot. The new brand is being developed and promoted in association with SAMHI Hotels, a hotel and investment company based in New Delhi.
The US-based hotel chain, typically, lends its name and manages hotels and doesn’t own them. However, it has taken a 30 per cent stake in this joint venture. In the next four years, the joint venture plans to have15 hotels and 2,500 guest rooms in Bangalore, Chennai and Hyderabad.
The new line, which has been created after a year-long research and design, will have full-service restaurants, an expansive lobby and a meeting space. None of these exist in any of the Fairfield properties in the US. The charges will be at $80-$100 or Rs 4,000 - Rs 5,000 per night.
The Intercontinental Hotels Group, or IHG, the world’s largest hotel group by number of rooms, also has plans to open the first of its 19 Holiday Inn Express properties by the middle of next year.
After its break up with the Lalit Suri Group, IHG signed a 20-year management contract with Duet Hotels for the Holiday Inn Express brand (a mid-market brand) in April. This would add about 3,300 new rooms to its current inventory. The US-based company has picked up 24 per cent in the joint venture for $30 million.
IHG, IHC and Marriott are just three among half-a-dozen companies who are entering the fray. ITC’s Welcome Heritage and Accor’s Ibis brand have already entered this market. However, experts say that their limited presence and brand absence have failed to create a mark. Both are trying to expand their market presence.
P R Srinivas, Industry Lead, Tourism, Hospitality & Leisure, Deloitte India, says, “Apart from a few local brands there aren't too many options. The opportunity is always there in a segment which is not-too-cheap and not-very-expensive either. We are definitely witnessing a high double-digit growth in the segment.”
CARE Research estimates the hotel room inventory to grow at a compounded annual growth rate of four per cent, from the level of 177,173 rooms in 2008-09 to 224,000 rooms in 2014-15 in India. Of this about 60 per cent of the rooms are expected to come up in the mid-market and economy segment.
“Rising disposable incomes, need to de-stress and a growing weekend culture are providing more opportunity for the budget and mid-market segment hotels which can offer neat and safe rooms across locations. The mid-market hotel segment is likely to drive growth,” the report adds.
India’s entry level or budget segment available in the price band of Rs 1,000-2,000 per night is largely controlled by the unorganised sector. Tata-promoted Ginger brand has a small share of that. Experts believe that while a lot of travellers are keen to upgrade from basic hotels like Ginger, they are reluctant to stretch their budget for a three-star brand costing upwards of Rs 4,500 per night.
Other companies which have similar plans include Hotel Leelaventure, Bharat Hotels, Royal Orchid Hotels and Wyndham Hotels Group. All these companies are finalising the price positioning of their new brands. Bharat Hotels (the Lalit Suri Group) is ready to pump in Rs 750-800 crore into setting up the new mid-market brand across 40 localities in India. The company is present only in the premium/luxury category through The Lalit brand.
