By 2000, the demand for three-star and four-star or "budget" hotel rooms will touch 49,700, significantly higher than the 41,400 five-star deluxe and five-star hotel rooms the country will require. Since the early nineties, the hospitality industry has been seized with the potential of this segment, albeit with little to show on the ground. But that may be about to change as hoteliers across the country draw up plans.
So far, the supply hasnt exactly kept pace with the demand. Four-star hotel rooms, for instance, have gone up from 4,052 rooms in 1994 to 5,164 rooms in 1997. And three-star hotel rooms from 7,694 to 11,818 rooms over the same period. The pace is about to quicken, however, with the department of tourism estimating that around 2,774 four-star and 22,232 three-star hotel rooms are in the pipeline. This could even change the ratio of the two segments: currently, five-star hotel rooms account for nearly 23 per cent of total hotel rooms available in the country while it is 20 per cent for budget hotels.
According to industry estimates, the growth prospects for the budget segment is 1:3. That is, for every five-star deluxe project that is approved by the government, three mid-sized hotels get approvals. "Our potential for growth is three times. We are optimistic that within a few years, we will be big players," says Virendra S Datta, president, Fortune Park Hotels Ltd, a wholly-owned subsidiary of ITC Hotels, which already has three properties in its fold.
With Fortune Park, ITC Hotels is planning to venture into this segment in a big way. After all, worldwide, the hospitality industry is dominated by this mid-market segment. Fortune Hotels, which was incorporated in July 1995, is, however, only a consultancy and operating company. It offers technical services and manages properties but doesnt own them.
The demand for budget hotels is coming from both tourists as well as from the business traveller segment. "As more and more organisations become cost-conscious, the demand in the mid-market segment is rising," says Arun Nanda, executive director, Mahindra & Mahindra, who is in charge of the groups hotel venture. In fact, he believes that demand is even coming from the upper middle-class, which is shying away from the Rs 8,000 plus room tariffs of five-stars.
Says Anil Madhok, managing director, Sarovar Park Plaza Hotels & Resorts, which represents the US-based Park Plaza chain, including the three-star Park Inn brand, in India, "The country has no real three-star hotel to speak of." So there is a great need for hotels that may not be fancy but are high on amenities.
As Nanda points out, "The consumer is ready to compromise on flashy lobbies but wants the safety and hygiene of a quality hotel. It is this growing market, that demands a balance between luxury and necessity, that we are going to capitalise on."
To do so, Mahindra Holding and Finance has tied up with Paris-based Accor, which runs 2,500 hotels globally and specialises in the three- and four-star segments. With this, it hopes to emerge as one of the largest chain in the mid-market segment. The plan is to set up 15 hotels with an investment of
Rs 250 crore by 2000. The possible destinations include Pune, Nashik, Chennai and Ahmedabad.
The joint-venture will bring in two of Accors four-star brands: Mercure and Ibis. In turn, two of Mercures sub-brands -- Mercure and Mercury Inn -- will be introduced. While Mercure is targeted at the value- and image-conscious business and leisure traveller, Mercury Inns will straddle the economically priced segment. And Ibis will target the domestic business traveller. Mahindra & Mahindra already has three properties in Mumbai, Tirupati and Attibele, which will be rechristened.
Perhaps, the largest chain in the segment today is Quality Inn, which has 12 hotels in places like Gurgaon near Delhi. Fortune Hotels too has already achieved its target of 1,000 budget or mid-priced rooms in the first three years of operations.
The hotel is now exploring the possibility of tying up with Four Points, the mid-priced brand of Sheraton Hotels, USA. It plans to add another 5,000 rooms over the next five years. Three of its eight projects are already operational: the Fortune Hotel Kanha Shyam in Allahabad, Fortune Hotel South Park in Thiruvananthpuram and Fortune Hotel Jenneys Residency in Trichy. Next year, the group will open five hotels at Ahmedabad, Pune, Chennai, Calicut and Mettipulayam. Ten more hotels will added over the next three years.
While ITC Hotels is gungho about its plans for the budget segment, the other five-star chains have not been so successful. Both Indian Hotels and East India Hotels have not made a mark with their Gateway and Trident brands. The smaller five-star chains like Sarovar Park Plaza and Mumbai-based K Raheja Resorts & Hospitality Services are, however, entering this segment.
Sarovar Park Plaza opened the 90-room Chennai Park Inn last month. Then there is the 55-room Ritz Plaza at Amritsar. Now three more Park Inns will come up: the 90-room Orbit Park Inn at Jamnagar in Gujarat, a Park Inn at Kasauni in Uttar Pradesh and a third in Gangtok. Raheja Resorts, which has three properties in Mumbai and Kodaikanal, is planning to set up 1,000 budget hotel rooms by 2002 at Rs 10 lakh a room excluding land costs.
In spite of the potential, however, budget hotels face several constraints. The biggest deterrent, of course, is land. Camellia Panjabi, director and senior vice-president, sales and marketing, Indian Hotels, points out that, The problem with budget hotels is they have to compete with five-star hotels for land. Therefore five-star hotels always win and budget hotels find it difficult to get land. The floor space index for budget hotels should be higher, she adds, if the government wants them to come up.
So as yet the smaller players are focusing on the segment. But large chains can ill afford to ignore it for much longer, feel analysts.
Hotel chains hope to capitalise on the rising demand for budget hotels.
