The Hindu : Changing user preference

Online edition of India's National Newspaper
Sunday, Oct 12, 2003

Business

Business

Changing user preference

By Ramnath Subbu

MUMBAI OCT. 11. The hotel sector has shown definite signs of recovery over the last few months given the significantly improved economic parameters. Being linked to spending patterns and the economic climate, the sector is possibly the last to emerge from an economic slowdown and the last few years have not been very kind to it what with 9/11 and the Iraq war. This is particularly the case with luxury hotels as this segment derives more than 60 per cent of its income from foreign guest check-ins and business travellers and tourists. There has, however, been a shift in the pattern of newer hotels coming up.

Uttam Dave, chief executive officer, Pannell Kerr Foster (PKF), a multinational consultancy specialising the hospitality industry, said, "The market is likely to be redefined by the Indian Hotels' `Operation Wildfire' which is the first time the budget hotel will be addressed as a brand and will have a national presence with limited services. What will drive the segment essentially would be the middle and lower middle class travellers and the business traveller". Mid-priced hotels include full service hotels (3-4 star) priced between Rs. 1,200 and Rs. 2,500 per room and limited service hotels (which are not yet available in India). Below that segment fall budget hotels priced below Rs. 1,200 per room followed by economy hotels including motels.

"The market for such a segment is in the range of 100 rooms in 100 locations — 10,000 rooms. In metros, it could be as high as a 1000 rooms," said Mr. Dave. There is a changing user preference. "For all the luxury and leisure hotels, the maximum revenue accrues from business travellers. Today, the preference is more for value for money sort of hotels, said, Mukesh Agarwal, Corporate Ratings, Credit Rating and Information Services of India (Crisil).

"Internationally, players do not own hotels but only manage them or give out on franchise. Here, Oberoi and Taj own their hotels and will now go in for these concepts," said wMr. Agarwal. Sarovar Park Plaza has succeeded as it managed to build a brand and a network of properties in a short timeframe and maintain stability within the system. "In this case, the franchise management system has kept the owners of the properties also happy. However, others have not ventured into this segment successfully," said Mr. Dave. The scope for such a concept is huge.

Most tourist destinations in India boast a huge number of hotels almost exclusively belonging to the unorganised sector. "Take an example of a tourist destination like Manali — there are about 100 hotels but all in the unorganised segment. So if even one player from the organised segment gets in, the field is open. It is, in fact, a ready market and the key really is to work out the dynamics," felt Mr. Dave.

Given the rising preference for budget segment hotels over luxury segment hotels, chains (like EIH, IHCL and ITC Hotels) having presence in both five-star deluxe and five star / four star categories would no doubt be better placed to address the shift in consumer taste.

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