The global business consultancy, Cushman & Wakefield, reported that the Indian hospitality sector will add 52,000 new hotel rooms in the next five years. This will lead to a rise of over 65 percent in total hotel inventory in India. The National Capital Region (NCR) alone is expected to contribute around one-third to the total expected hotel rooms supply during the period.
Diminishing occupancies, increasing inventory, too much reliance on corporate business has taken the wind out of its sails.
The aggression showed by all and sundry in creating wealth in form of building hotels has resulted in the present glut. The last few years have seen India’s city hotels rise out of nowhere and touch record (average room rates) ARRs and occupancy rates, and, soon, the inevitable fall from grace. Some, who justified the prevailing rates due to ‘India Shining’ syndrome, have now conveniently disappeared. In an era of higher occupancies due to limited inventory and a growing economy, what surprises more is the utter lack of foresight to plan for the increase in inventory compounded with a slowing economy. Indian city hotels continue to disregard opportunities to create new markets for their properties.
Indian city hotels, other than those in Delhi, have successfully driven out the leisure market and chased the MICE segment to Bangkok, Colombo, and Kuala Lumpur. In comparison to occupancies from Monday to Wednesday, weekend business in hotels fluctuates wildly. It would be interesting to see the hotels provide their ‘variations in occupancies’ figures, as eagerly as they flaunt their ARRs.
The positives from spiraling rates in the early part of the decade have resulted in the mushrooming of alternative accommodation like service apartments, guest-houses, and homestays. Some service apartments offer excellent value for money and have given three-star and four-star properties a run for their money. Companies are also creating their own in-house accommodation options. And truth be told, hoteliering can be outsourced and learned, in order to provide services in a professional manner.
Hoteliers should take a cue from markets such as Bangkok, Singapore, Dubai, and Kuala Lumpur, where it pays to create a larger ‘source market base’ and use sounder yield management techniques. Unlike other industry sectors, like the FMCG, Pharma or the Banking sector, Indian city hotels have been extremely shy of creating and nurturing new market segments, especially targeting MICE!
It is surely not rocket science that Indian cities at most times are down by 60-70% from Thursday to Sunday, i.e., this would be over a minimum of 200,000 unsold room nights. There has been virtually no effort being made by any of the major hotel associations to help hotels tie-up with tourism boards, deal with major MICE networks or even travel companies to help create a transparent room rate mechanism combined with a sound promotional strategy that would help generate business from varied markets such as MICE or leisure.
With the expanding hotel scenario, all and sundry see themselves as a hotel owner and the International Hotel brands see an opportunity to fix their brands and get professional management to one of the world’s fastest growing hotel construction markets. In the world changing hotel ownership dynamics from traditional hotel owners and operators to the new real estate developers, who go by the name of ‘Asset Creators’! In a new-found love of creating wealth, hotels are now a big part of the scheme to generate recognition and accrued valuation to raise more funds to expand their real estate ambitions. In such an era where the hotel ownership is myopic towards any long-term business plan, management is pressurized to cater to the whims of making quick money, without a desire to create a market, which involves a bit of patience and hard work!
Leafing through newspaper articles which announce hotel projects in India (especially the ones announced by real estate biggies), it’s quite surprising that some of them have not even moved from the drawing board stage for about a year. The announcement of new hotel projects with leading world hotel brands adds value to the project’s real estate component and gets the necessary ‘pre-public issue’ attention from media. Word is soon bound to get around and hotel brands will get tired of attaching their brands to projects on the drawing board. As more and more hotel builders go in for multi-use models, creating MICE infrastructure will add immense value to their bottom lines.
The new age city hotels have created a system of milking the already drained ‘Corporate Cows’ or the homegrown revenue manager’s diktats. The revenue manager’s role (primarily an imported concept), was introduced into the Indian hotel system by the big multinational chains to maximize revenue. The revenue manager is accorded with powers to supersede the sales team’s control over evaluating clientele and negotiated rates. Conflicts of interest between the revenue manager’s short-term goals and the end result of creating a long-term sustained business relationship are one of the key factors for hotels to refuse to look for alternate sources.
Apart from the corporate MICE that are always welcome, Indian hotels across sectors have a large portion of revenues arising from Food & Beverage and taking into consideration the penchant for your countrymen to use hotels for weddings, anniversaries, birthdays, retirement send-offs, kitty parties and even child-naming ceremonies, the market for MICE will not go out of fashion in a hurry. Irrespective of the size of the hotel or its star category, it would help if an event venue is incorporated, especially in India. Some European hotel brands, which do not have MICE as part of the standard design plan, are now customizing to take on the Indian desire to celebrate. It does not make so much difference to add an event venue, even if you do not wish to manage it on your own. While doing business in India, there is always ‘Outsourcing.’
Of late, there has been a concerted effort by leading hotel brands such as Marriott, ITC Hotels, Hilton, and the Taj to create separate marketing teams to reach out to the MICE segment. Marketing MICE requires different skill sets that do not necessarily align with that of the revenue managers. Hotels should create a business model, where Event managers, associations and professional conference organizers (PCOs) are partnered with and considered as part of their distribution strategy. And yes! Commissions are important. They work in most international markets and will do good in India as well.