Budget Hotels Gaining Momentum

The hospitality market in India, according to a Deutsche Bank report, is believed to be worth 10-12 billion USD. Seventy percent of this comprises of budget hotels and almost two-thirds of India’s rooms supply during 2020-2021 will comprise of budget hotels. Branded budget hotels are believed to be driving the growth of online booking of domestic hotels in the country.

According to a report by Google Travel Trends published some time ago, queries for branded budget hotels in India were growing at a rate of 179 percent year-on-year, in comparison to just 36 percent growth in generic budget hotel queries. Ashok Malkani takes a look at this segment of the hospitality industry to understand the scope for its growth in India and what makes it so popular in the India’s hospitality industry.

There has been an influx of tourists – both domestic as well as foreign – over the last several years in the country. The India’s tourism sector is predicted to grow at an annual rate of 6.9 percent to Rs. 32.05 lakh crore by 2028. In CY 2017, the foreign tourist arrivals in India stood at 10.177 million and reached 2.12 million in CY 2018, up to February.  All these are encouraging news for the growing hospitality segment of the country. However, domestic travel is expected to be the primary driver of India’s hospitality industry’s growth. High disposable income and the advent of better locations are possibly driving this growth.

The growth of tourism in India will see a demand for hotel rooms but there is all likelihood of the demand increasing majorly for budget hotels. A survey, released by an online travel portal, points out that people might opt for three or four star rated hotels rather than pay 28 percent GST applicable in the case of luxury hotels, with tariffs of Rs. 7500 and above.

A Promising Market

A budget hotel is a design-to-value proposition where these properties remove unnecessary frills and offer what a consumer really needs.

So what is the scope for the growth of budget hotel segment in the country and what are the other factors, besides rate, which helps guests prefer budget hotels? Also, are they preferred only by domestic tourists? 

“The branded mid-market hotels constitute for almost 80 percent of India’s organised hospitality sector today. It is the fastest growing segment in the sector with around 40 per cent year-on-year growth rate and incidentally within this segment, Lords Hotels & Resorts is the fastest growing mid-market hotel chain in India. There is still a lot of room for growth in this segment and the outlook is positive,” disclosed P R Bansal, Chief Operating Officer, Lords Hotels & Resorts.

“Consumers will remain value conscious and if they can get assurance of a good experience at budget price point, they would make the choice to stay in budget hotels instead of expensive star category hotels,” affirmed Punit Garg, Head of Business Development, Treebo Hotels.

“As far as only domestic tourists patronising budget hotels is concerned, I would like to state that a lot of international tourists stay at our properties across India. I think easy discoverability clubbed with the value proposition of budget hotel brands appeals to an extremely wide gamut of consumers,” Punit informed. 

“The USP of the mid-market hospitality segment in India is that it cuts across the entire tourism spectrum and is as much a preferred stay option for business travellers as it is for leisure travellers or even for pilgrimage tourists. The basic premise of any class of tourists opting to stay in a mid-market hotel is identifying with standardisation of service levels. This includes cleanliness and hygiene; standard room amenities, good food and most importantly, great service. Today most mid-market hotels offer these as part of standard offerings at economic tariffs, which meet the requirements of a large number of domestic and international tourists,” he elaborated further.

“Lords Hotels & Resorts is a premium mid-market hotel chain and for us delivering quality experiences supersedes all else. We follow SOPs across all our hotels irrespective of the regions they may be located at. We are very conscious of the smallest deviations and we are a stickler for maintaining compliances. Even answering a guest’s phone call within a maximum of three to four rings is a process which is followed diligently by us. There may be different SOPs for different brands but a complete lack of it at any branded hotel chain in India doesn’t seem to be possible. However, the same may not be true in case of independent budget hotels operating in the country,” informed Bansal.

“There has always been a huge scope for budget hotels in India, more so lately with OTAs forming majority chunk of our source of bookings,” observed Kamlesh Barot, Director of VIE Hospitality and Past President of FHRAI and HRAWI.

“A low dollar spending international tourist, who does not want to shell out 28 percent GST on a Rs.7500 room per night, would be inclined to visit our country’s budget hotel. In the winter season a lot of international tourists visit budget hotels, besides which the bulk of the business to our budget hotels comes from our domestic tourists during the rest of the year, either through social or business or pilgrimage tours,” pointed out Kamlesh.

“Typically budget hotel is a lodging based product, which is largely designed while keeping the needs and wants of SME business travellers in mind. I believe there is tremendous scope for organised budget hotels in places like Aligarh, Ludhiana, Jalandhar, etc. which are known for small scale industries,” affirmed Nandivardhan Jain, Founder & CEO, Noesis Capital Advisors.

“The Indian market for the next five years is on a high growth trajectory, which means a large number of lower middle classes are moving towards upper middle class. As we are aware that the economy is shifting in this direction, the demand for budget hotels is going to rise in the country in proportion to India’s growth and development. The major growth in budget hotels in India will be acquired from the domestic market. Branded budget hotels, such as the Mercure brand has made a clear impact in the Indian market by providing guests a high quality experience at an affordable price,” observed Arindam Mukherjee, General Manager, Mercure Dwarka.

“By and large if you look at the country as whole, domestic tourism is what the budget hotels thrive on. Certain markets in the country of course do have considerable number of international travellers that look for an affordable yet worthy experience,” he maintained.

Bhupinder Rawat, Director of Operations, Aloft New Delhi Aerocity, stated, “There is ample scope for  growth in budget hotels especially in tier-II cities of the country that are strongly competing with our tier –I cities in terms of establishing themselves as the stronghold of the growing hospitality industry. Ever expanding hotel brands in India, both domestic and international, have led to a considerable change in terms of power centers of budget hotels in the country and the same would only grow.” 

Branded with Budget

The branded budget hotels’ supply in India has increased at a rapid pace. The number of rooms in these hotels is believed to have increased from 6000 in 2002 to 53,200 in 2017. But what exactly are the necessities for popularising budget hotels?

“The basic essential required for any budget hotel should be a pleasant experience for the guest. Every hotel should strive hard in order to offer an impeccable F&B service, well-equipped amenities along with safety measures to its visitors. Our brand has made a significant impact on the Indian market and we have established ourselves as a high quality affordable brand across several cities,” Arindam asserted.

“I would reiterate that merely low rates will not attract guests in budget hotels. Besides affordable rates, required are the basic amenities with an earnest attitude of the hotel employees towards serving the guests and patrons. This goes a long way in establishing the hotel as a go to destination for travellers of all kind,” Bhupinder averred. 

“In any unorganised industry, there is a need for branded players to ensure consumers get a good quality product. Budget hotels in India were unorganised and as a consumer one always had to struggle to get consistent quality in the segment, in the India’s hospitality industry. Hence, the need for brands to emerge in the category is obvious. Also given the fact that it is an oversupplied market in most parts of the country, taking a franchise route makes sense,” declared Punit.

“Standardisation is the key differentiator between a branded mid-market hotel and a singly operated mid-market hotel. A single operated hotel is defined by its own practices or is based on its own convenience of providing a set of services and amenities. It may or may not be in sync with best industry practices that are widely standard. Whereas, a branded hotel chain such as Lords Hotels & Resorts follows SOPs, which are uniform across its chain of hotels and is tuned to accommodate industry norms,” explained Bansal. 

“Right from providing the basic levels of services to the upkeep and maintenance of the infrastructure, we are process driven. This ensures compliance at all stages of operations and management, which reflects in customer satisfaction,” he added.

“The unorganised sector of the Indian hotel industry is steadily getting organised, since the past few years. This facilitates best practices adoption and improves the brand to deliver what its guests’ expect for the money they spend. Not only price becomes the reason for their popularity, but brand recall and consistency in service standards also add to the budget hotels’ popularity among branded hotels,” asserted Kamlesh.

“Several brands are being established in India’s budget hotel segment. They have implemented stringent quality standards and are focused on the guest experience, which actually begins from searching for a hotel and doesn’t end until post check-out,” expressed Arindam.

Cities for Budget Hotels

Which are the right destinations in India for opening of budget hotels? “The Return on Investment (ROI) is the most important factor that needs to be taken into consideration while venturing into a mid-market segment hospitality project. So I would suggest that the budget hotel players operating in India should consider developing their properties in the tier-III, IV and V cities of the country as against in the metros and other tier-I cities, and the tier-II cities of India. The land value in the tier-I and II cities in India is high and so the ROI to bear fruit would take a lot longer. Besides, the prospect for growth is much better outside of these big cities as more and more city residents who are also the spenders, travel out of the city for holidays,” Bansal opined.

Punit, however, does not concur with this view. “There is a huge travel volume in budget segment in India’s metros as well, and good budget hotels do great business irrespective of their city. In fact, a large part of Treebo Hotels’ portfolio is in metros and we see both business and leisure travellers coming to these hotels. The underlying reason is the value proposition of an assured high quality experience at an affordable price,” he affirmed.

“Due to high real estate and debt cost and long time required for building hotels in India, it is quite difficult to build budget hotels in centric locations of metro cities like Mumbai & Delhi. There are few budget hotels in these metro cities but from pricing perspective they might not be budget. For example, IBIS at Mumbai domestic airport charges its customers closer to 100 USD for a night,” informed Nandivardhan.

Bhupinder claims that the trend of budget hotels not succeeding in metros of India is reversing. “Budget hotels in India are giving stiff competition to star hotels in tier-I cities of the country,” he opined. “With the development of tier-II and III cities in the country, leisure and business travellers are also visiting these cities in increasing numbers, thus raising the demand for hotels there,” he added.  

“There is no reason for a budget hotel to not succeed in India’s metros. The main aspects for any budget hotel to succeed depend on what kind of real estate they are holding and what kind of dynamics do they cater to. There is every reason for a budget hotel to do well in a metro in India,” Arindam offered.

Automation with Personalisation

With automation invading India’s hospitality industry with fast pace, the question that arises is: Would increased automation impact the business prospects of budget hotels operating in the country, as they would try to achieve cost savings by cutting down on the ratio of employees to a room?    

“At Treebo Hotels, personalisation and guest delight is very close to our heart. Every policy and process of ours is built on a guest-first basis. Budget hotels often see repeat business from loyal clients where the team understands their needs and preferences and proactively customises various elements of their stay. Same goes for a first-time guest wherever possible. However, as this segment becomes more organised in India’s market, technology will play a huge role in offering a personalised experience to the guests,” observed Punit.

“Automation is a welcome development and is definitely a boon for the hospitality industry. Embracing automation and the extent of its deployment varies from hotel to hotel and mostly depends on the segment it caters to,” averred Bansal.

“With increased automation, right from the point of check-in to offering guests their preferred beverage, becomes a seamless activity. Furthermore, it facilitates to personalise services based on a customer’s history with the hotel with little or no human interference. For instance, we had a guest staying with us at our hotel in Bengaluru and post check out, she was going to Gujarat. In Gujarat, she again chose to stay with us. The day of her check-in at our hotel in Gujarat was also her birthday, and since we had the information beforehand, our hotel GM had pre-ordered a special birthday cake for her. Automation in this case had given us the edge, which not only allowed us to offer our appreciation for the guest’s loyalty but also made her feel special,” he explained.

“Digitalisation works in improving the customer satisfaction levels and is certainly a win-win for both the hotel and the guest. On the digitalisation front, we are constantly upgrading or reorienting our resources and digital platforms to remain in sync with the e-world,” asserted Bansal.

“Budget hotels are based on the premise of good product at a good price; therefore the value proposition is extremely important to the customers. It is not necessarily the personal contact with guests that drives guests to a budget hotel. While the star hotels may focus on establishing a personal contact, for a property like Mercure Dwarka, personal contact is important but it may come through a different methodology; either by activities at the property or through homely F&B experience,” claimed Arindam.

However, Bhupinder declared that “Every successful hotel – whether it be budget or star property – should rely on a simple rule that personalised service is the biggest driving factor in building guest loyalty and relationship.”

Future Ahead

Over the period of last few years, there has been a significant progress in the budget hotel segment in India. But is this progress going to continue, and if so, at what pace? This is a question that the entire India’s hospitality industry seems to be interested in knowing.

“There is a very promising future for the budget hotels in the country. If the operator’s advice is taken seriously and the fancies of making a one-of-its-kind hotel is given a go ahead by the owner, a respectable return on investment can be ploughed back to make this segment grow exponentially,” articulated Kamlesh.

“Today we are witnessing a big change in people’s perception with regards to choice of lifestyles, including the choice of accommodations for a tourist. Even a pilgrimage tourist who formerly stayed in dharamshalas or at guest houses, today prefers to stay in a good hotel for quality sleep and rest. Even the eating habits define a person’s choice of stay and we see that there is a gradual shift in consumption from junk to healthy. The young generation is avoiding colas and is instead sipping on fresh juices and this transition is replicating across several such choices,” declared Bansal. 

“The nature of such choice stems from an evolved understanding of how quality makes a difference in the overall experience. The choice of staying in a mid-market hotel is a similar choice, which meets all the dots from comfort to value and everything in between. We foresee that the budget hotels segment in our country will grow by 100 percent during the next five years and the tier-III, IV and V cities of the country are where the action is. So the future for the segment looks bright and we are positive that it will continue to grow for at least another decade,” he elaborated.

There is bright future for the budget hotels in India. In this day and age, customers prefer good quality at affordable costs. This will ensure that there is bright future for budget hotels like Mercure Dwarka in India’s hospitality industry,” Arindam opined.

“The space has tremendous potential subject to the condition that the players should focus on addressing the right problem areas, which is lack of consistency in offering top-notch experience to the consumers. Players who focus on this problem and invest towards solving this problem are likely to succeed and become large businesses and brands. Also we are likely to see escalation in consumer needs and expectations. So these players will have to keep designing for future in order to succeed,” Punit expressed.

“Budget hotels have tremendous scope in India. We are under supply market, and with improvement in air, rail and road connectivity, the country will need more quality rooms,” Nandivardan aired.

“The future is just getting brighter for budget hotels in India with each passing year, and the road ahead is promising. Consistency and balanced efforts are the key towards success in this segment,” affirmed Bhupinder.

Despite several complexities, arising out of certain decisions of the government, India’s hotel industry witnessed a growth during 2017. According to the Ministry of Tourism, the Foreign Tourist Arrival (FTA) has crossed the 10 million mark.

Add to this the increase in the number of domestic travellers and there can be little doubt that the demand for hotel rooms  in the country will continue to increase in the future. With budget and mid-market hotels in the country now raising their standards of service and amenities there is all likelihood of an increasing number of tourists opting for hotels in this segment. The future for budget hotels in India’s hospitality industry thus looks bright.

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