Small is the new big

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Fortune Park Hotels. There can be no discount to the fact that there is a substantial cost advantage in these cities too, as growth in them is mostly based on scalable infrastructure and availability of skilled manpower. Says Kumar, “On an average, the final cost of the project is at least 30% cheaper than in bigger cities like Mumbai or Delhi.”

“The tier II cities have their own commercial worth and that was the reason why we decided to cash in on the growth in these cities,” says Sunil Mathur, director, International Development, Indian Ocean Region, Wyndham Hotel Group International. The group has got upscale business hotels set up in Jaipur, Varanasi, Khajuraho and Cochin.

Sunil Gupta, executive director, Inovoa and Choice hotels is in the process of setting up hotels in Bangalore, Pune, Gurgaon under Inovoa Hotels & resorts, a Joint venture company with Hillwood corporation, USA. “There is a lot of demand potential in these cities because of the tremendous growth seen in service industries such as IT and pharmaceuticals among others,” says Gupta.

According to industry analysts, out of the total cost of setting up a hotel in a metro, 40% is the land cost. In comparison, land prices in tier II and III cities were far lower, leading to lower costs in setting up a hotel. “Better air and road infrastructure are also fuelling the growth of these cities,” says Kumar.

“The hotel industry at the moment is a very profitable business. With a surge in travel, profitability is assured in this sector,” says Mathur. The key factors spawning India’s hospitality industry growth are a booming economy, steady political scene, soaring service industry, FDI inflow, infrastructure growth and a boost for the tourism sector due to government funding. An estimated 4.4 million tourists are expected to visit India with an annual average growth rate of 12% in the next few years and the domestic tourist market is also flourishing.

As the economy takes major strides, fashion, lifestyle and consumer behaviour patterns are changing. This indirectly has led to consumers now opting to go on short vacations and staying in starred hotels. This change in mindset and desire to go out and spend some time in hotels is driving the growth of this industry.