'The market share of budget hotels is expected to grow'

Updated: Aug 28 2008, 07:47am hrs
In June 2004, the Indian Hotels Company Ltd unveiled an innovative, first-of-its-kind category of Smart Basics hotels called Ginger. Today, it has 14 hotels in the country and has created a new category in the domestic hospitality market. Recently, Ginger opened Ginger Rail Yatri Niwas, which is its first property in New Delhi, in collaboration with Indian Railway Catering and Tourism Corporation (IRCTC). The hotel was renovated in less than a year with an investment of Rs 10.5 crore.

Prabhat Pani, chief executive officer of Roots Corporation Ltd, a wholly-owned subsidiary of IHCL, outlines the companys growth strategy, public-private partnership model and expansion plans in an interview with fes Saikat Neogi. Excerpts:

Are you looking at new public-private partnership (PPP) deals to set up more budget hotels in the country

We are certainly keen in doing so but we have not signed any new contract as of now. We are hoping that Ginger Rail Yatri Niwas will be a showcase model of our PPP initiative. We won the contract for renovating and running Rail Yatri Niwas on a 15-year-lease in January 2007. As part of the deal with IRCTC, RCL renovated, redesigned and added all the features distinctive of Ginger Smart Basics concept in the last 14 months. The hotel will now be run and managed under the Ginger Hotel brand.

Is it a diversion from your original plan

Our original model was to buy land and build hotels on it. From that we have moved to leasing and mixed development like setting up hotels in malls. We are also partnering with government under the PPP model. The Rail Yatri Niwas in Delhi is an example. An existing property, it needed to be redeveloped. Its a part of our evolution and is done keeping in mind the original model of providing extreme value for money to our guests. There have been challenges like the rising real estate prices. There has been some softening of real estate prices in the last couple of months, though.

Seeing the downturn in real estate prices, do you plan to add up more properties

The answer is definitely yes. But it has not moved to that stage where the difference is very palpable. It is there mostly in the media and people talk about it, but by and large developers are still holding on. I see things changing in the next three to six months.

What is the growth prospect for budget hotels in the country

With rapid economic growth in the country, more and more people will be travelling. The first category of hotels that are required in the country are budget hotels and the market share of budget hotels is expected to grow.

What are your expansion plans

Our immediate plan is to have around 20 hotels by March 2009. And in the next three to fours years, we are looking at some 60-70 hotels.

Do you think it makes good business sense to set up hotels in malls

We think so, but I would be able to answer this question better three months later. We have one in Ludhiana and we are building another one in Ahmedabad. This is actually another way to tackle the rise in real estate prices. Malls are usually built in high traffic areas and in a mall everyone wants to occupy lower floors. Typically, it is movie halls or multiplexes that occupy higher floors. Since there are usually three to four malls in most neighbourhoods, but only a few movie releases every week, multiplexes are not able to attract enough footfalls. On the other hand, a hotel, we feel, is another opportunity to use the fairly large number of square footage. So, it works well from the point of view of space and gives us brand visibility because of location advantage. It is actually a win-win situation for us as well as the mall developers.

How did the concept of Smart Basis start

In 2002-03, the concept was developed in association with corporate strategy thinker C K Prahalad. The Indian market place is clearly going through a change and the mass market travellers are young people with a fairly reasonable global exposure, high disposable income and dont want to stay at a place with a lot of frills, which is expensive. This customer is looking for good quality service at a reasonable price and that is how we have designed on smart basis. It was the genesis of the model and by and large we have stayed very close to the philosophy of service offering.

How is the demand-supply gap of hotels being addressed

Unlike many other markets, India has a structured market and an unstructured market. This even applies to hotels. If you look at rated rooms, we have barely 1 lakh rooms in the country and there is a clear gap vis-a-vis the requirements. However, there are a lot of non-star rated properties. Many companies are also running their own guest houses. Then there are service apartments. When you put the whole picture together, I think we can manage. A service apartment or a guest house may be neat and clean and would meet the basic requirement in terms of food. But if a person is staying for a long period of time, he would need much more than that. And thats where hotels can provide a good experience and value for money. And thats exactly what we are doing.