For the first time in over a decade, India’s planned supply of branded hotel rooms has crossed the 100,000 mark. Interestingly, the mid-market and upper mid-market segments account for half of this pipeline while luxury rooms account for less than 5%.
If hoteliers and developers are placing their bets on mid-range hotel brands, it is because the evolving demographics and a growing middle class are fuelling demand for branded rooms.
Midmarket and upper mid-market hotels are those that typically charge between Rs 4,000 to Rs 8,000 per night. What could give a fillip to this segment is the reduction of goods and services tax (GST) to 5% from 12% for tariffs up to `7,500. All other segments attract 18% GST.
“Over 80% of this mid-market and upper mid-market inventory is planned in tier 2 and tier 3 cities. This geographic skew reflects a deliberate strategy by hotel companies to tap into the growing demand for branded, affordable accommodations in emerging markets,” a report by Hotelivate noted.
Only a few weeks before the reduction of GST on mid-market hotels, India’s top two hotel companies – Marriott and Indian Hotels Company – bought equity stakes in companies that own or manage hotels in the mid-market segment.
Marriott invested in Mumbai-based Concept Hospitality to bring its flagship brands – The Fern, The Fern Residency and The Fern Habitat – to be run under a new brand called Series by Marriott, created specifically by the US-based world’s largest hotel chain for this venture. The Fern has a portfolio of midmarket business and leisure hotels totalling 115 properties having 8,000 rooms. It has an average room rate of under `6,500 per night.
In August, Tata group-controlled Indian Hotels Company (IHCL), which runs the Taj chain of luxury hotels, bought controlling stakes in two companies – ANK and Pride – that run 135 midscale hotels, further bolstering its presence in the segment where it has the Ginger chain of properties.
With properties in Tier 2 and Tier 3 cities like Hampi, Haridwar, Indore, Bareilly, Ajmer and Lucknow, ANK Hotels and Pride Hospitality have brands such as Clarks Inn, Clarks Inn Suites, Clarks Inn Premier, Clarks Safari, Clarks Collection and Clarks Resort.
“The mid-market and upper mid-market segment is a low-investment, quickly scalable concept with a lower cost of operation but generating healthy returns. The gestation period is also much lower than the luxury segment,” said a Mumbai-based hotel consultant.
However, not all hoteliers are going after the midmarket segment. Mumbai-based K Raheja Corp-promoted Chalet Hotels debuted in the premium lifestyle space with the launch of Athiva Hotels & Resorts. The upscale brand will compete against the likes of Taj, Marriott and Hyatt properties.
Sanjay Sethi, MD and CEO, Chalet Hotels, told FE, “I have run mid-market hotels as the founder of Key Hotels many years back. Though they are budget, most brands call it mid-market because it sounds better. Margins are tight, and they are very sensitive to geopolitical situations. Luxury and mid-market, and below, are the most sensitive segments of the hospitality industry.”