WHILE SEVERAL new players—which have mushroomed in the past few months and are offering accommodation at cheaper prices in great locations with a host of attractive products and services—have shaken up the market by catching the attention of not just Netizens on the move, but also venture funds, mid-market and budget hotel chains like The Lemon Tree Hotel Company say their business is not affected.
“While they are becoming a marketplace for the fragmented guesthouse market, they have not been able to build a brand around quality. Customers who visit these places often have unpleasant experiences because these new players are not managing the quality of the guesthouses—they are just aggregating them,” says Patu Keswani, chairman and managing director of Lemon Tree Hotels, adding, “I don’t think it will really affect us. They may help organise the unorganised sector and distribute the properties better, but until and unless they sort out the quality issues, the concept won’t work.”
Founded in 2002, Lemon Tree is considered to be the pioneer in the mid-scale and economy hotel segments. Starting with just one property in Gurgaon, Lemon Tree currently owns and operates over 3,000 rooms in 27 hotels in 16 cities across India and claims to be the third-largest hotel chain in India by owned rooms.
The hotel chain currently runs its businesses under three brands—Lemon Tree Premier (upscale), Lemon Tree Hotels (mid-scale) and Red Fox Hotels (economy). While Lemon Tree Premier is currently present in Gurgaon, Bengaluru, Hyderabad, Delhi, Jaipur and Ahmedabad; the company operates its mid-scale brand across cities such as Bengaluru, Ahmedabad, Aurangabad, Chandigarh, Chennai, Dehradun, Delhi, Gurgaon, Hyderabad, Indore, Pune and Vadodara, among others.
Lemon Tree’s journey in the budget space started with Red Fox, a chain of limited-service budget or economy hotels, which it launched in mid-2006 after American private equity firm Warburg Pincus reportedly invested R280 crore in the company. Currently, Red Fox is present in four places—HITEC City, Hyderabad; Jaipur; east Delhi; and Delhi Aerocity complex.
The average room rate (ARR) of Red Fox is Rs 3,000 depending upon the location. The corresponding figures for Lemon Tree Hotels and Lemon Tree Premier are Rs 4,500-Rs 5,500 and Rs 5,500-Rs 6,500, respectively.
As per Keswani, by the end of 2018, Lemon Tree plans to own and operate over 8,000 rooms in 60 hotels across 30 major cities, including both business and leisure destinations.
Commenting on the sky-rocketing valuations of tech start-ups within a short span of time and the heightened investor interest among these new online players, Keswani says it’s nothing but a bubble at the moment. “They are only chasing growth because their valuation is based on that and not on profit. They are buying rooms from guesthouses at, say, Rs 1,500 and selling them for Rs 1,000. It’s a crazy market. But how do you make it a profitable enterprise? If they price a room for, say, Rs 1,800 after buying it for Rs 1,500, then they could be competing with a Red Fox or a Ginger. Only then will there be a paradigm shift,” he explains.
However, Lemon Tree is well aware of the changing market dynamics and the potential that the fragmented market presents. “We are already working towards a comprehensive strategy to stand our ground and effectively counter new competition,” says Rattan Keswani, deputy managing director, The Lemon Tree Hotel Company, and chairman, Carnation Hotels.
Lemon Tree has upgraded its website, introduced a mobile website and is soon introducing a mobile app. “We are abreast with technology and the changing times. We have made all our platforms very robust and interactive in an attempt to provide a seamless and quick-booking experience to our e-visitors,” explains Rattan Keswani.
Besides Lemon Tree, other Indian players currently active in the branded mid-scale to economy sector include Ginger Hotels (from the Taj group), Fortune (a member of ITC’s hotel group) and Sarovar Hotels. Most of these hotel rooms are available for a starting price of Rs 2,000-Rs 3,000.
