Session Highlights

Tapping the mass maket

Mid segment and budget hotels can tap the huge opportunities in the mass market in India, reports Praveen K Singh

Discussing the characterisation and description of mid segment and budget hotels, the sixth session at HICSA deliberated on the need for budget hotels to cater to the mass market in the country. Opening the discussion, Uttam Dave pointed out that the largest opportunities in India are for those offering good quality products/services at prices that are affordable to the mass market. And therefore the budget hotels have great scope in the country. He said, in India, room shortage is most acute in the budget hotel segment. "If one looks for a hotel room under Rs 3000/night, he has very few options. Hotels in this price range are highly variable in quality, cleanliness, safety and service," said Dave.

Describing categorisation of mid segment and budget hotels, Dave said that upto Rs 1000 per night is a budget hotel, upto Rs 2000 per night is economy and plus Rs 2000 is the mid scale hotels.

Reyaz Mama said that Choice Hospitality is looking to add just as many economy rooms as luxury rooms, if not more, over the next three to five years. An estimated 100 economy hotels are being planned in India over the next three to five years by several Indian as well as foreign chains.

He said that the budget hotel model, with no frills and low overheads, is absolutely suited for India. Similar to low-cost airlines, budget hotels need to be designed and operated very differently from their full-service counterparts. "Budget hotels are about consistently good service, value-for-money pricing, low apex per room and reduced apex. The first two factors ensure high utilisation (revenues) and the next two drive profitability," informed Reyaz.

Cost factor

Describing the average costing of a budget hotel, Dave said, it comes to around Rs 15-20 lakhs per key. According to Mathur, Indian mid-market chains will soon face competition from foreign hotels, but these may be forced to price their rooms higher because of steeper costs. He estimated the growth in budget segment to be around 40 per cent a year over the next two to three years. Real estate prices have gone up by an average of 45 to 50 per cent over the last two years, estimated Dave. He said that for mid-market hotels, acquisition of land is crucial, but they are competing with malls and multiplexes, so the cost of land acquisition goes up, and the payback period is delayed. Mama believed that this was the reason why hoteliers were looking at suburbs in various other circuits.