Cover Story

Innovation unlimited

Sparked by competition and a bid to ramp up profits, the hospitality industry is undergoing a rapid transformation. Vikram Kharvi sees an inferno in innovation building up, the like of which has not been witnessed in the country before

Today's ever-expanding global economy is witnessing hospitality players scrambling for a share of the Indian pie. Every possible innovation, marketing gimmick, alternate revenue streams coupled with the dynamism of branded products and services are being integrated by them into the system for enhancing revenue and to keep ahead of competition.

Boasting a customer base that is wealthier and more technologically savvy than ever, hotel owners are hell-bent on competing for the attention of this mushrooming tribe, boasting of a customer base that is wealthier and more technologically savvy than ever. A look at the latest trends in hospitality reveals a scenario where the drift is towards convenience of technology, luxurious settings and a more relaxed use of space.

Of course, change has been the one constant, as it will be in the future. As hotel revenues continue to soar, it will enable organisations to finally look to deferred investments in their infrastructure and to plan ahead. Such investments being entered into are being made carefully, ensuring appropriateness and providing the flexibility, and adaptability necessary to meet future needs and innovations.

The accent is clearly on innovative investments in non-core and non-differentiating functions offering alternative revenue streams. Hospitality companies will continue to increasingly focus their capital investments in truly differentiating functions, while turning to outsourcing and its many benefits for all that is non-core.

Desperately seeking alternatives

Conventionally, business centres, airport transfers and laundry have proved to be an alternate revenue source for a hotel. Telephone services made a significant contribution to the bottom line. However, with the usage base of cell-phones expanding, the profit levels have dwindled. Hence, exploring new alternate revenue streams has become an imperative that hotels can no longer afford to ignore. Developing an alternate revenue stream does require a long-term strategy and good business vision. According to industry sources, one can remain focused on the big picture and clearly see the best options for creating revenue sidelines by working 'on' one's business instead of 'in' it. However, one important point to keep in mind when developing revenue streams is that they should be complementary to each other. This will allow the products or services to cross-promote each other, appealing to the same customer demographics.

In the hospitality segment however hotels, independent or boutique, are setting new competitive standards for products and services. The traditional focus of a hotel being merely rooms does not hold water any more. The RevPAR (revenue per available room) formula has undergone a transformation to RevPAG (revenue per available guest). What is important for anyone opting for such alternate revenue options, whatever it may be, is they have to do it at the profit level. Because of varied margins, different revenue streams do not net the same profit. It is about optimising the bottom line instead of the top line. Alternative business opportunities are aimed at maximising revenue and profitability for rooms, F&B and meeting facilities.

To gain market power in such an environment, it is important for these sectors to achieve economies of scale by reducing transaction costs, increasing productivity and better still, developing alternate sources of revenue. These are an attractive source of cash flow that complement the core business income and creates a cushion for business volatility. Revenue sidelines help organisations adapt to market changes quicker as they provide a safety net for business risks. Though they may not know it, companies are also creating an inexpensive means of expanding their business.

Alternate revenue streams can produce unexpected sales treats. A look across several major verticals - travel agents, tour operators, airlines, hotels, cruise liners and global distribution system (GDS) companies - showed that while in some cases the alternate business stream was necessary, for others it was only an option that contributed a negligible amount to the bottom line. But one thing is for sure - in future alternate streams will become a necessity rather than an option.

Innovation unlimited

In the new avatar, 'convenience,' offers multiple environments to in-house guests, visitors who may be attending weddings, conferences, etc and also regular walk-in clients in the way of mixed-use developments. Guests can enjoy an all-in-one experience of stay, wine and dine, business, spa together with the convenience of shopping. The strategy of offering all-under-one-roof is seen as an USP of the property.

More and more hotels are looking to integrate into mixed-use developments - planned unit developments that can include service apartments, restaurants, nightclubs, retail shopping, movie theatres, fitness centres, health spas, recreation, sports and entertainment centres such as casinos, climbing walls, arcades, amusement parks, indoor water-parks and family entertainment centres. The Grand Hyatt, Mumbai set up its shopping plaza spread across 1,00,000 square feet comprising two levels around a central atrium. Housing a separate shopping space has worked well on the international circuit. Grand Hyatt Plaza has 55 stores leased out as per set contracts, which has top-of-the-line multiple brands. The innovative approaches hotels are resorting to so as to rake in revenue are limitless. For example, providing showcases and branding opportunities to brands that fit with the hotel's image, day-care centres, offering video-conferencing facilities to guests. Hoardings, advertising liquor companies, branded apparels, music, and fashion goods in the lobby can also form an extension of a hotel's existing revenue sources.

Hotel merchandising can also be made available in the shopping arcade. Car parking in the hotel premises, movies on-demand, in-room mini bars, gifts that can be bought from rooms, ticketed shows, pastry counters, pre-cut portions of meat, cold foods such as salads and desserts, ticket reconfirmations, visa processing, horticulture consultancy, etc are formidable alternate revenue options. Param Kannampilly, director of The Orchid, claims, "Nearly 10 per cent of our total revenue comes from alternate business."

Westin Hotels, a Starwood brand introduced at all its properties, India included -a signature product, the 'Westin Heavenly Bed'. The idea was to exchange hotel beds for a more comfortable, 'home-away-from-home' like version and to use this innovation as a means to differentiate, stems from Starwood Hotels & Resorts, a company regarded widely as the industry's innovator. A good number of many hotel chains are also joining the bandwagon with their version of a 'good night's rest'. Hyatt has come up with the Hyatt Grand Bed, Marriott - the Revive Collection including the Marriott Bed, Radisson - the Sleep Number Bed, and Hilton - the Hilton Serenity Collection, to name a few. This super-comfortable enhancement has, according to industry sources, developed a loyal following.

Hotels are also cashing in on the wellness and health trend and many business hotels in India are integrating full-fledged spas on their premises, originally a mainstay of resort properties. Kick-starting the trend, Taj Business Hotels' rolled out Jiva spas across all its twenty-three properties. Spas that were considered an additional facility are now an expected amenity. K B Kachru, executive vice president (South Asia), Carlson Hotels Asia Pacific, observes, "It has become trendy to have a spa or a night club on the premises. With today's hectic lifestyles, spas are getting more and more popular with hotel guests. However, unless the spa/gym has local membership, it is not really an alternate revenue spinner in a big way as maintaining equipment and manpower are huge costs."

Going niche

A pioneer in the concept of catering to the niche segment of budget travellers, Indian Hotel Company introduced a budget hotel brand. Touted to be the 'Smart Basics' hotel, IndiOne (renamed Ginger) provides quality service at reasonable price. The brand has forced even luxury hotels to tap opportunities that are in this segment. Uday Narain, CEO of Roots Corporation, says, "We have been able to assess the requirements of a budget traveller after extensive research based on the operational and capital costs combined with the needs of the traveller. Ginger provides certain essential services such as the Wi-Fi connectivity, an ATM and a cyber café." Priced at Rs 999 per night per room, Ginger presently operates in Bangalore, Bhubaneshwar and Haridwar with plans to open up in Mysore, Pune, Goa, Thiruvananthapuram, Durgapur, Nashik, Agartala, Pondicherry and Tripura.

A boutique hotel, another niche segment, tends to attract a different type of traveller - one who is young, independent, casual, and one who is always seeking new experiences. Priya Paul, director of the Apeejay Surendra Group, explains, "People check in at boutique hotels because besides being fashionable, it offers them an experience not a product. Professional, intimate and personalised services are prominent features of these hotels."

Yet another big success has been in the heritage hotels segment. A number of old forts, palaces and havelis have been restored and converted into heritage hotels, especially in Rajasthan. Today, there are almost 80 such hotels in India including Umaid Bhavan Palace (Jodhpur), Lake Palace Hotel (Udaipur), Rambagh Palace (Jaipur).

From a seven-eight brand hotel market a few years ago, India will be a 40-brand hotel by 2010, redefining both the personality and structure of the hospitality industry as it stands today. Clearly, some very important changes will be required, at micro and macro levels, and these adjustments will become dominant issues for the industry in the next three to five years.

The boom in the hospitality industry will grow at a faster pace in the near future with a host of players from other sectors moving in to take a share of the booty. A large number of allied services and products will no doubt get integrated into the system all geared to influence and lavish customers with luxuries and facilities that satisfy and cater to their needs and desires. With the influx of international brands and global funds, the Indian hospitality sector will witness fundamental alterations in its organisation and management and the industry's impact will be felt in corporate boardrooms.