Strategy

Going for a mix

Due to rising land prices, hotels are today adopting concrete business models for quick returns and are therefore going for mixed-use developments. By Praveen K Singh

The trend for mixed-use of hotel land originated due to the escalating real estate prices and growing interest rates. The hotel developers want to make their projects viable and in those terms there is no other option than to put in other facilities along with the property to make it feasible. Hotel consultants say that almost every new developer wants quick money and therefore asks for avenues that can give maximum returns. Hotels are therefore fine-tuning themselves with added features like malls, a golf course, a hotel management institute, multiplex, convention centre, etc.

According to a joint study conducted by FICCI-Evalueserve, due to high rising land prices and unpredictable taxation norms, the hotel developers are not convinced of quick returns. The problem is more with the budget category of hotels, as they have to cough up more money in the beginning. Says Ashok Agarwal, a hotel consultant, "With land prices going up, most budget brands can't be accommodated in the larger cities unless there is mixed-use development. Consequently, new developers are adopting mixed-use to get faster returns."

Echoing his views is Ajoy Mishra, senior vice president of IHCL, who says, "Due to escalation in real estate prices, most of the budget segment properties in big cities will face trouble. But using mixed-use development could be an answer to this."

Agarwal explains that every developer tries to form a business model based on the segment they want to operate in. "This model allows them to methodically make calculations about the business. It allows them to plan processes and offerings by first relating them, then categorising them, and then forecasting and ultimately devising them," he says.

On the other hand, Abhinash Manghani of Fortune Select feels that the risks can be reduced by having investment revenue flow through multiple revenue streams. "This is what a majority of new developers are targeting. It depends on the owner as to which business model they want to adopt," he says.

Feels Peter Leitgeb, president and CEO of The Claridges Hotels & Resorts, "It's up to the hotels as to what kind of environment they create. Along with business, there are other considerations as to how one can promote their chain."

Fixing together

Predominantly, due to their constrained budgets, hotels in the economy segment are redrawing their business strategies. Some are tying up with mall owners to locate their properties within mall premises. Says hotel consultant Sunil Khanna, "This trend is catching up and is also a world-wide phenomenon. Hotel developers are developing hotels inside malls so that they can cover up the floor area ratio." Appreciating the mixed-use model, he says that if done appropriately it can give maximum earnings, provided the developer goes far in making it fine experience.

SM Azmat, joint president (sales & marketing) of Jaypee Hotels, believes that the strategy of positioning the hotels should be based on the location of each unit, their inherent strengths and the niche in which they operate. He says, "Though the common factor for all Jaypee Hotels is that they are located in destinations for upmarket business travellers, the target market changes with each location. For example, Jaypee Palace Hotel & Convention Center, Agra and Jaypee Residency Manor, Mussorie are destinations for business conferences, training, seminar and dealer incentives whilst for Jaypee Vasant Continental and Jaypee Siddharth, New Delhi the main customers are individual business travellers looking for personalised and efficient services. We fulfill the needs of these business travellers with the availability of well-equipped business centers and wireless services. In addition all our hotels cater to the discerning leisure/family travellers. Similarly, Jaypee Vasant Continental, New Delhi with its proximity to domestic and international airport as well as the diplomatic area, caters well to the airline and diplomatic community."

Azmat considers that such a mix ensures a good level of occupancies and doing away with the 'off-season'. He says, "We have positioned our company to cater to the needs of business travellers as well as the family travellers. Besides rooms, the other revenue earning centres for us are the international convention center at Jaypee Palace Hotel & Convention Centre, Agra, updated conference/banquets halls at Jaypee Residency Manor, Mussorie, Jaypee Siddharth and Jaypee Vasant Continental at New Delhi. Similarly, specialty restaurants like Paatra, Ano-Tai, Eggspectation, Spice Pavilion, Regency have created their own niche in the respective markets where they are located. All these restaurants do excellent business and are good source of revenue."

Some hotels are also going for health centres. For example, Atrium, a property of The Claridges, situated in Surajkund (NCR), offers an impressive 3000 square feet of health centre called Energy. Manoj Thapa, its general manager, informs, "We have leading brands of cardiovascular and strength training equipment. Backed by expert trainers, Energy provides a holistic fitness experience and an unmatched array of health services." He says that Atrium is also being promoted as a best venue for banqueting in Delhi NCR.

All in all, mixed-use development is becoming the norm today with every new hotel developer adopting several mechanisms that create a destination for meeting, shopping, recreation and entertainment. There was time when hoteliers wanted nothing more than F&B outlets. Now they are making their properties as destination in themselves. This trend is here to stay as more and more properties will incorporate mixed-use development with facilities like golf course, fitness centres, amusement centres, water parks, conference centers, ski-hills, etc. They will even develop residential projects like vacation and second homes.