The Hindu Business Line : A li'l bit of India ...

The Taj group will manage the Pierre in New York. This is in line with its global ambitions and may also have a salutary effect on its hotels in India.

The Taj, Mumbai: The Tatas want to take the brand equity global

SINCE July 1, the tricolour has fluttered atop one of New York's most famous landmarks, The Pierre, a luxury hotel in Manhattan that recently entered the Taj fold.

For the Taj, the event marks its re-entry into the US market after a long gap. The group had exited the New York Lexington and the Executive Plaza in Chicago in 1996 after running both properties for nearly ten years.

The group left these properties at a time when it was repositioning `Taj' as a luxury brand. The two properties, it was felt, did not match up to the luxury brand that the group sought to project.

Over the past several years, the Indian Hotels Company Ltd (IHCL), which runs the Taj chain of hotels, has extended its presence and diversified into a number of new areas such as budget hotels, service apartments and even safari lodges, the latter in association with an African company.

The management contract signed for The Pierre would appear to be significant to the Taj's overall market strategy given New York's importance as a gateway to the US and one of the most competitive luxury markets across the globe.

Besides the 56 hotels it operates in India, the Taj group, the flagship brand of Indian Hotels Company Ltd, now has 15 international hotels spread across the Maldives, Mauritius, Seychelles, Sri Lanka, the UK, the US, Dubai, Bhutan and Malaysia (Langkawi); the last four being added in the past six months alone.

In fact, the Tata group has followed a deliberate globalisation policy over the past few years in an effort to emerge as a global entity further down the line. Under the strategy, Tata Steel recently acquired NatSteel and Tata Motors bought Daewoo Commercial Vehicles.

According to R. K. Krishnakumar, Vice-Chairman, IHCL, besides extending its brand equity across the globe, the group's globalisation strategy is crucial to defending its domestic interests as well.

Announcing the management contract for the Pierre in June, Krishnakumar said the latest project fell in line with the group's strategy to internationalise its operations.

"We have struck a deal for an iconic property in Manhattan. We will undertake some renovation on it immediately after taking over. When we open to the public next year, we should be in charge of a luxury property," he says.

The Taj has big ambitions for the Pierre. It is expected to symbolise all that India and its traditions stand for, right in the centre of Manhattan. "We look forward to the Pierre standing for all that is impressive and representative of the Taj and of India at large," said Krishnakumar.

According to Debashish Mukherjee, Manager at consultancy A.T. Kearney, hotels are increasingly catering to global travellers who would like to be in the comfort zone of known brands even while abroad, so that they can enjoy the benefits of being linked to a frequent stay or loyalty programme.

Further, this phenomenon is not limited to the hospitality sector alone, he said. Leading Indian companies across several sectors are actively looking to expand globally. He cited Titan as an example. Since making its first international foray in 1991 with a store on the Champs Elysees in Paris, the company is today present in almost 30 markets worldwide with a 2,500-strong dealer network, he said.

The Tatas aiming to be a global brand in the hospitality business is a step in the right direction and should come as no surprise. The only difference here is that while others have adopted co-branding/alliances (like East India Hotels and ITC Welcomgroup for example) to enter foreign markets, the Tatas are going on their own, says Mukherjee.

He adds that the management contract route to expansion was a win-win for both the hotel seeking the property as well as the owner. This is, in fact, one of the oldest mechanisms in managing hotels globally, especially heritage ones.

Also, individuals owning prime property in the business districts of cities would not like to sell out. For the hotel brand, taking over a hotel property on management contract restricts the former's risk of operations to paying the management fee, rather than bearing the interest cost for such a large investment for a comparable property.

Commenting on the Taj group's recent forays abroad and the spate of management contracts it has concluded with hotel properties across the world, Manav Thadani, Managing Director, HVS, a hospitality consulting firm, said this mirrored the expansion strategy adopted across the hotel industry where management contracts were considered the fast and efficient way to growth.

"It is certainly a good move by the Taj to acquire hotels in gateway cities for two main reasons: First, with more and more Indians travelling abroad on business, the presence of a familiar brand would make it one of the top choices for the business traveller. The same brand recognition would also work in the reverse direction, with the international traveller on a visit to India. The Pierre's presence in the centre of New York and its close association with the Taj would result in a degree of brand recognition when they come down to India. The group could thus exploit this brand familiarity rather than pour resources into marketing campaigns for the same objective."

He adds that with hotel chains globalising their operations, management contracts had emerged as the quickest and efficient way to expand operations, with a minimum of capital investment.

Thadani feels that there are no downsides to the Taj group's global expansion plans. Talking specifically about the Pierre, he says the only downside to the deal is that a number of the apartments in the hotel are permanently occupied by members of the co-operative that owns the hotel. To that extent, the actual number of rooms available at the hotel come down.

In fact, under its earlier plans, the Taj had considered buying a property in the US in conjunction with a partner.

Under the agreement reached with the cooperative that owns the Pierre, the Taj group will pay an annual lease of $5 million each year for the property. The management fees negotiated would be comparable with rates for similar properties across the world, according to Raymond N. Bickson, Managing Director, IHCL.

The average room rate in the five-star category is currently between $450 and $500 per room per night. But Bickson believes the average room rate could become even more competitive post-renovation. He is optimistic about the profitability of the group's US venture in a booming market with a shortage of rooms.

"The hotel industry has turned itself around. We are entering at a time when the future looks bright for the industry in New York, which has a shortfall of 2,000 rooms in a booming market," said Bickson.

Encouraged by the latest addition to its portfolio of properties, the group is now looking to extend its footprint to other gateway locations including the West Coast of the US, Europe and China.

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