‘Our India expansion plans are focused on the mid-scale segment’

Global hospitality chain InterContinental Hotels Group (IHG) plans to focus on the mid-scale hotel space in India. IHG has a pipeline of 47 hotels in India under various stages of development, the second-largest in the Asia-Pacific region after China.

At present, it has 13 hotels in nine cities under the InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express brands. Douglas Martell, Vice President - Operations, South West Asia, IHG, talks to Business Line about the strong future demand for mid-scale hotels in India and the group’s strategy.

What are your expansion plans in India? Which segment will you focus on?

We want to open 150 hotels across the country by 2020. Our expansion plans in India are focused on the mid-scale segment which for us is the Holiday Inn and Holiday Inn Express brands.

The Indian hotel market is being driven by the boom in domestic travellers with year-on-year double digit growth and 850 million domestic travellers and 6.3 million inbound tourists.

The mid-scale hotel space in India offers a compelling investment proposition given favourable demand-supply dynamics and an attractive build cost to operating returns. We forecast strong future demand for mid-scale and select service hotels in India. Our strategy in India is to have a significant presence across key business hubs, secondary cities or hubs which have an intrinsic need for quality hotels and the right demand drivers in place.

How many hotels will you open in India in the coming years?

We have a pipeline of 47 properties under various stages of development. In 2013, IHG plans to open five hotels including two Crowne Plaza, two Holiday Inn and one Holiday Inn Express properties.

We have been in India for nearly 50 years and understand the country. We have formed two strategic partnerships that will support our growth. We have a 20-year management contract with Duet India Hotels Group to develop 19 Holiday Inn Express hotels (3,300 rooms) the first of which opened in Ahmedabad last year. With the Amrapali Group, we will open six hotels – two Holiday Inn and four Holiday Inn Express. Key locations are Noida Extension, Indore, Jaipur and Kochi.

What would be the company’s strategy for its India expansion?

There is huge headroom for growth as India’s internationally branded hotel market is about the same size as Singapore and Bangkok. There is a strong local demand for branded hotels that people know and trust and there is a clear gap that exists in the mid-scale segment. Given the increasing demand for mid-scale hotel rooms, we’re currently focused on expanding our Holiday Inn family of brands. Over 85 per cent of the hotels we will open in the next few years are focused on the mid market. Both Holiday Inn and Holiday Inn Express addresses the current gap in the need for international standard, value and convenience based hotels.

In the recent past many international budget hotel brands have entered India. How do you see the Indian hospitality sector changing due to this?

The hospitality industry is meeting local market demand. We are seeing strong demand for internationally branded mid-scale hotels as travellers realise the benefits of staying in these hotels whether they travel for business or leisure.

Our development pipeline is strong and deliverable and we look forward to strengthening it further.

What challenges do you face in India?

The hotel industry is a cyclical business. There are no challenges on the demand front, as the market is under-developed and needs more hotels. However, it generally takes longer to open a hotel in India than it does in other parts of the world - on an average it takes between three to four years from signing a contract to opening a hotel.

One of the key challenges is infrastructure in India and the increasing cost of land. Finding the right business partner, someone who is in the business of building hotels is another challenge. In the hotel industry, partnering with the right developer is critical to the success of the project.

Hotel projects are especially complex in India because of the multitude of approvals and permissions that are required and this imposes significant delays on the project. That said, India is a key destination and these challenges should be addressed to support the hospitality sector.

From a global perspective, how important is the India market?

India is an extremely important market for IHG as it has our third largest pipeline globally and second largest in the region behind China. We see incredible growth opportunities especially with continued growth of the domestic market and the rise of ‘new cities’ that will be developed over the next decade. McKinsey suggests that 400 largely unknown mid-scale cities mostly in India and China will generate 40 per cent of global economic growth during the next 10 years.

What is your outlook for the Indian hospitality sector?

The overall outlook of the hospitality industry seems optimistic. The Indian market is becoming a lot more competitive and this is a good sign as it reiterates the potential and is a sign of growing market. We think the biggest growth will continue to be seen in the mid-scale space with the upscale segment following closely behind.

There has been a phenomenal growth in the secondary and tertiary cities besides the metros. The driver for growth is coming from the burgeoning domestic market which is where the greatest demand for hotel rooms is coming from.

While international visitor numbers are increasing, the figures clearly show that the domestic market is where the big opportunity lies. One of the drivers behind this is the burgeoning middle class.

We see increasing demand from domestic business travellers seeking a hotel with an international brand at great value. Given that business travellers in India spend on average 27 nights away per year, our Holiday Inn and Holiday Inn Express brand are well-positioned to address this demand.

> nivedita.ganguly@thehindu.co.in

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