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Octave Hotels, a mid-market brand that operates a seven-hotel chain in Bengaluru with a total inventory of 250 rooms, plans to expand its footprint in the South over three years to run 20 hotels with an additional 350 rooms.
It has adopted the lease model, wherein it takes over the management of 20/50- room city-centre hotels that are struggling, renovates and turns them around to make them successful both in terms of profitability and customer service. The typical lease period is eight-nine years.
“Our chain of seven hotels in Bengaluru enjoys 75 per cent occupancy all year round. More important, we have achieved gross operating profits of over 30 per cent despite paying market rents for these hotels,” Siddharth Goenka, Managing Director, Octave Hotels, told BusinessLine . “We achieved this by automating manual processes, cost optimisation, using dynamic pricing and automated revenue management, and technology to track customer feedback and align incentives of staff.”
The company is looking to open the next 13 hotels along the IT corridors of Hyderabad, Chennai, Mysuru, Kochi and Coimbatore, for which it will make a one-time investment of ₹5-7 crore, which goes towards the deposit to the owner of the distressed hotels and their renovation. Additionally, it will incur recurring rental costs which will be paid to the hotel owner — this ranges between ₹3 lakh and ₹8 lakh, depending on the location.
Domain expertise
“The hotels that we are looking to take over are typically built by landlords or businessmen who have no domain expertise in running hotels; after a few years, they end up with distressed assets. We are willing to pay rentals of ₹500 per room/night to such hotel owners, who are guaranteed a fixed income per annum. We usually recover our one-time investment costs in two years,” said Goenka.
Octave charges ₹1,400-3,500 per room/night. Fifty per cent of its business comes from the IT sector and business travellers, 30 per cent from leisure travellers and the rest from small business owners/traders.
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