‘Government must give more incentives to budget hotels’

The mid-market hotel segment is set to grow rapidly. P. K. Mohankumar, the new Managing Director and Chief Executive Officer of the Ginger hotel chain, run by Roots Corporation Ltd, a unit of Indian Hotels Co Ltd, is keen to increase the number of Ginger hotels to 50 by 2015. The hospitality chain, which recently opened its first Ginger Hotel in Mumbai and its second in Bangalore a month ago, is now eyeing the metros for further expansion. Mohankumar spoke to Business Line about the group’s strategy and future plans.

Excerpts:

You have been the Taj group of hotels for over 35 years and have worked in different segments of the hospitality industry. How has the journey been? What will be your strategy for Ginger hotels?

Each brand has its own space. Today, you have the young profile of Indians travelling across the country. For them, it is not the luxury segment, but a brand like Ginger that is more attractive.

The hospitality industry, at one point, was heavily dependent on foreign tourist arrivals. Everything was about tourism. But with the liberalisation of the Indian economy, there has been a metamorphic change. It threw open great opportunity for the hospitality industry to redefine each segment. Now, you have a lot of international corporate travellers coming into the country. Corporate travellers look for value-driven chains. Roots Corporation is a pioneer in this new segment for budget travellers.

What were the challenges in the mid-market hotel segment?

When we set up, the original concept was to give rooms for less than Rs 1,000 . Building Greenfield hotels and micro markets were our focus. But in India, the biggest cost factor is land.

The challenge was to buy land and build a hotel at Rs 18 lakh a key (at that point of time it was Rs 10 lakh a key), recovering the cost of investment was difficult. But, we went ahead and expanded the brand Ginger without looking at short-term gains.

The challenges in this segment are many. Very few players have entered the budget or the economy space. The mid-market hotel segment is not a mature market as yet. The infrastructure for this segment has not yet been recreated.

India is all about mid-market, in terms of hotels and travel. Last year, about 700 million people travelled domestically. The estimated requirement in the budget and economy segment is about 50,000 to 70,000 rooms at a cost of Rs 18 to Rs 20 lakh a key. This does not include the cost of land.

Which assignment was more challenging for you and why?

Ginger is the most challenging assignment for me. Which brand has ventured into the metro to sell rooms at Rs 1,800? It’s a huge challenge. We have a hotel in Andheri (Mumbai) today at that rate. Yet, the hotel is making Gross Operating Profit. But leveraging the corporate costs and bringing in the returns that is required in terms of investment is a challenge. To achieve this, we will have to scale up and bring in 10 Gingers in Mumbai and Delhi. That’s a huge challenge.

What will be your expansion strategy going forward?

We are exploring various options — from greenfield to brownfield and also conversion of existing operations and management contract route. We are also looking at the franchise option.

There are thousands of hotels in the budget segment in the unorganised sector. To convince them to take up the Ginger brand and be part of the organised sector, is a challenge. Especially in the south, this market is highly mature, unlike the north or east. But most family-run hotels are now facing the heat with branded hotels entering the market. What incentives do you feel are required for the hospitality industry, especially the mid-market segment?

The Government needs to bring in more incentives for the budget and the economy segment. Today, the rules are designed and tailored for luxury and upscale segment. It’s not a level-playing field.

For a Greenfield Ginger hotel to get the approval time, it takes the same amount of time as a luxury hotel. Also, the sector has not yet become a powerful lobby to influence policy making.

What are the expansion plans and funding arrangements?

The funding for future expansions will come from equity and not from debt.

At present, we have 60 per cent of the market share with an inventory of about 2,500 rooms.

But the potential is for 50,000 rooms. There are foreign brands coming in. Right now, we have 27 properties and 10 more are in the pipeline in the next one year at an investment of Rs 50 crore. By the end of this current fiscal, we will have 30 to 36 operating Ginger hotels. We will have four to five launches this year and sign up at least 10. The next launches will be in Jaipur, Amritsar, Chandigarh, Delhi and Bangalore.

We are fast reaching the break-even level. Occupancy levels in metro cities are about 75 per cent now.

Why didn’t you start from the metro cities when you first launched the brand? Why is the focus on the metros now after you expanded in the Tier-2 cities?

At that point of time, the challenge was the cost of investment. It was a completely new concept. The business model would have worked out only in Tier-2 and Tier-3 cities. Now, with the funding coming in from Tata Capital, we are a lot more confident to venture out to cities like Mumbai and Delhi.

We have already signed up couple of Ginger Hotels in Mumbai. The visibility should be high in cities like Delhi and Mumbai for the brand to come up at the national level. The current stage of the budget and economy segment is at a nascent stage.

> nivedita.ganguly@thehindu.co.in

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