India File

The new inn-keepers

Chitra Narayanan | Updated on January 11, 2018 Published on May 08, 2017

Savvy hoteliers Hotel owners like Rajat Pahwa, who owns several budget hotels in Delhi, are now moving away from pure asset play to focusing on brands Ramesh Sharma   -  Ramesh Sharma



The hospitality industry may be known by the likes of Taj and Oberoi. But hotel owners are now emerging from the shadows of big names and transforming the industry. Chitra Narayanan reports

Rajat Pahwa, Chairman, Gautam Hotels and Knife Arts Catering, is a walking encyclopedia on Delhi’s hospitality scene. Over the last five decades, he and his extended family — uncles, cousins et al — have opened around 50 budget hotels in the National Capital Region. “Our family actually pioneered the guest house business in NCR.

The first hotel in Pahagarganj, Nataraj, was ours. The first hotel in Karol Bagh was ours,” he says. Yet,nobody in the family had thought of creating a brand for their hotels, until Rajat. “That’s because the family treated it as a real estate play, investing in land, building a hotel and running it, until the asset appreciated and then it was sold off,” he says. Today, that outlook is changing, led by Rajat, who brought five of the family hotels under an umbrella brand called Gautam Hotels.

But now, he has decided to stop running these hotels, and handed over the keys to professional hotel operating companies, so that he has the time to focus on scaling his F&B business. Two of his hotels — Gautam Residency in GK, Delhi and Gautam Retreat in south city Gurgaon — are getting a makeover so that they can be branded as Oyo Townhouse (the aggregator’s upmarket offering).

Why Oyo? “Had hoteliers been running Oyo, I would not have given my keys to them. I pretty much do it the same way. But Oyo is led by a tech team and does things differently. That’s the only thing that attracted me,” says Pahwa.

The entrepreneur in many ways epitomises the change in the way the country’s hotel owners, including of budget and up scale properties in the organised as well as unorganised segments, are now looking at their assets. They are upgrading rooms, putting in bells and whistles, handing them over to brands to operate and demanding high returns.

Hotel consultancy HVS estimates there are nearly 1.2 lakh branded rooms (these do not include rooms of aggregators such as Oyo). Industry estimates on the unorganised segment vary from 5 lakh to as much as 10 lakh rooms. According to the Union Tourism Ministry, there is a shortage of 200,000 hotel rooms in India.

Till now brands, including Oberoi, Taj, ITC, Marriott, Hyatt, Hilton and Radisson were the face of Indian hospitality. With many foreign chains bringing in their marquee labels to India in the last decade, and the birth of at least 20-30 new Indian names, the clout of brands grew.

But now there is a subtle power shift as a growing band of ownersare emerging from the shadows, becoming visible, taking an active interest in how their hotels are run, and even taking on the brands.

Invisible to visible

Despite their prominence, just a small percentage of India's hotel rooms are actually owned by the hospitality brands.

The real owners, like Pahwa, come in all shapes and sizes ranging from real estate companies, textile magnates, infrastructure majors, high net worth individuals, industrialists, politicians and businessmen with spare cash, and former royals.

For many of these owners, hotels was just a side investment. As Pahwa says, “I can name at least 100 hoteliers in Delhi and its neighbourhood who have not visited their properties for six months despite operating them.”

In the days of License Raj (and sometimes even today), several people built hotels to curry favours with politicians and bureaucrats, who were given free access to the rooms. For another set of owners hotels were a trophy address to flaunt. And there were those, including GVK (it has a JV with the Taj Group) and InterGlobe (the owner of IndiGo has a tie-up with Accor) who bought hotels to integrate their travel related business.

For a few — especially scions of industrial families — it came down as a family heirloom, or accidentally landed in their balance sheets through acquisitions. For instance, the RPG Enterprises Chairman, Harsh Goenka owns the Taj Connemara, Taj West-End and the Savoy in Ooty through his father, the late R P Goenka’s acquisition of Spencer’s.

Till now, most owners preferred to remain discreetly in the background. All that is changing. The owners, which also include real estate companies such as K Raheja Corp, Brigade group and Prestige group, are ruthlessly taking the operating chains to task if returns are not adequate.

They are also not averse to sacking chains - take the way Eros Group banished Hilton and signed on InterContinental group to manage its twin towers in Delhi, or the way DB Realty changed the flag on its hotel at Sahar from Le Meriden (a Starwood brand) to Hilton. So it’s not surprising to hear Raj Rana, CEO, South Asia Carlson Rezidor say, “The biggest pleasure in my job as a management company is when an owner renews a contract with me.” Mounting the pressure on brands, some of the hotel owners are banding themselves into associations. For instance, an Owners’ Association for Marriott has convinced the US firm that imposing certain brand standards in the Indian market will not work.

Achin Khanna, Managing Director of consulting and valuation practice at HVS South Asia believes "Owners today have a higher negotiating power, thanks to the larger canvas of brands to choose from, even as for the hotel chains, investment opportunities are shrinking." Also he points out that owners today have a lot of advisory help in the shape of consulting firms. "When it comes to operator search, we at HVS have sat squarely on the side of the owner," he says.

An important reason why owners are now beginning to take more interest in their properties is that we are entering an up-cycle in India after years of depressed rates. This is the period to capitalise. Ownership is a high risk, but high reward game unlike management in which returns are low but risks too are less. With contracts now increasingly skewed in their favour, owners are getting ready to ride the up-cycle.

The Malhotra sisters of the MBD Group are taking involvement to new levels, insisting that their names be co-branded on the hotel, and even keeping the property’s management to themselves. Even Carlson-Rezidor, one of the world’s largest operator of hotels, had to give in. Usually, it operates the hotel that carries its brands, including Radisson. Not here. “It took me seven months of negotiations to get my way,” smiles Sonica Malhotra triumphantly, pointing to how their hotels are branded Radisson MBD.

And then, finally, a new group of owners have emerged. Private equity funded asset groups such as SAMHI hotels or DUET hotels that are changing the old ways in which hotels used to be run, bringing in financial discipline and transparency to a sector that has been opaque in its money dealings.

Getting aggressive

Till now, the brands have hogged the limelight for their expansion drive. But equal credit must be given to the owners’ part in this story, and how their changing approach and growing professionalism is leading to a transformation in the sector.

Most owners now realise that a well-known brand name on their signboards will attract the new discerning Indian guest who is conscious of things like service standards, and will also help them command a higher room rate.

Online Travel Agencies (OTAs) like Make My Trip, and Cleartrip have had a part to play, giving power to independent hotel owners all over the country. HVS may not classify these hotels as branded supply but as Ashish Jakhanwala, CEO of SAMHI, points out, he would consider any hotel sold by an OTA to be a brand, as before listing they do carry out checks on hygiene and service standards.

Credit also must be given to aggregators such as Oyo, Treebo, and their ilk. Oyo today has an inventory of 70,000 rooms under its belt covering over 7,000 hotels. Oyo’s disruptive approach of taking only a few rooms from hotels and not the entire property has helped convince owners who were sitting on the fence. Ginger Hotels Managing Director and CEO Rahul Pandit acknowledges that Oyo has helped create awareness among owners, which going forward will help chains such as Ginger, which is seeking to scale from 38 hotels to 100 in a few years.

Till mid-2000 in fact, India’s hospitality industry was quite unorganised. Just look at the way the shift is happening.

In 1995-96, branded hotel rooms (those run by professional chains) amounted to 18,000, spread over 120 hotels. In 2016, there were 887 hotels with a room count of 1,13,622. Six years ago, barely 30 per cent of India’s total rooms were branded. Today, it’s over 40 per cent. By next year it could be 50 per cent as according to some analysts nearly 10 per cent of the unorganised rooms are getting re-branded and relaunched.

For instance, in Mumbai’s busy Andheri locality, an unprepossessing 50-room guest house Traveller’s Inn is being re-furbished and re-branded as an i-Stay hotel with cheery yellow walls. Ebrahim Balwa, the young director of Traveller’s Inn, excitedly takes you through the transformation of his property by hotel management company IntelliStay to whom he handed over the operations.

Now, the hotel has co-working spaces,graffiti on the walls, and other trappings to attract the millennial traveller. The transformation has led to a value increase for Balwa’s tiny hotel – from ₹1,800, the room tariff has gone up to ₹2,400.

Meet Param Kannampilly, the genial founder of Mumbai-based Concept Hospitality, in the news recently because of the investment it has got from Nepalese billionaire Binod Chaudhary’s CG Corp Global. Kannampilly, who runs the Fern and Beacon brand of hotels (now there is Zinc from CG Corp too), is busy meeting owners from little towns like Dhapoli, Sholapur, Karjat and Satara. “This year we will be adding 27 greenfield properties in such places, plus we have three conversions. Altogether we are adding 700 rooms this year,” he says.

As the hotel industry in India gets ready to welcome an up-cycle after years of depressed rates, it’s also celebrating these new owners – who are investing in hotels for the right reasons - and are fuelling the sector’s growth, one room at a time.

Published on May 08, 2017
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