May 11, 2022

Pressure is mounting on Indian hotel owners to align with brands

In survival mode throughout the pandemic, many independent and boutique hotel owners and small regional Indian chains have opted for the security umbrella provided by major hotel brands and global companies.

Being in the hospitality industry during a pandemic has been challenging for hoteliers of all experience levels, said Steve Borgia, founder, chairman and chief executive of India-based INDeco Hotels, which has two open properties.

“The pre-pandemic era hotel entrepreneur will need to be different from the post-pandemic era hotel entrepreneur,” Borgia said. [she or] he must be aware of the challenges and constantly innovate and lead from the front.”

Nandivardhan Jain, founder and CEO of hotel investment advisory firm Noesis Capital Advisors, said that in India, large hotel companies manage around 160,000 rooms, which represents around 16% of the country’s inventory. Hoteliers of branded establishments have been better protected to reduce rates, he added.

“With COVID-19, there is a contraction in demand,” Jain said. “Most branded hotels have reduced room rates to meet occupancy levels. This has a cascading effect on independent hotels, [with] a good number… who are struggling to repay their bank debts.”

Since the onset of COVID-19, travelers across India have shown increased interest in staying at hotel brands, said Basant Sabu, managing director of business development and feasibility at Concept Hospitality, which manages the Fern brand. Hotels & Resorts.

“This pandemic period has acted as a catalyst for the same,” Sabu said. “Customers are looking for safe, secure and hygienic places to stay – this environment they feel [was] better provided within the confines of branded hotels.”

He said that even though independent hotels in India have the same high standards, the perception that they don’t have is hard to counter.

“It has become a little easier to convince [owners] stand-alone hotels are opting for branding because they are also seeing the gradual shift of guests from an unbranded space to a branded space,” he said.

Compounding India’s independent hotel problems is the fact that online travel agencies remain strong, accounting for nearly 35% of bookings, Borgia said.

“For an independent hotelier to negotiate this is difficult,” Borgia said. “Additionally, established brands have a large sales force, so including additional property for sale is very simple. Expanding the existing sales, operations and management infrastructure is easy.”

He added that the quality of staff is expected to improve as more hotels go the brand route.

“It’s hard to recruit people and retain them. The best go abroad, [and] the good ones start with themselves,” he said.

Hotel conversions from independently owned to branded properties are expected to increase steadily this year, Jain said.

“Going forward, the next 12 months will see even more action in the hotel conversion segment,” he said. “We recently completed two transactions with hotel operating companies, Spree Hotels and 1589 Hotels.”

Indian hotel owners have been impressed with examples of successful integration of independent hotels into the corporate brand ecosystem, Jain said.

“What impressed acquirers the most was the ability of these companies to migrate inventory from unorganized hotel rooms to organized segments by marketing independent hotels in one of their formats. Such conversions add tremendous value to all stakeholders and strengthen the hospitality industry,” he added.

Borgia said it has used the BluSalz brand to manage and market one of its properties, the INDeco Nature Resort in Yercaud.

“The goal was to be able to provide that element of luxury and class to our customers,” Borgia said. “We need professional management in the hotel segment, especially in stand-alone, heritage, eco-friendly and rural hotels. If it’s luxury, guests need to experience that level of luxury that only professional management and qualified personnel can offer.

“An autonomous [hotel] I will have a hard time delivering that level of service,” he added. “I will have to be manpower first because running a boutique hotel is a kind of guerrilla warfare. If it proves successful, it could pave the way forward. The priority is to offer a top-of-the-range service so that [average daily rate] can also grow.”

Sabu said he had been involved in converting around 200 rooms during the pandemic.

“Interestingly, our conversions or rebrands during this pandemic have been primarily in the leisure space,” he said.

About 80% of hotel contracts signed in India during the pandemic were franchise management deals, but investments from funds and equity have not been so large, Jain said.

“High net worth individuals, family offices, private equity funds and venture capital funds have shown interest in investing in the physical asset class of hospitality, but the valuations they seek are strongly below fair market valuation,” he said. “Assets that are under stress, the owner will only sell them if he can clear his debts and he has something left to take home.”

Sabu said everyone is a buyer and he expects more discount hotels to hit the market.

“You have to realize that in India, for the majority of hotel owners, the hotel segment is just one segment to be in… just part of a diverse portfolio that is not being leveraged much . They tend to build their hotel assets with cash flow as it becomes available,” he said.

Sabu added that investor interest has mainly focused on hotels with 50 to 100 rooms in the independent segment.

The policy measures taken by India’s central bank in the time of the pandemic have also helped to ward off the distress.

Sabu said the price correction everyone was waiting for did not appear.

“Conversions were primarily achieved through light engagement models like rebranding, franchises, revenue shares and fixed leases,” he said.

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