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India Mid Market Hotels - Red Ribbon Asset Management Plc

How and why mid-market hotels are taking over India’s branded sector

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In the late 1980’s Esso commissioned a survey of its UK customers and found less than 7% travelled onto Mainland Europe with their cars. Why this reticence on the part of families clearly capable of making their way from Poole to Provence in an overcrowded Metro? And no, it’s not what you think: back in those days we hadn’t even thought of Brexit. As Esso found out, there was a more homely explanation: the Continent simply had far fewer automated pumps on its forecourts, so drivers were in danger of having to talk with an attendant and you know how the English are with languages. Better leave the car behind than risk the unseemly spectacle of sign language on the forecourt with a Frenchman.

And when you think about it, that’s all quite interesting. It’s the reason petrol stations have gradually come to look exactly the same all over the world: with the pumps all roughly in the same place, all self service and roughly the same kind of shop to pay in. It’s why you can now buy a burger (from a screen) in identical McDonalds outlets from Vienna to Vladivostok without once having to speak a word of German or Russian, and it’s why Esso long made sure you can buy your petrol the same way. There’s simply no need to leave the car at home anymore…so we don’t. We buy more petrol instead and everyone’s happy.

Economists call this phenomenon Brand Synergy and until recently India’s mid-market Hotel Sector was widely perceived to be more or less dead to its charms. A senior analyst on the subcontinent memorably (and anonymously) put it as follows: “…it was like an airline that uses a Boeing 747 for travel between Delhi and Mumbai, a Dakota for Kolkata-Delhi, and a Dornier for Bengaluru-Pune”. The poor old travellers never knew what to expect when they got there. Just like trying to buy petrol by word of mouth.

But not anymore…

The subcontinent’s mid-market Hotels including Ibis Styles, Lemon Tree Hotels and Eco Hotels have all made progress over the last decade in adopting a much more uniform approach to product profiling, achieving a consistency in specification that has now seen the mid-market secure nearly half the branded hotel sector: spurred on, no doubt, by an increasing number of private equity investors, none of whom are noted for being slow in recognising brand synergies when they see them.

All of which has made the mid-market uniquely well placed to take advantage of the surge in India’s middle class and increasingly urbanised travellers that has doubled airline occupancy rates over the last seven years.  And with the average cost of building a mid-market room coming in at between Rs 3 Million and Rs 7 Million, breaking even within six years, it all makes bottom line economic sense too. Compare that with the larger branded chains where average construction cost for each room is Rs 15 Million and break even takes 15 years: more than twice as long.  In the past 10 years alone the mid-market has expanded at more than 15% annually (according to Howarth HTL) and now accounts for 43% of total branded stock.

Having got away its successful IPO earlier this year (raising Rs 311 Crore from key investors), Lemon Tree Hotels last week took the trend a stage further by launching its brand overseas: signing a deal for the first of its hotels to open in Dubai next year. It will be the first mid-market hotel on the luxury studded Al Wasi Road, sitting literally in the shadow of the Burj Al Arab and Al Waleed Real Estate’s CEO didn’t miss the significance:  “There was a need for a mid-market hotel of this calibre in this location and India has been the largest source of tourists into Dubai, as well as the UAE as a whole, for over three years now.” To save you Googling it up, the exact figure is 13%: India now accounts for a whopping 13% of total tourist numbers into the Emirates, which shouldn’t come as a surprise to anybody given the subcontinent’s wealth and proximity as well as the population’s found mobility.

And now they’ll recognise at least one familiar, distinctively Indian hotel brand when they get there…Plus ca change.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid-market hotel brand, offering “green hospitality” as part of a progressive roll out across India which intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Working as part of the Eco Hotels Project has certainly taught me the importance of branding and product profiling in the hospitality sector, so I was pleased to read about the renewed emphasis on branding generally and unsurprised to see that it has now increased the mid-market share to just shy of 50%. Monolithic 2000 room hotel chains are no longer the first choice for travellers, especially given all the evidence suggests they are increasingly looking for accommodation that also complements their preference for sustainability.

And that’s important because the boom in Indian tourism (domestically and internationally) is playing a significant part in driving forward the subcontinent’s resurgent hotel and hospitality sector. It’s certainly an area that cannot be overlooked when seeking out the best investment opportunities over the coming years.

That’s why I’m very proud that Red Ribbon has played such a significant role in the creation and development of the Eco Hotels Project, spearheading the response to that demand in an environmentally friendly manner.

Hospitality with Responsibility - The Explosive Growth of India’s Mid Market - Eco Hotels

Hospitality with Responsibility: The Explosive Growth of India’s Mid Market

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Jawaharlal Nehru famously championed “hospitality with responsibility” and riding high as it is on the crest of an unprecedented surge in tourism, India is holding hard to the father of the nation’s message. Not least because public awareness of environmental imperatives has never been higher on the subcontinent, leading Prime Minister Modi’s Government to respond (characteristically) with a programme of market driven “green hospitality” initiatives that embrace everything from streamlined Visa procedures through to water sustainability programmes and everything in between. The result is a striking pattern of explosive growth in India’s important mid market sector where the bulk of those initiatives are currently taking root.

And it’s not all about the environment either, with most analysts also pointing to the importance green hospitality is having on financial performance as well, and not just on the bottom line either where reduced energy costs and leaner waste targets have an obvious potential to cut operating costs. Environmentally friendly policies also have an almost unique potential to attract the new generation of business and social travellers who are placing sustainability at the top of their checklists, with even the hardest nosed business travellers supporting the trend: Deloitte’s, scion of the pinstriped traveller, has published polling results taken from 1,000 businessmen and women, no less than 95% of whom wanted more green initiatives with 38% admitting to checking whether their chosen hotel was sufficiently green before deciding to book.

Put it another way, in less desiccated language not favoured by Deloitte, Eco Hospitality has now become an essential part of Mid Market’s success story on the subcontinent… and there’s no sign of it losing any of that importance any time soon.

Just look at Lemon Tree Hotels and Eco Hotels both of which are blazing a trail in making the most of the opportunities India’s mid market hospitality sector has to offer, each of them pursuing ambitious expansion programmes and delivering above market rate returns for investors.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, which has “green hospitality” built into its genetic structure. The company has embarked on an ambitious programme to roll out a chain of new facilities across the subcontinent, designed to take full advantage of market opportunities currently available in India’s mid market segment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

India has become something of a crucible to test out trends in the hospitality sector. As most of us will have observed over recent years “green tourism” and “green hospitality” have become increasingly dominant in determining the choice of hotel for business and recreational travellers alike: part of a global environmental trend that seems, ironically, to have picked up pace even more following Donald Trump’s withdrawal of the United States from the Paris Climate accords.

But what makes India different from other bellwether economies worldwide is the sheer pace of the change that is currently taking place on the subcontinent. Number of travellers choosing to travel to and across India has reached an all time high, carriers are reporting exceptional volumes and occupancy rates and the mid sector is picking up a larger percentage of these travellers than ever before. I’m sure that will all in lead to an acceleration of the rate at which the trend for “green tourism” evolves in India as opposed to other markets across the world, meaning we can expect to see green tourism’s importance on the subcontinent before anywhere else.

As the article also points out, Eco Hospitality is an essential part of this trend so I’m very much looking forward to seeing how things develop, especially with Red Ribbon’s Eco Hotel project playing such an important part in the market.

The Phenomenon of Eco Hospitality - Red Ribbon Asset Management - Eco Hotels

The Phenomenon of Eco Hospitality

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This year’s Sustainable Travel Report has reinforced the continuing momentum of Eco Hospitality in India: 84% of business and recreational travellers now confirm a preference for sustainable destinations, and as the saying goes, “sustainability starts where you stay”. Two thirds of travellers are willing to spend 5% more on accommodation if it meets sustainable criteria, meaning everything from water and energy consumption through to macro environmental management systems. But to get a real feel for the importance of those findings, you have to place them side by side with tourist and business statistics on the subcontinent and, in particular, for the first half of this year. It helps explain why India is currently experiencing an Eco Phenomenon.

The subcontinent will be the fourth biggest tourist economy in the world within the next four years, bigger than Italy, the United Kingdom and Australia put together and a major factor in this explosive growth is internal demand. In May alone airlines in India reported a 16.6% growth in passenger numbers, carrying 11.9 million customers with 80% occupancy (Spicejet reported an astonishing 94.8% occupancy rate). And with tourist numbers on the subcontinent riding at such an all time high with 84% of tourists preferring sustainable destinations (they have to stay somewhere when they arrive), even the most rudimentary of economists could spot an emerging trend.

Certainly Lemon Tree Hotels and Eco Hotels haven’t been slow to pick it up: both companies are currently spearheading key innovations in India’s hugely significant mid market hotel segment, with eco hospitality at the heart of each of their business models.

No surprise then that JP Morgan reported Lemon Tree in June to be delivering better than average cost control and execution ratings as well as higher return rates on room occupancy. Better Eco credentials aren’t just a honey pot for prospective travellers, they make sound business sense too with reduced commodity use (and costs) delivering straight to the bottom line. JP Morgan have also pinpointed enhanced operating leverage as a driver for future growth for at least the next three years, which is likely to deliver improved capacity for better pricing and capacity structures.

Lemon Tree and Eco Hotels continue to roll out new hotel units across the subcontinent, with the former last month investing another Rs 850 Crore into its aggressive expansion programme. Interestingly enough, Lemon Tree’s President Vikramlit Singh has also again highlighted a continuing mismatch between demand for hotel rooms and availability as a likely source of future profitability, so there’s no sign of those capital programmes losing their momentum anytime soon.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India, designed to take full advantage of market opportunities available on the subcontinent at the moment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Market changes rarely come about in isolation, with one revolutionary event: the iPhone would have been an expensive mirror without something to plug it into. And the same goes for economic trends generally where we should look for the confluence of a number of key factors before drawing any conclusions. That certainly applies to the Indian Eco Hospitality sector where a huge uptick in business and recreational travel on the subcontinent has coincided with a surge in demand for sustainable destinations. With mid market hotels already roaring ahead, added eco credentials are giving the platform a turbo charger.

And I would add a third factor too. As may not be generally known the whole, vast expanse of the subcontinent currently has less hotel rooms that the island of Manhattan alone. So the point mentioned at the end of the article also has considerable importance to my mind: demand for hotel rooms is in any event seriously outstripping supply and that is bound to make for a more profitable outlook. A turbo charge for the turbo charger perhaps?

Sustainable Tourism - Hospitality - Eco Hotels - Red Ribbon Asset Management

Sustainable Tourism: Balancing the needs of the fastest growing hospitality market in the world

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The World Travel and Tourism Council predicted this month that within the next decade India will be the fourth largest tourism economy worldwide, snapping at the heels of China, the United States and Germany. The Report makes a particularly interesting finding that this trend is not just driven by increasing numbers of international business and tourist travelers: significant growth is being driven from within the subcontinent itself, fueled by India’s rapidly expanding middle class and an increasingly technology literate young population who are quicker than ever to reach for their smartphones to book a holiday. Domestic travel is now the real catalyst for change in a burgeoning hospitality sector with a striking 90% of travelers being Indian Nationals.

No surprise then that In May of this year domestic airlines on the subcontinent reported a 16.53% growth in passenger numbers compared to the same month in 2017, with the Directorate General of Civil Aviation confirming that Indian carriers had transited no less than 11.9 million passengers during that single month. Across the board scheduled carriers flew to an impressive 80% occupancy with Spicejet leading the way at a 94.8% load factor.

These are hugely significant trends for the future of India’s economy, with the hospitality sector having already accounted for more than $230 Billion of the subcontinent’s GDP in 2017 (up from $209 Billion the previous year) and no suggestion that current unprecedented rates of growth in the sector are likely to slow anytime soon.

This pattern of exponential growth shouldn’t come as a surprise to anyone: India has 36 world heritage sites, 103 National Parks (with the Taj Mahal thrown in for good measure) as well as Goa’s beaches, the foothills of the Himalayas and an astonishing breadth of wildlife from tigers and elephants to snow leopards. All of that is bound to attract tourists in large numbers, but such rapid tourist growth can of course bring its own problems, as anyone struggling through St Mark’s Square in mid August can testify. Growth of the wrong kind can threaten the fragile ecostructure of the very locations proving to be so popular with tourists, to such an extent that some of India’s tiger reserves no longer have any tigers to see.

More than 30,000 plastic bottles are left behind each summer by tourists in the high altitude Himalayan Ladakh desert of Jammu and Kashmir and on Mount Everest itself eight to ten tons of waste are left behind on the mountain every year: everything from empty oxygen bottles to rucksacks, tents and discarded climbing equipment.

So there is a balance to be struck: recognising the importance the hospitality sector now has for the subcontinent’s economy, but at the same time striving to support unprecedented growth within the sector in a manner that is sensitive to the needs of India’s precious ecosystem. This is the principal reason for the success of Eco Hospitality as a key driver of India’s mid market hospitality sector: not just because it is the only model striving to get this critical balance right, but because the majority of those travelling on the subcontinent now recognise the risks greater tourist numbers are posing to the natural habitat and are actively seeking out accommodation that supports its preservation.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India which is intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travelers alike.

Red Ribbon CEO, Suchit Punnose said:

No surprise indeed that tourists are flocking in unprecedented numbers to the natural beauties and historic splendorous of the subcontinent, but it is still striking to learn just how significant a part internal tourism is playing in buoying up India’s resurgent hotel and hospitality sector. It’s certainly an area which can’t be overlooked in seeking out the best investment opportunities over the coming years and that’s why I’m proud Red Ribbon has played such a significant role in the creation and deployment of the Eco Hotels Project across the subcontinent.

As the article points out, tourists and business travelers alike are looking increasingly for hotel accommodation that is compliant with requirements of eco sustainability, and as the world’s first carbon neutral hotel brand, Eco Hotels are spearheading the need to meet that demand. It not only makes good sense for the environment, it makes good business sense too.

BSE Market Report - Red Ribbon Asset Management Plc

BSE Market Report: A Good Week for Tech Stocks, Hotels and Bears

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Beware the Chef who won’t eat his (or her) own food, but fear the food even more: on which basis the Bombay Stock Exchange (BSE) was certainly cooking this week. Tata Consultancy Services announced a second stock re-purchase in as many years, equivalent to some 2% of its overall share value, and India’s largest software exporter is now offering shareholders a premium of 15% on their holdings. So it was something of a statement of the obvious last week for its Chairman to characterise the move as “shareholder friendly in terms of dividends”. The Pope is still Catholic and Bears search for bosky restrooms.

But perhaps more importantly for the Bombay Stock Exchange at large, the move by Tata Consultancy is expected to prompt other listed companies to follow suit, with Cognizant already announcing last Friday that it is going forward with its own $600 Million accelerated share re-purchase programme, committing it to £2.7 Billion in repurchases by the end of next year.

These are not just isolated instances. The Indian Tech sector is white hot at the moment, with influential market commentator Amitad forecasting annual e-commerce revenue to rise by a staggering 20.2% by 2022, that’s $52 Billion or more than double the equivalent 2017 figure. Amitad’s Report also noted that 37% of the subcontinent’s population are now regular Internet users and 14% of them make regular on-line purchases, a figure, which is likely to grow exponentially over the next few years. Online consumers in India will constitute 90% of the population by 2020, and the subcontinent is already the second largest Internet user in the world, bigger than the United States … So Flipkart will be happy as well.

And it isn’t just IT and Tech Sectors that are looking strong at the moment. Taking advantage of an already resurgent Hospitality segment, FabHotels announced plans last week to open up new Hotels in fifteen additional cities across India (more than 1,000 units altogether). The company raised $25 million in 2017 through a Series B investment round led by Goldman Sachs and a spokesman for the company summed up its continued optimism this week:  “It is a sunrise moment for the Hospitality Sector. The mid market segment is driving the industry forward and more and more hotels will align with these new-age brands and improve consumer experience”.

The move follows the continuing success of EcoHotels, the World’s first carbon neutral hotel brand, which is also picking up business on the subcontinent at the expense of more traditional, chain operations.

Red Ribbon Asset Management Plc is the founder of Ecolodge, a key brand within the Eco Hotels Group, which has an ambitious program of developing a £1 Billion premium value hotel network, supporting sustainable living without compromising on standards of service delivery. Eco Hotels is modelled to operate from a low cost and high return platform, working to deliver above market rate returns for investors.

Red Ribbon has been specialising in India’s Markets since the company was founded more than a decade ago, bringing an unparalleled expertise to its investment policies on the subcontinent with specialist sectoral advisers working from it’s Head Office in London in conjunction with more than a hundred local experts on the ground in the subcontinent itself. And by drawing on that body of expertise The Red Ribbon Private Equity Fund now offers an opportunity to secure above market rate returns in this, the fastest growing large economy in the World.

Red Ribbon CEO, Suchit Punnose said:

It’s impossible to overstate the importance of India’s Technology Sector at the moment. In conjunction the subcontinent’s burgeoning, increasingly urbanised and much more sophisticated population, India’s technology revolution is going to be a key driver for future economic growth. As the article says, Flipkart will certainly be happy!

But we mustn’t forget that economic growth is continuing in other critical areas of India’s as well, and these same demographic trends are currently delivering unprecedented growth in the hotel and hospitality sector as well: and the mid market hotel sector in particular is showing strong potential for sustained growth.

I’m particularly interested in that because of Red Ribbon’s founding participation in the Ecolodge Brand, where sustainability and environmentally friendly factors offer unique attractions in today’s market. And like FabHotels’ Chairman, I certainly believe that those hotels which are aligned most closely to what he calls “new age brands” will ultimately deliver the best returns in the long run.

Modular Construction India - Red Ribbon Asset Management

Taking It In Stages: Modular Construction and India’s Urban Challenge

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India’s already congested conurbations will have to find homes for 900 Million more people by 2050, and assuming a modest four person occupancy rate that means 856 new homes will have to be built every hour, every day for the next thirty years (fourteen a minute in case you’re wondering), with the subcontinent’s builders working an implausible twenty four hours a day with no time off. The sheer scale of the challenge is unprecedented, and given the pressures it will place on India’s already overstretched urban infrastructure, it will call for a solution of equally unprecedented ingenuity. But more of that in a moment… first let’s look at those trends in a little more detail.

The latest industry source to address the issue is KPMG in its NAREDCO Study, “Bridging the Urban Housing Shortage in India” (the clue’s in the title obviously) and the Report draws an arch reference to commentators having first predicted a critical shortage of urban housing as long ago as 2012, with a then projected deficit of 18 Million units. But things have got worse since then and KPMG now say there are some 1 Million urban households currently living in “non serviceable accommodation” and over half a million without any homes at all. So what’s to be done?

Well, the first point to make is that it would be unduly Eeyorish (with apologies to Philip Hammond) for us to ignore the work Prime Minister Modi’s Government has already done to re-vitalise the subcontinent’s Affordable Housing Programme: introducing a raft of new tax incentives over the course of the last two Union Budgets with more streamlined Planning Procedures thrown in for good measure and a general cutting of Red Tape across the board. Which is, of course, all well and good but cutting Red Tape and going Fiscal Max won’t get any homes built by themselves. Something more is obviously required.

KPMG’s Director of Real Estate on the Subcontinent, Neeraj Bansal, more or less put his finger on the solution when he highlighted that the single most important policy initiative which has so far gone largely unexplored is the use of innovative and low cost technologies which can speed up the construction process: and that means Modular Construction.

Prefabricated units are, indeed, likely to be key to delivering affordable housing on the required scale and within cost structures optimum to the framework of incentives put in place by Prime Minister Modi’s Government. Modular Construction has a real potential to overcome all of the structural barriers to volume delivery at pace which are inherent in India’s traditional building technologies: including a lack of skilled construction workers (or at least skilled in sufficient numbers in the urban areas where they are required); a pressing shortage of non land resources, from precious water supplies to fabrication materials and, most crucially of all, the severe time delays which come hand in hand with conventional construction methods.

Modular Construction ticks all of those boxes.

First of all, it has clear advantages on speed: manufacturing and site work can be carried out simultaneously, reducing overall completion times by as much as 50%. Think about that: for every two hundred traditional units completed, modular construction can build three hundred. And that means reduced labour costs too, with nearly all of the design and engineering overheads being rolled into the bottom line manufacturing process. Roofs, walls and floors can all be constructed as part of the same process when, in stark contrast, ceilings can’t be put in place on a conventional project until the walls are completed, and walls can’t be completed until the floors are laid down: resulting in a lot of workers standing idly by as each small delay in the process dominos into a bigger one. That isn’t the case with modular construction where these same workers can work together at the same time; and they can also be recruited centrally so that local skills shortages (of the kind that have blighted the Mumbai construction sector) also become a lot less significant.

Modulex Modular Buildings is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors through the platform of the Red Ribbon Real Estate Fund: because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.

Red Ribbon played a key role in setting up Modulex Modular Buildings, recognising the company’s outstanding potential to deliver above market rate returns for investors through its ability to tap into unusually high demand levels in Indian real estate markets. The company provides an exciting opportunity for investors to take advantage of this key trend in the fastest growing large economy on the planet.

Red Ribbon CEO, Suchit Punnose said:

When you come to look at the nuts and bolts of what it will take to deliver on India’s housing targets for its burgeoning urban population, the figures are truly eye watering. Building fourteen new homes every minute for the next thirty years would strain the limits of any conventional construction methods: not to mention the resolve of workers required to put in a twenty four hour a day shift, seven days a week.

But for me the answer is always been obvious and, as the article says, challenges on this scale require groundbreaking and innovative solutions. That solution, I am convinced, is Modular Construction.

No conventional industry methods can beat Modular Construction for its sheer pace of delivery and, of course, the key challenge faced in India and elsewhere is delivery timing: and its low overheads combined with unique operational efficiencies mean it will beat conventional construction methods hands down on overall profitability too.

That in a nutshell is why we have been committed to Modulex Modular Buildings (as a founding partner) since the project’s foundation several years ago. We remain convinced that it will play a vital part in meeting the challenges of India’s housing sector over the years ahead.

India Green Hotel - Eco Hotels - Red Ribbon Asset Management

Going Green: India’s hotel sector is changing its complexion

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On average the phrase “Eco Hotel” is searched at least 4,500 times a day on Google, targeting businesses operating on the subcontinent: stark evidence (if evidence be needed) that travellers of every complexion are increasingly aware of the importance of environmental compliance in their choice of hotel accommodation. But the recent surge in demand for Eco Accommodation is still not wholly matched by supply in India (the subcontinent’s vast expanse currently has less hotel units than the State of New York alone). And it’s not just about the environment either, because Eco Hotels in India are more and more reaping the economic benefits of environmentally friendly operations through reduced room costs and higher occupancy rates.

 

With unprecedented numbers of tourists and business travellers, the Indian hotel mid market is naturally focusing on the need to meet this key demand matrix: making better use of energy, water and building materials whilst at the same time maintaining the highest standards of service and accommodation quality. This is the successful formula that lies behind the recent growth of India’s Lemon Tree Hotels Group (with a very recent and oversubscribed IPO now under its belt) as well as Eco Hotels, the World’s first carbon neutral hotel brand; both of which are now picking up business at the expense of more traditional, chain operations.

 

From the point of view of the hotel operator, eco compliance also reduces costs and potential longer-term liabilities, generating a higher return and lower cost investment platform, so it is safe to say that the current trends towards “greener” delivery are likely to continue into the foreseeable future: if only because they make solid business sense too. It helps, of course, that the eco model is also attracting sustained levels of high demand in a largely unsaturated sub continental market.

 

And the core concept of a truly “green hotel” starts (literally) from the ground up, as part of the original construction process: using renewable building materials and incorporating design features which will eventually make reduced energy and resource allocation part of the building’s DNA, an intrinsic component of its operating structure. Once completed, it comes down to recording current and chronological usage statistics, acting on them and establishing key baselines and targets for future consumption (70% of non compliance variables in the segment involve excess guest consumption, so accurate record keeping is crucial). Inevitably, therefore, most of the day-to-day procedures for “going green” take place behind the scenes of any hotel’s operations.

 

All of this is also helped (crucially) by a range of key policies and initiatives instituted by the Indian Government over recent years, favouring eco hotel and mid market operation: all of them designed to deliver eco hotels as sustainable business ventures with clear short term deliverables for the environment (and, not unimportantly, profitability too).

 

 

Red Ribbon Asset Management is the founder of Ecolodge, a key brand within the Eco Hotels Group, which has an ambitious programme of developing a £1 Billion premium value hotel network, supporting sustainable living without compromising on standards of service delivery. And given the Eco Hotels brand is also modelled to operate from a low cost and high profit platform, it also delivers above market rate returns for investors. What more could you ask for?

Red Ribbon CEO, Suchit Punnose said:

I am constantly struck by the fact that the Island of Manhattan alone has more hotel accommodation than the entire, seemingly endless expanse of India’s hinterland: but when you bear in mind that there is also now an unprecedented surge in tourist and business travelers on the subcontinent, most of them looking for eco friendly accommodation, it starts to look like a phenomenon with only one outcome…a resurgent Indian mid market for Hotels and Eco Hotels in particular. Not that we didn’t see it coming.  For several years now Red Ribbon has been the driving force behind the Eco Hotels project on the subcontinent, successfully meeting the unique challenges that this congruence of market economics and public demand has generated. But we aren’t just proud of our participation in Eco Hotels; we think it makes great business sense too.

Hospitality in India - Eco Hotels - Red Ribbon Asset Management

Mid Market’s Moment: Trends in India’s Hospitality Sector

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India seems to do everything on a bigger scale these days: the fastest growing large economy on the planet and the highest rate of GDP growth anywhere in the world (currently a shade over 8%). So why settle for just one reason when you can have five? Why settle for one reason to explain the explosive growth in India’s hospitality sector over the past decade, something to tell us whether current growth rates in the sector are sustainable? And in case you’re wondering, the answer to the second part of that question is “yes”, but we’ll come back to that in a moment.

First though the reasons for the sector’s extraordinary growth, and as promised there are five of them: a surge in middle class numbers as India’s population becomes steadily larger and more affluent (in other words, much more consumer led demand); an overall increase in absolute business and leisure travel numbers; rapid urbanisation of the population (meaning that you need more and bigger hotels in densely populated areas); progressive economic growth (the subcontinent’s rising population has more money to spend) and lastly (fifthly, as I’m sure you’re still counting), a doubling in domestic air travel numbers over the last seven years. All these factors have now come together in a perfect storm to booster mid-market hotel brands in India, and that means in particular mid-size business hotels and eco friendly hotels.

In 2002 less than 25% of India’s hotel stock was mid-market in that sense, but this year the equivalent figure was 43% (according to the global advisory firm Horwath HTL). Between 2002 and March 2017 the supply of chain affiliated hotel rooms grew at 11% annually, but this too was outstripped by the mid-market segment, which grew over the same period at an impressive 15%. On any basis that is a striking shift in the market demographic over such a relatively short period, and if it tells us only one thing it is that now is perfect the time for investing in mid market hotel developments on the subcontinent.

And not just because statistics favour the segment so strongly, because development makes more financial sense in absolute terms too.

The average cost of building a mid market hotel room in India is between Rs 3 Million and Rs 7 Million, compared with a major chain development where the equivalent figure is Rs 15 Million which means that a mid market unit will break even faster: within six years rather than twelve for a chain development. The variables are in favour of the mid market too, because these break even projections are based on historic demand and, as we have seen, there has been a recent surge across the sector with current occupancy rates running at higher than 65%. The average room rates have also grown by more than 8% in the last decade, so we can realistically expect break even times to start coming down.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of its current roll out programme which is structured to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

And the timing couldn’t be better with everything pointing to a mid market surge.

Red Ribbon CEO, Suchit Punnose said:

Red Ribbon is the founding force behind Eco Hotels, and continues to support the project’s current roll out across the subcontinent where we are very confident that it will play a key part in the all important mid market sector. Not least because we know that a combination of demographic factors (driven primarily by India’s burgeoning and increasingly urbanised population) as well as the current acute shortage of hotel stock, combine to make the subcontinent’s hotel sector such an extremely attractive sector for investment.

To illustrate that point graphically, it is worth remembering that there are currently more hotel units on the island of Manhattan alone than there are in the entire expanse of the subcontinent. And that supply deficit is bound to create fertile ground for new investment, not least because of the five factors highlighted in the article.

At Red Ribbon we pride ourselves on our in depth knowledge of Indian markets, and the hotel and hospitality sector in particular. With more than a hundred advisers working daily on the ground in the market’s hot spots, we are confident that we can identify the best investment opportunities as they arise, taking full advantage of the trends for growth in this, the most exciting growth market on the world.

Hospitality India - Eco Hotels - Red Ribbon Asset Management

Hospitality in India: Long Term Vision, Short Term Solution

By | INDIA, News | One Comment

India has a striking shortage of hotel accommodation, graphically illustrated by the fact there are currently fewer (hospitality) units available across the entire expanse of the subcontinent than are clustered into Manhattan Island alone. It is not, to state the obvious, a particularly stable scenario but for India, the fastest growing large economy on the planet with a burgeoning and increasingly urbanised population, things were never going to stay still for long.

Officials in the Indian Ministry of Tourism reported last month that there was a shortage of at least two lakh hotel rooms across the subcontinent and at the same time India is struggling to manage a surge in tourists and increasing numbers of business travellers from overseas all of which can only exacerbate the market impact of the occupancy shortfall.

And the Ministry of Tourism’s Working Group, entrusted with oversight of India’s Twelfth Five Year Plan (for 2012-2017) also reported last month that annual year on year growth in foreign tourist arrivals into India topped 12% with a projected requirement for additional hotel units for 2016 alone estimated at a staggering 1,90,108.

No wonder then, that a Senior (but unnamed) Official from the Ministry wasn’t in any mood to mince his words on the potentially serious consequences all this can have on India’s economy:

We are plagued with a huge shortage of hotel rooms and instead of building new ones, we are trying to encourage homestays and exploring other alternatives like tying up with existing known brands with operational hotels and accrediting them.”

So what exactly is being done about all this? Where is the long-awaited change to come from?

There are two answers to that question depending on whether you approach the issue from a long-term macroeconomic level or as a practical, short-term issue.

On a macroeconomic level, the Ministry of Tourism is currently working on the creation of five Special Tourism Zones, which will eventually be designated as so-called tourist hotspots. The idea is that over the course of time (probably the next five years), external investment will be attracted through a range of fiscal stimuli, leading to the eventual construction of new hotel units. And the key to word in that programme, of course “eventual”… As Keynes put it so graphically, “in the long run we are all dead”.

More realistic and practical solutions are likely to be found in a short-term practical response which is where the Modulex Construction concept is coming into its own and is already making a difference to construction shortfalls on the subcontinent, with individual components being prefabricated off site and then assembled locally, quickly and to the highest specifications where the demand for units is most pressing. So there’s no need to wait for fiscal stimulus to attract more conventional construction companies into the area in five years time. The demand can be met now through innovative solutions such as Modulex. And, of course, there’s also a thriving program of Eco Hotels on the subcontinent, meeting the need for additional hotel occupancy without compromising on long-term environmental impact. Again, an innovative short-term answer to a pressing social issue.

And there’s one company behind both Modulex and Eco Hotels: Red Ribbon Asset Management, investing to help meet the needs of today’s markets on the subcontinent without compromising on our future. It’s what makes Red Ribbon different, investing in mainstream investment strategies capable of making a difference today.

 

Red Ribbon CEO, Suchit Punnose said:

We have known for some years about India’s shortage of hotel accommodation but, as the article points out, it was hardly likely that the fastest growing large economy on the planet was ever likely to let things continue as they are for much longer. Developing as fast as it is with major infrastructure projects right across the subcontinent and with GDP projected to grow at 8% this year (the fastest growth rate of any economy globally), Prime Minister Modi’s Government was bound to take action sooner or later in this critical area.

So I am encouraged to learn that the Ministry of Tourism now has solid and realistic plans to address the deficit over the next five years, but in the short term too. We at Red Ribbon are proud to play our part in India’s future through our participation in the Modulex and Eco Hotels Projects which are playing a key part in making things better for all of us, without compromising on the environment or on the future which we all share.

 

Supporting Indian Eco Tourism: A Catalyst for Mainstream Impact Investmen

By | INDIA, News | 2 Comments

Mainstream Impact Investment has been at the heart of Red Ribbon’s asset management strategy since the company was founded more than a decade ago. It helps calibrate the subtle economic interactions between targeted economic activity, our communities, wider society and our environment at large; just like a series of interlocking Russian Dolls, each layer intimately impacting on the next. And Red Ribbon’s involvement in the innovative EcoHotels Project in India is a good example of how this new investment paradigm works in practice.

The subcontinent currently has a chronic shortage of available hotel stock, but with Red Ribbon’s support, the EcoHotels Project looks to bridge that deficit in an environmentally friendly way, building attractive, eco friendly facilities that will serve India well over the long term.

But of course this isn’t enough in itself to maximise the positive impacts on local communities and the wider economy. You have to look too at how the Project sits within the next layers in the series; look carefully at what is happening in the wider community as well and in the environment at large.

It is encouraging to learn that on this criterion, the impact of the EcoHotels Project couldn’t be more positive.

India is now taking unprecedented steps to develop an infrastructure and eco economy that is as supportive of eco-tourism as possible. Take just two examples.

The Hill Station at Pachamalai has been attracting increasing numbers of tourists following its designation last month by the local government as an eco-tourism destination. Not only have tourists been flocking into the newly developed treetop houses on the Pachamalai Hills recently added by the Forestry Department, but some three hundred in the last month alone (mainly from Chennai) have also been making the most of the added environmental attractions of the area. A total of Rs 90,000 has been generated in the last month and will go towards not only maintenance of the facility, but also the welfare of the community at large.

Pachamalai District Forest Officer, Satheesh succinctly expressed the objectives of Mainstream Impact Investment when commenting on the project: “It gives a sense of satisfaction to the tourists, being able to contribute to the development of the local community and revenue generated from the Facility will be used to give community loans to locals in the upcoming months.”

Layer after layer, the economic impact of the investment ripples through.

Then take a look at Nagpur where the Vidarbha Economic Development Council is making titanic efforts to promote eco-tourism, which, like the Pachamalai Project, will also serve as a key source of employment for the Region. The Council’s President drew attention to the delicate balance which needs to be nurtured: “ Through ecotourism the States can conserve nature as well as gain financial benefits…. Ecotourism will generate much-needed jobs and income for the local people.”

All of this gives initiatives like Red Ribbon’s Eco Hotel’s Project the best possible prospect of success in delivering above market rate returns for its investors with the maximum possible impact on the wider community and the environment. It’s exactly what Red Ribbon means by Mainstream Impact Investment.

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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