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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.

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.

“A Goldmine of Opportunity Waiting to be Tapped”: Eco Tourism in India

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The Indian Government publishes an annual Economic Survey on trends and market conditions on the subcontinent and the Finance Minister last month tabled the latest of these before Parliament. For the first time, it is the second such report to be published within a year, perhaps reflecting the current dizzying pace of economic change across India, the fastest growing large economy in the world. And the second part of the 2017 Survey has some interesting things to say about the future of Indian Tourism, and Indian Eco Tourism in particular.

The Survey reports that Tourism and Hospitality together account for a healthy 9% of GDP in India, generating $117.7 billion last year and expected to climb to $418.9 billion by 2022. Foreign exchange earnings derived from tourism in 2016 amounted to $22.9 billion (8.8% more than the equivalent 2015 figure). Tourism and Hospitality is, in the words of the Economic Survey: “…a goldmine of opportunity waiting to be tappedIndia continues to charm international tourists with its vast cultural and natural resources.”

The Government has certainly not been slow to encourage tourist growth with a series of innovative policies such as the e-Visa programme (which now covers 161 countries): the system is a marked improvement on the old and notoriously inefficient paper-based process, with a total of no less than 1,079,696 e-Visa holders visiting India during 2016: 142.5% of the 2015 figure. But look back at those numbers from the Economic Survey again: overseas earnings, to which initiatives like the e-Visa system are directed, account for less than a quarter of the overall revenue in the sector. The rest is made up of business and domestic travel. What is the Government doing to promote that part of the goldmine?

That’s where Eco Tourism comes in.

According to this year’s Green Lodging Trends Report domestic and business travellers are more and more choosing their hotel accommodation by reference to its green credentials, and the report comes to three particularly striking findings on the basis of an extensive survey of leading hotels:

  • Offsetting carbon consumption to achieve emission reductions is an increasingly important factor with hotel guests as well as with businesses (likely to be paying for their stay): “the topic is hitting home more than ever”;
  • The majority of travellers (business and recreational) actively prefer eco-friendly destinations and are prepared to pay more to get them;
  • When asked: “to what degree does climate change drive you to make operational improvements and investments”, 84% of hoteliers responded that it did and 40% said that it had a “significant impact”, an increase of 12% from last year (in itself an expression of the practical, operational impact of the first two (consumer driven) points made above.

Eco Hotels is the world’s first carbon-neutral hotel brand, supporting sustainable living without compromising on standards of hospitality; and it is a model for sustainable hospitality projects on the subcontinent. Red Ribbon Asset Management is the founding investor in EcoLodge, a key Eco Hotels brand. Having started in 2012 from its flagship Hotel in Cochin, Eco Lodge is now well on the way to rolling out its target of 10,000 eco friendly rooms in India by 2020; and given the trends signaled in this month’s Economic Survey, the brand seems certain to remain at the vanguard of this paradigm shift in the sector.

Read the latest Indian Economic Survey here: indiabudget.nic.in/survey.asp

Read the Green Lodging Trends Report here: www.greenlodgingnews.com/green-lodging-survey/

Read about EcoHotels and EcoLodge here: www.theeco.com/about_us.php

India’s Hospitality Sector: Journey to Success

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India’s new Goods and Services Tax (GST) was introduced this month (launched at the chimes of midnight on the 1st of July): this new fiscal regime will inevitably improve trading across the sub continent’s burgeoning internal markets. The hospitality sector can expect to benefit in particular which will be further welcome news given the influential Indian Credit Ratings Agency (ICRA) has recently published its annual forecast projecting a marked growth in hotel occupancy revenues of 8% over the coming year; all of which goes a long way to vindicate the strategic importance Red Ribbon has already given its Eco Hotels project as part of the company’s dynamic investment programme.

Red Ribbon first invested in Eco Hotels in 2012 and the Project has characteristically delivered both on bottom line profits for investors and for the environment: one of the first of the Eco Hotel’s (built in Kochi), for example, has solar tubing that reflects light across the building so as to reduce energy overheads. It’s a good example of how Red Ribbon’s Mainstream Impact Investment strategies work in practice; building a sustainable, long-term business that works long term as part of its community and the wider society because it is resilient and profitable.

But it is also encouraging to hear that Prime Minister Modi’s Government has been thinking laterally about India’s hospitality sector as well. Not everybody coming to India from overseas will arrive by air; many will – literally – come from over the seas.

The Ministries of Shipping and Tourism announced last month that they will in future be working together on an Action Plan to promote India as a Cruise Tourism destination and at the same time developing an ecosystem model for the growth of cruise tourism in India. As the first step in the process, a Governmental workshop was also organised last month by the Ministry of Shipping in Delhi so as to discuss an ‘Action Plan for Development of Cruise Tourism in India’.

Speaking at the opening of the workshop, Nitin Gadkari, Union Minister for Shipping, Road Transport and Highways said that Cruise Tourism is one of the fastest growing components of the leisure industry worldwide and can become a major growth driver for the Indian economy through generating new employment opportunities in the sector; and it is difficult to disagree with him because India has the potential to cater for at least seven hundred cruise ships each year; compare that with the one hundred and fifty eight this year so far; and the cruise industry can generate more than 2.5 lakh jobs for ten lakh cruise passengers providing an additional boost to the economy at large.

Cruise terminals are already being developed at five major ports: Mumbai, Goa, Cochin, Mangalore and Chennai; added to which inland waterways will also be developed over the coming years to add to the available infrastructure network: ten inland waterways will be added on the subcontinent by the end of this year alone.

Read about Eco Hotels here: (www.theeco.com/about_us.php).

Read about Red Ribbon Asset Management here: (www.redribbon.co/)

Read about the Indian Government’s Plan to Promote Cruise Tourism here: (www.livemint.com › Politics › Policy)

 

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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