More than a decade after Ginger Hotels, the low-cost hotel brand from the house of
Tatas made its way into the market, it is getting cornered by competition.
At least half a dozen new brands, both Indian and international, are roping in investment to woo the budget traveller by focusing on the pricing. Most of the new brands are targeting the price segment of Rs 1,000-2,000 a night, now nearly vacated by
Ginger Hotels (Ginger).
Ginger, owned by Roots Corporation, which is a subsidiary of
Indian Hotels Company (owner and manager of Taj properties) is the biggest player in the budget segment. Launched in 2004, the no-frills brand had rooms that carried a tag of just Rs 999 a night, promising hassle-free and comfortable stay.
Over the years, however, there has been a sharp rise in its rates. Ginger, with 31 operational properties, charges anywhere between Rs 1,800-4,000 a night with a country-wide average rate believed to be around Rs 2,600 a night. This is the range where pricing of a 'budget hotel' can overlap with that of 3-star (mid-market) properties.
The Accor Group's Formule 1, too, had started with tariffs below Rs 2,000 but has raised them to Rs 2,500-3,000.
"With luxury properties selling rooms at Rs 7,500 a night in cities like Mumbai, properties in other segments will have to rationalise rates. So, a 4-star property will cut rate, followed by a 3-star and so on," says a Mumbai-based hotelier.
For Ginger, however, occupancy levels are key to sustain economic feasibility, which hovers around 70-75 per cent. P K Mohankumar, MD & CEO, Roots Corporation, says, "Budget hotels have seen encouraging occupancies over the last two years, despite the industry slowdown and capacity infusion in a majority of the key cities."
Ginger has felt cost pressures because of high land cost (it owns many of its hotels) and general inflation.
A look at data compiled by research and consultancy company, HVS, suggests that at 62 per cent average country-wide occupancy, the budget segment has not only outperformed the other segments, it marked a growth in occupancy when other segments fell.
The segment's traction coupled with lower investment and faster returns have attracted new brands to enter the fray. According to HVS, the weighted average development cost for a key to an economy room is Rs 16 lakh with a construction tenure of 22 months. A mid-scale property will cost Rs 45 lakh for a room and take 35 months to build. The higher the cost, the longer the break-even time.
Therefore, companies like Oravel Stays, Apodis Hotels, Keys Hotels, Jakson Hotels and Premier Inn, to name a few, have jumped on to the bandwagon. At least half a dozen budget brands between them will target customers looking for a stay costing not more than Rs 2,500 a night.
Tune Hotels, promoted by the AirAsia promoter Tony Fernandes, selling rooms at Rs 1,500, has committed to opening 100 budget properties in India by 2020.
The brand has tied up with Mumbai-based Apodis Hotels, which is also planning to promote its own budget brand, Mango Hotels.
Umesh Luthria, executive director and chief executive, Apodis Hotels, says, "The low-cost market is getting shaken up because of turbulent economy. The largest market in this country is in the budget segment. I have people walk into my hotels and confused it for a 4-star property. People expect a sub-par property and even worse service from a budget property. The minute you have those people converted to your brand, it is very hard for them to go to another."
Unbranded lodges and hotels command over 80 per cent share in the budget hotel segment. But these don't guarantee quality and service and lack a professional approach.
These factors have driven the price-sensitive traveller to the organised sector. "Hot water tap don't operate, bed sheets have stains and the rooms stink, at times. This is the traditional impression of a budget property. But this is changing slowly," says Luthria.
Oyo Rooms, a branded hotel stay from Oravel Stays, sells rooms for as low as Rs 1,500 in expensive cities like Mumbai. The price includes complimentary breakfast, free Wi-Fi, air conditioning and laundry service. The company has rapidly expanded to 10 properties around the city.
Ritesh Agarwal, CEO, OYO Rooms, says, "Our promise of a high-quality hotel room at rock-bottom price is our attempt to shake up the budget travel market in the country. With standardised rooms across India priced as low as Rs 999 a night, we are not only making travel more accessible to Indians, but also completely changing the value perception of a budget hotel stay for business or leisure travelers."
Ginger Hotels, though, has expansion plans, too. "Ginger has around 2,900 rooms in 31 hotels and approximately 12 projects are underway, ready to open over the next two-three years. We are the biggest player in this segment with aggressive growth plans", Mohankumar says.
