hospitality report technopak

23-26 February 2009, BIEC, Bengaluru

Indian Hospitality Industry Outlook

Organized by Knowledge Partner

Acknowledgement

We are thankful to Confederation of Indian Industries (CII) for giving us the opportunity to be the Knowledge Partner for the International Hospitality Fair 2009 being organized at BIEC, Bengaluru from 23-26 February 2009.

We thank Mr. Gurpal Singh, Deputy Director General, CII and his team for making this effort successful.

We would also like to express gratitude to the members of the Hospitality Industry for sharing their ideas and knowledge and making their important contribution in preparation of this report.

Executive Summary 01

Chapter 1Indian Hospitality Industry - Overview 02

Chapter 2Indian Hotel Sector - Overview 03

Chapter 3Indian Restaurant Sector - Overview 04

Chapter 4Phases of the Indian Hospitality Industry 05

Chapter 5Comparisons with Retail & Healthcare 07

Chapter 6The Key Growth Drivers 08

Regulatory•

External•

Internal•

Chapter 7The Key Emerging Trends

Hotels•

Restaurant• Technology• 11

Chapter 8The Key Challenges

Regulatory•

External•

Internal • 14

Chapter 9The Key Opportunities 16

Chapter 10Technopak Recommendations 17

Contents


1

Executive Summary

Although many of us have been “tourists” at some point in our lives, defining what tourism actually is can be difficult. Tourism is the activities of persons traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business or other purposes. Tourism is a dynamic and competitive industry that requires the ability to constantly adapt to customers’ changing needs and desires, as the customer’s satisfaction, safety and enjoyment are particularly the focus of tourism businesses.

It is motivated by the natural urge of every human being for new experience, adventure, education and entertainment. The motivations for tourism also include social, religious and business interests. The spread of education has fostered a desire to know more about different parts of the globe. The basic human thirst for new experience and knowledge has become stronger, as technological advances are overcoming communication barriers. Progress in air transport and development of tourist facilities has encouraged people to venture out to the foreign lands.

Tourism has the potential to stimulate other economic sectors through its backward and forward linkages and cross-sectoral synergies with sectors like agriculture, horticulture, poultry, handicrafts, transport, construction, etc. Expenditure on tourism induces a chain of transactions requiring supply of goods and services from these related sectors. The consumption demand, emanating from tourist expenditure, also induces more employment and generates a multiplier effect on the economy. As a result, additional income and employment opportunities are generated through such linkages. Thus, the expansion of the tourism sector can lead to large-scale employment generation and poverty alleviation. The economic benefits that flow into the economy through growth of tourism in the shape of increased national and State revenues, business receipts, employment, wages and salary, buoyancy in central, state and local tax receipts can contribute towards overall socio-economic improvement and accelerated growth in the economy.

As the world economy slips into recession hitting the demand hard and the banking sector takes conservative approach towards lending to corporate sector, the GDP growth forecast for India has been downgraded to 7.1 per cent for 2008-09 and predicted to be 6.5 per cent for FY 2009-10

Global financial crisis has started to take its toll on the service sector. According to 81 per cent of the surveyed CEOs in a study, the sector which recorded an average growth rate of 10.7 per cent in last three years is expected to deteriorate down to below the 9 per cent growth rate mark.

Paring under the current crisis; the service sector - real estate, aviation, financial services, hotels and tourism are expected to go in a slow-down further while telecommunication and railway transportation are expected to grow at decent pace.

Ministry of Tourism compiles monthly estimates of Foreign Tourist Arrivals (FTAs) and Foreign Exchange Earnings (FEE) on the basis of data received from major airports. Following are the important highlights as regards these two important indicators of tourism sector.

Foreign Tourist Arrivals (FTAs) to India:FTAs during the year 2008 were 5.37 million as compared to FTAs •of 5.08 million during the year 2007. Therefore, in spite of global financial meltdown and terrorist activities, number of FTAs has increased in 2008 as compared to 2007. UNWTO has predicted a growth rate of 2-3% for international tourist arrivals in the world during 2008. Therefore, the Indian Scenario (growth rate of 5.6%) is much better than the world scenario.

The number of FTAs in December 2008 has risen to 5.22 lakhs as •compared to 5.21 lakhs in November 2008.

Foreign Exchange Earnings (FEE) from Tourism in Indian rupee terms and US $ terms

FEE during the year 2008 were Rs. 50730 crore as compared to Rs. •44360 crore in 2007.

FEE in US $ terms during for the year 2008 were US $ 11747 million as •compared to FEE of US $ 10729 during 2007. The lower growth rate in 2008 as compared to 2007 may be mainly due to lower growth rate of FTAs in 2008 as compared to 2007 and exchange rate variation.

FEE from tourism in December 2008 were Rs. 5083 crore as compared •to Rs. 4935 crore in November 2008 and Rs. 5079 crore in December 2007.

FEE in US $ terms during the year 2008 were US $ 1046 million as •compared to US $ 1005 million in November 2008 and US $ 1287 million in December 2007. The decline in the FEE in US $ term during December 2008 vis-à-vis December 2007 is mainly due to the foreign exchange variations in these months.

The Hospitality Outlook report by Technopak aims to look at the Indian Hospitality industry with a different viewpoint. It identifies the growth drivers & the challenges the industry faces and at the same time highlights the opportunities that exist. A significant contribution has been made towards identifying key trends that will drive the industry in near future. Technopak uses its vast experience in this sector to put on board the key recommendations that the industry professionals and key policy decision makers might consider over a period of time.


2

For the purpose of this report, we have considered the consumption of Hotel services by Indian & Foreign consumers. However, for the spending on food & beverage at eating outlets only the Indian Consumer has been considered.

The disposable income of Indians is on the rise. An average increase in household income, with more and more double income households in the urban areas, is also contributing to this phenomenon. According to National Council for Applied Economic Research (NCAER) estimates, there are 56 million people in households earning USD$4,400- US$21,800 a year, which is defined as the middle class. The upper middle and high-income urban households were estimated to have grown to 38.2 million in 2007 from 14.6 million in 2000. India topped the 2006 AT Kearney Global Retail Development Index. This is indicative of a rise in spending on consumer durables, electronics, clothes, entertainment, vacations and lifestyle products. Vacations have emerged as the top priority for disposing of extra money. Compared to 2002, Indians are now spending 30-35% more on their holidays.

We have used a bottom-up approach to arrive at the total market size. The hotel market is segmented into star categories. We have used a two-pronged approach comprising of primary and secondary research. The primary research involved extensive in-depth interviews with over 35,000 consumers in India to understand their spending pattern on food & beverage and discussions with other relevant industry experts and panel members across the different sectors to understand the market size of Hotels in India and the growth factors.

Indian Hospitality Industry – Overview Chapter 1

For the purpose of this report, the Indian hospitality market refers to hotels & eating out demand by Indians, which consists of the domestic travel market (Indians travelling in India) and the inbound travel market (foreigners travelling in India).

The size of the Indian hospitality industry is estimated as a sum of revenues of the two segments. The revenues generated from travelers for all purposes such as business, leisure, Visiting Friends and Relatives (VFR), religious, meetings and conferences make up the market considering they are using hotels during their stay and similarly the revenue generated by the consumers while they are eating out at any form of outlet – Restaurants, fine dining, Quick Service Restaurants (QSRs), Takeaways, Dhabas or any other form of unorganized sector.

Furthermore, we have based our valuations on the spending of Indian travel consumers on accommodation, food & beverage, expenses towards minor operating departments like Telephones, Laundry & Car Rental. We have estimated the overall market size using a mix of demand-supply approaches. To estimate the overall market size in India, we have calculated the value of the different star category hotels in the country and to validate the estimations, the demand side approach has been used at an overall level. We have also adopted expense side approaches to estimate the market size for Eating Outs.

The Indian Hospitality Industry is one of the fastest growing sectors of the Indian economy. Riding on the economic growth and rising income levels that India has been experiencing in the past few years, it has emerged as one of the key sectors driving the country’s economy. Currently its market size is USD 23 billion, accounting for 2.2% of the GDP.

Key Market Facts:Within the hospitality industry, there are a number of key industries; prominent amongst them are hotels and restaurants, each of which has witnessed a surge in their growth over the past few years. This paper is an attempt to present key facts and figures pertaining to these industries.

Gross Domestic ProductUSD 1050 Billion

Hospitality Market SizeUSD 23 BillionContributes 2.2% to GDP

Source: Technopak Analysis and Economic Survey of India


3

Chapter 2

As per an analysis by the Economy Survey of India and Technopak (2008), the Hotel industry is a USD 17 Billion industry. Of this, 70% (USD 11.85 Billion) contribution comes from the unorganized sector and the remaining 30% (USD 5.08 Billion) comes from the organized

sector. A break up of the organized hotel industry indicates that the foremost contribution is coming from 5 star rated hotels. Despite a dip in the year 2009, an upward trend in growth of overall Hotel Industry is further expected, whereby it is expected to grow to USD 36 Billion

by 2018.On the demand side, over the past few years there has been a consistent increase in the number of hotel rooms which is close to 5 % in the last 3-4 years. However the rate of increase is still not enough to meet the rising demand, and requires further investment in this sector to meet the increased demand. The investment scenario however looks positive. The Hospitality sector is expected to see an estimated investment of USD 12.17 billion in the next 2 years, and an addition of over 20 new international hotel brands by 2011.

Indian Hotel Sector - Overview

Unorganisedmarket,70%

Organisedmarket,30%

Source: Technopak Analysis

0

5

10

15

20

25

30

35

40

4 Star (USD Bn)0.48%

2&1 Star (USD Bn)1.1

22%

3 Star (USD Bn)0.6

12%

5 Star (USD Bn)2.9

58%

Breakup of Organised Market (2008)Market Size & Projections*

USD

Bn

Source: Technopak Analysis, Industry Reports* Overall market size (organised & unorganised)

Unorganised 1-2 Star 3 Star 4 Star 5 Star

2008 2009 2013 2018

16.714.7

30.7

35.7


4

The Indian Restaurant sector is a USD 6 billion industry and is expected to be a USD 10 billion market by 2018. As high as 90% of the industry is unorganized and the remaining 10% is organized and is more of a metro urban phenomenon. Despite slow down, the unorganized sector is expected to grow at 5% plus through until 2011. The organized sector is in fact expected to grow faster, at 20% - 25%.

Within restaurant category, quick service restaurants (QSRs) will flourish further. Along with the entry of new international brands transactional QSRs are expanding their presence in the country. Café Coffee Day, Domino’s Pizza, KFC are some examples, with each having further expansion plan.

Chapter 3Indian Restaurant Sector - Overview

Market Size & Projections*

USD

Bn

2008

Organised

Unorganised

2009 2013 2018

5.86.8

8.1

9.6

0

2

4

6

8

10

12

* Overall market size (organised & unorganised)

QSRs No. of Outlets Expansion Plans

Café Coffee Day 718 20-25 cafes every month

Domino’s Pizza 220 300 outlets by 2010-11

Barista 189 300 outlets by 2009

McDonalds 155 205 outlets by Dec-09

Pizza Hut 137 175 outlets by 2010

US Pizza 60 500 outlets by 2011

Nirula's 60 140 outlets by 2010

KFC 59 1000 outlets by 2014

Costa Coffee 43 75 outlets by 2009

Yo-China 30 200 outlets by 2009

Total 1671

* As of January 2009


5

A look at the hospitality industry over a period of time will indicate a shift in focus.

Looking at the past one will indeed realize that the hospitality industry is the first one to enter recession and the last to come out of it. What it indicates is that Hospitality Economics is kind of an indicator of the overall economy of the country. Any recession or downturn first affects the travel and hotel budgets of companies & the vacation plans of the leisure traveler.

Overall the growth story started in the 80’s when the development of various hotels kicked off for the Asiad Games in New Delhi. But it’s not just the development that has happened over a period of 3 decades. Hotel industry in the past used to be polarized into two extremes – Luxury hotels on one end and unclassified hotels on the other. But now there has been an emergence of mid segment chains of hotels, which has kind of revolutionized the industry. This is especially keeping in mind the budget travelers.

Geographically, while initially the focus was very metro centric, the shift is now towards Tier 2 and 3 towns and cities. In future there will be more multi tourism in the offing, spanning different geographies.

In terms of operational aspects, there has been a shift from ownership and franchise model to handing out management contracts.

Technopak does an attempt to look at various aspects of this lifecycle and has classified the same as follows:

Chapter 4Phases of the Indian Hospitality Industry

OPERATING MODEL

Phase III 2010 - 2020

Phase II 2002 - 2010

Phase I 1991 - 2001

Ownership & franchise model Emergence of management contracts

Sarovar Hotels was master franchisee for Carlson Hospitality

Shift towards management contracts

Carlson Hospitality now has management tie-ups. IHG is also moving to only management contracts

Management models to continue

GEOGRAPHIC PENETRATION

Phase III 2010 - 2020

Phase II 2002 - 2010

Phase I 1991 - 2001

Tier I cities & famous tourist destinations

Focus only on markets in Delhi, Mumbai, Hyderabad, Bangalore & Chennai

Tier II & III citiesPromotion of

‘Gateway’ CitiesOnly ~27% hotels approved in Tier 1 cities

Tier II & III citiesPromotion of

‘Gateway’ CitiesOnly ~27% hotels approved in Tier 1 cities

PROPOSITION

Phase III 2010 - 2020

Phase II 2002 - 2010

Phase I 1991 - 2001

Luxury hotels on one end and unclassified hotels on the other

Emergence & growth of individual profit centers* Entry of mid-segment chains

Taj Group has entered into mid-segment hotels with its Ginger brand

Growth of established budget brands for a long term

Hilton International plans to introduce mid-segment business brands like Hilton Garden Inns, Hampton Inns and Scandic

6


The Tier II and III cities started attracting the eye of a business traveler. While the aggressive and rapid expansion started pushing the real estate costs up, it affected infrastructure development, new businesses and at the same time new hotel projects. The growing economy did bring into limelight the advantages that a Tier II & III city had to offer in-terms of lower costs and the more friendly nature the state boards acquired to boost this much wanted development.

This saw expansion of existing brands to have a budget segment / mid-market hotel brand to offer and at the same time various new entrants into the business that realized the potential. The investment needs for this cycle were achieved by both conventional means and at the same time by forms of Joint Ventures and Private Equity investments. Existing players in diverse fields ventured into hospitality to take advantage of their brand equity.

The following year’s post 2010 however, will see a rebound of the first phase. While the growth of budget brands will continue, as that has been regarded as the long term area of growth potential, the industry will see a lot of consolidation. The over 65% unorganized sector is bound to go through a phase of identification – evaluation – selection wherein the franchisee partner is bound to have its flag hoisted once the evaluation criteria is passed.

The industry is also expected to be matured by this time.

Strategic focus and investment requirementsThere have also been changes in their strategic focus as well as investment requirements. Some of the key highlights are as below.

While the first phase of business in 90s saw an aggressive expansion in the 5 star hotel segment, it also saw various franchise and hotel management companies (HMC) that came into the business. The metros were the most sought after destinations as this is where the development and growth was happening in terms of infrastructure and business. This also lead to a creation of a big gap in the mid market segment as the organized sector had nothing to offer in this league. The hotel companies moved towards revenue growths on year on year basis and took advantage of the imbalance. The value of land towards a hotel project stood at 5-10% of the overall project cost in metros till such times and the debt was primarily raised through conventional methods of approaching banks or Tourism Finance Corporation of India Ltd (TFCI) that was set up on the recommendations of Planning Commission in 1989.

While the next decade saw a shift of ownership model towards HMC, considering that the new brand entrants into the business had by then made some ground in the country and were on an expansion spree, the development was also sought after in the gap that was created in the first half of the cycle.

Chapter 4Phases of the Indian Hospitality Industry

STRATEGIC FOCUS

Phase III 2010 - 2020

Phase II 2002 - 2010

Phase I 1991 - 2001

Revenue growth & maximization Customer acquisition

Identifying untapped customer segmentsFocus on CRMBusiness diversification Addition of new capacity

Reliance Industries, UB Group ventures into hospitality

Customer retentionBusiness diversificationLoyalty Factor

INVESTMENT NEEDS

Phase III 2010 - 2020

Phase II 2002 - 2010

Phase I 1991 - 2001

Funded by conventional methods

JVs and tie-ups with international brands

JVs with engineering, construction, real estate companies, PE firms Acquisitions

Emaar MGF & Accor group, HCC group (lavasa)

Refurbishments & Expansions under Brands


7

Chapter 5Comparisons with Retail & Healthcare

Hospitality sector which is currently contributing 2.2% of the GDP is expected to grow at 6.6%, as compared to retail industry, which despite its high contribution of 35.3% to the GDP, is expected to witness a growth, which is marginally higher than hospitality sector, at 8%. This makes the hospitality sector as lucrative from investment point of view, as the retail industry.

The medium to long term view of fundamentals are very promising. In a global context, given the size of the economy, the population and the future potential of India as a tourist destination, the demand fundamentals are very good. Technopak expects that continued economic growth, increased interest in the Indian markets and improved international access, combined with the modernization of major airports, will boost inbound travel in India. The long-term demand for India will mean that the country requires a lot more hotels to service that future demand. With a current supply of just under 100,000 rooms, stifled stock growth over the last five years is leading to a demand-supply crunch. Based on the government target for 2010, India will need to add at least 150,000 new rooms in the next four years. The total known supply in the pipeline for major Indian cities (as of March 2008) through to 2011 currently stands at just over 29,000 rooms and some of this supply will be delayed given the turmoil in the global financial markets.

The hotel investment market in India will see an increase in volume going forward. Historically, very few operating assets have transacted in the market, and currently most investment opportunities are in assets being developed, however, the future will be different as the market matures

During FY2006-2007 and FY 2007-2008, the five-star deluxe and five-star hotel segment in key Indian cities recorded strong growth in revenue per available room (RevPAR) with year-on-year average daily

room rate (ADR) growth of 40% reported in Delhi/NCR and Mumbai, and almost 20% growth in Bangalore. However, such growth levels are not sustainable over the short term & long term as room rates are expected to adjust to more realistic levels as new supply come online and the terror attacks and the global meltdown impacts the industry as a whole.

By virtue of first hand feedback from industry experts and its in-house experience, Technopak is projecting an immediate correction of approximately 10% in the occupancy figures and that will be accompanied by 12-14% correction in the ADR. With these de-growth figures for the coming year, the RevPAR is expected to be down by 21% for the next financial year.

Technopak however looks at the correction in average rates as much required. The great Indian imbalance between Demand & Supply had pushed the ADRs to great heights. This along with the extremely high tax structure did position the country to be as one of the most expensive tourist destinations. While the business travel was limited to key metro cities and did happen because of the great & promising growth potential the country has to offer, the leisure destinations and Meetings-Incentives-Conference-Exhibitions (MICE) business was getting effected to a large extent. The flip side of the story was the fact that the same hotels went down by over 40-45% in ADRs during the off seasons (primarily the summers)

This correction hence is looked at as a silver lining to the long term growth vision of the country. It will certainly make the destination much more viable to travel and will put in a fresh lease of life even in the current times of global meltdown. Overall the long term view is positive and the occupancies and ADR is expected to make a positive leap from FY 2010-2011.

A comparison of EBITDA of top three performers within hospitality, retail and healthcare industry indicate that the hotel industry is infact well placed. This only goes to corroborate the fact that investment in the hospitality sector, might well bring in higher returns, in comparison to the other two sectors.

USD

Bn

USD

Bn

Healthcare

Hospitality

USD

Bn

Retail

ShoppersStop

PantaloonRetail

VishalRetail

0.17

0.04

0.01 0.01

0.070.04 0.03 0.03

0.11

LEELAEIHIHCL

FortisWockhardtApollo

Source: Annual Reports, Wockhardt figures for FY 2007

USD

Bn

Hospitality

Y2008

23

38.98

Y2018Y2013

42.07

0

10

20

30

40

50 CAGR 6%

USD

Bn

Retail

Y2008 Y2013

368

552

Y2018

772

0

200

400

600

800

1000 CAGR 8%

USD

Bn

Healthcare

Y2008

34

68

Y2018Y2013

136

0

50

100

150 CAGR 15%

Sector GDP Contri-bution

CAGR

Retail ~35.3% 7.6%

Healthcare ~3.2% 15.0%

Hospitality ~2.2% 6.1%

Source: Technopak Analysis (Healthcare Excludes Pharma Sector)


8

Chapter 6Key Growth Drivers

The burgeoning growth of India’s hospitality industry can be attributed to a number of factors which may be broadly classified as below.

Regulatory Growth DriversPolicy & Tax Incentives and Amendments

The Department of Tourism, Government of India has initiated a number of steps to ensure full utilization of the potential which tourism holds in India.

As of date the Government is allowing foreign direct investment (FDI) in all construction development projects including construction of hotels and resorts, recreational facilities and city and regional level infrastructure. Further, there has been a reduction of expenditure tax for upscale hotels.

A new form of tourism fast catching up is medical tourism, and the Government of India has introduced a new category of visa - ‘Medical Visa’ (M’-Visa), which can be given for specific purpose to foreign tourists coming into India.

To give a boost to the hospitality industry at the central and the state level, several number of incentives have been announced at the Central as well as the State level.

Internal GrowthDrivers

External GrowthDrivers

Regulatory GrowthDrivers

Policy incentives and amendmentsTax incentivesNew product development

Rising GDPFDI In�owIncreasing domestic and international arrivalsChanging consumer dynamics

Demand supply imbalanceNew entrants in the sector

New Product DevelopmentA concept which is popular abroad and is fast catching up in India is the “bed and breakfast” concept. In adherence to this, the Government of India is recognizing spare rooms available with various house owners by classifying these facilities as the ‘Incredible India Bed and Breakfast Establishments’, under Gold’ or Silver’ category

In context to the development of tourism in the country, rural areas hold great potential and the Ministry of Tourism has tied up with the United Nations Development Program (UNDP) to promote rural tourism. The Ministry has also sanctioned 102 rural tourism infrastructure projects to spread tourism and socio economic benefits to identified rural sites with tourism potential.

Further the Tourism Ministry is planning to permit the issuance of visa-on-arrival by 2009 (from specific countries under pilot project) in an effort to foster tourism in the country.

External Growth Drivers

1. Rising GDPOverall there has been a positive growth of the India economy with a growth rate of 9.6% and 9% in 2006-07 and 2007-08 respectively. Despite slowdown, the GDP growth for 2008-09 is projected at 7.1%. The hospitality sector is expected to contribute up to 2.2% to the GDP.

2. FDI Inflow Of the total FDI inflow between 2000 and 2008, the hospitality sector has contributed 1.56% of the total inflow, amounting to USD 1.07 Billion.

The hospitality sector requires over USD 10 Billion investment in the next two to three years for which the government is relying on FDI as well, in-line with the past investment trends.

Incentives at Central Level Incentives at State Level

Elimination of Customs Duty for Import of raw materials, equipment, liquor etc

Capital subsidy program for budget hotels

Fringe Benefit Tax exempted on crèche, employee sports, guest house facilities

Five year income tax holiday granted to 2-4star hotels established in specified districts having UNESCO-declared 'World Heritage Sites'

Exemption of Luxury Tax and Sales Tax for 5-7 Years for new Projects

Small capital subsidy for the development of budget hotels

Below market rate allotment of land controlled by State for development projects

Five year income tax holiday for 2-4 star hotels and convention centers (minimum seating 3,000 people) in NCR

In order to increase Built-up area in Delhi, zonal auction rate has been brought down

USD

Bn

Y2003 Y2008 Y2013 Y2018

7831050

1487

2135

0

500

1000

1500

2000

2500

Source: RBI, Industry Reports, JLL Report 2008

Source: RBI, Industry Reports, JLL Report 2008

Non HospitalityHospitality

1.56

98.44

9


Holidays on EMIs:Players like Thomas Cook, Cox & Kings and SOTC have tie-ups with ICICI Bank, CitiBank and Kotak Mahindra to offer “holiday now…pay later” schemes like Thomas Cook-Citibank Holiday loans. These banks also offer products like personal loans for the purposes of travel. 4. Increasing Domestic & International Tourist ArrivalsThere has been an increase of tourist flow, both domestic as well as international.

DomesticFrom 310 million domestic visits in 2003, the number rose to 529 million in 2007, a CAGR of 14%. The Ministry of Tourism’s vision is to achieve a level of 760 million domestic visits by the year 2011, with an annual average growth of 12%

InternationalForeign tourist arrivals (FTAs) were up by 5.7% during 2008 and clocked 5.37 million compared to 5.08 million during 2007. Foreign exchange earnings increased by 8%, to USD 11.5 billion in 2008 from USD 10.70 billion in 2007

The Ministry of Tourism aims to achieve a figure of 11 Bn by 2011


3. Changing Consumer Dynamics & Ease of FinanceNominal per capita income growth averaged around 7.3%, which was higher than the average inflation rate of 5.1% during 2004-08

Credit Cards:India is the second fastest growing financial cards market in the Asia-Pacific region. The Credit Card base in 2008 is estimated at 25 million and this is expected to grow at 20-25% per annum. Driving this growth is the increased use of credit cards for the purpose of purchasing due to attractive and consumer friendly schemes being offered by various banks. 35% of those who use credit cards use it for travel, hotel as well as dining.

Household IncomeBracket

INR ‘000

Number of Households

Figs in Mn

Aggregate disposable Income

INR, Trillion

Globals (>1,000)

Strivers (500-1,000)

Seekers (200-500)

Aspirers (90-200)

Deprived (<90)

Globals (>1,000)


Seekers (200-500)

Aspirers (90-200)

Deprived (<90)

Globals (>1,000)


Seekers (200-500)

Aspirers (90-200)

Deprived (<90)

1.2

2.4

10.9

91.3

101.1

3.3

5.5

55.1

106

74.1

9.5

33.1

94.9

93.1

49.9

2

1.6

3.1

11.4

5.4

6.3

3.8

15.2

14.6

3.8

21.7

20.9

30.6

13.7

2.6

2005

2015

2025

Source: Technopak Analysis, Industry Reports

Source: Technopak Analysis,Value Retailing – Angel Broking 2008

Travel, Hotel and Dining

Apparel

Jewellery

Consumer Durables

Others

35%

35%

10%

10%

7%

0

200

400

600

800

0%

5%

10%

15%

20%

25%

2003 2004 2005 2006 2007 2011

15%

19% 18%15%

12%

7%

366309

392

462 529

760

Domestic Tourist Arrivals

Domestic Travellers (Mn) Growth %

Source: Ministry of Tourism, Industry Reports

0

2

4

6

8

10

12

0

5

10

15

20

25

30

2003 2004 2005 2006 2007 2008 2011

14%

25%

15%13% 12%

6%2.73.4 3.9

4.4 5.05.1

11

International Tourist Arrivals

International Travellers (Mn) Growth %

Source: Ministry of Tourism, Industry Reports

10


Internal Growth Drivers

1. Demand Supply ImbalanceStatistics on the demand and supply for hotel rooms indicate that India currently has around 114,200 hotel rooms spread across the various hotel categories and is facing a shortfall of 156,000 rooms. The


0

500

1,000

1,500

2,000

0

20,000

40,000

60,000

80,000

5 Star 4 Star 3 Star 2 & 1 Star

30,200

8,000204

95 315 1.398

Current Supply

No. of Hotels No. of Rooms

17,600

58,400

Total Demand Total Supply Gap

71,473

84,327

270,000

114,200

Gap in number of rooms

Source: Technopak Analysis, FHRAI, Ministry of Tourism, Industry Reports

Need Gapto be �lled

ApprovedNo. of Rooms

impact of this demand and supply gap is felt by way of increased room tariff. In metro cities the room rents have simply sky rocketed. This is especially the case with mid segment and budget hotel categories where exists a large gap in supply.

2. New Entrants in the SectorGap in demand and supply of hotel rooms is one major shortcoming, marring the hospitality industry. This is likely to be negated as in response to the shortfall the Government of India until December 2007 has approved construction of 85,000 hotel rooms resulting in

the emergence of different players in the industry ranging from real estate companies, private equity firms, and IT companies. Provided below is a snap shot of few entrants in the sector.

Real Estate Companies: Real estate companies have the bandwidth to invest high amount of capital required by the hospitality industry

IT Companies: IT and ITeS companies are amongst the biggest hospitality clients. The need of accommodating their clients and visitors luxuriously is prompting them to maintain their own accommodation facilities

Private Equity Firms: Many private equity funds are allocating as much as 50% of their planned real estate investments into the sector as hospitality remains a highly under serviced area with a huge demand supply imbalance

Internal Diversi�cation: Established leaders in various core sectors and at times family owned have diversi�ed into hospitality business on a strong �nancial backing and an urge to make a mark in this sector

In 2007 DLF ltd. announced its equal partnership with Aman resorts. The transaction is estimated to be valued at USD 360 million

Infosys Technologies has a country wide room inventory of 13000, Wipro has an inventory of 500 rooms

Some of these PE investments include Warburg Pincus USD 60 million investment in Lemon Tree Hotels

USD 60 million investments by Credit Suisse in the Park Hotels

ADAG is in talks with Starwood Hotels & Resorts for bringing their luxury brand, St. Regis in India via SPV after acquiring 30% stake in Viceroy Hotels

Vijay Mallya owned UB Group diversi�ed to set up King�sher Airlines and acquired Air Deccan

Source: Industry Reports, JLL Report 2008

New Entrants in the Sector Example


11

Chapter 7Key Emerging Trends

to echo in the hospitality sector as well. Guests today are becoming increasingly unpredictable and quickly switch their patronage for better deals across hotel segments, thereby reducing efficacy of many loyalty programs which Hotels target towards their customers.

But mid-segments budget hotels, are still offering loyalty programs, a trend which has been visible internationally lately.

4. New Avenues of GrowthService apartments, time sharing, fractional ownership and company hotels or guest houses, have immense potential to grow. Their growth is likely to be due to increased demands of the IT, ITES, BPO, KPO, biotechnology and medical tourism sector.

Heightened awareness of consumers towards their environment has brought into prominence the concept of eco tourism and agri tourism.

There is an increased flow of people, especially those from the west, to India for medical services. This has also brought into limelight Medical Tourism. Current market for Medical Tourism in India is USD 533 million, expected to grow to USD 3.29 billion by 2018.

Emergence of profit sub centers: Diversification holds the key to survival in the long run. The hotel industry isn’t behind. SPAs are appearing at hotel properties at a remarkable rate & are becoming independent profit centers. Cafes, lounges & bars which have high profit margins are increasingly growing in various hotels.

To round up, here are some of the emerging trends witnessed in the hospitality industry – Hotels and Restaurants.

Trends in the Hotel Industry

1. Changing Consumer Dynamics & Ease of FinanceUnlike in the west, franchise model has not been a success in India. What accounted for its success in the west is a consistency in the product offering along with strict regulations by the government on hygiene and health which has helped the franchise model to flourish. Recent trends strongly suggest that the franchise model of business has taken a backseat and the focus is shifting to Management Model. Below are a few factors driving this operating model.

Hotel operation is a critical process where efficiency has to be spot •on and this is where the management model stands out

There are a number of properties developing with a fewer number •of operators

2. Emergence of mixed land usageMixed-use developments incorporating residential, retail, entertainment, hospitality and corporate venues are fast emerging in metros and tier-II, III cities. Some examples are as below:

Kshitij• introducing ‘Market Cities’, retail-led mixed-use developments in Mumbai, Chennai and Bengaluru

Brigade group• is focusing on the hotel-cum-mall options with Brigade Metropolis, a business hotel being developed at Chennai.

The Leela Kempinski, Gurgaon• is located in a mixed-use complex of luxury residences, retail spaces, entertainment and wellness facilities

This calls for de classification of hotels as commercial real estate, whereby the government should permit mixed-use hotels under the automatic route and facilitate financing through incentives to financial institutions and lenders.

3. Diminishing Brand LoyaltyJames Scott, regional operating officer, Asia, Metro Cash & Carry International, Hong Kong SAR, had said, “India’s consumer market is in a transformational state with dynamic changes in the demand pattern.” This was more in context of the retail industry. Similar sentiments seem

Hotel Loyalty Program No. of Members

Starwood Starwood Preferred Guest 09 Mn (worldwide)

Hyatt Hyatt Gold Passport 18 Mn (worldwide)

Intercontinental Priority Club Rewards 40 Mn (worldwide)

Marriott Marriott Rewards 20 Mn (worldwide)

Accor group A|Club 0.6 Mn(Worldwide)

Hilton HHonors 17 Mn (Worldwide)

12



Café with Art Gallery: • Kashi Art Café- Cochin, Le Cafe De Art Coffee Shop- Hyderabad, Monastery of Art - Boutique Art Café- Kolkata

Sports Bars• : The All Sports Bar- New Delhi; Amoeba Sports Bar- Bengaluru

2. Rise in Multi Specialty Cuisine With higher inclination towards “Fun” and “Time with family”, and rising “individualism”, guests in a specialty restaurant are restricted to order food from just one cuisine. Hence “multi specialty” restaurants draw a balance by providing choice while maintaining a specialty theme or cuisine and offering wider options to the consumers.

3. Changing Business ModelExternal Brands: Hotels are bringing in restaurateurs under a management contract or lease to capitalize on a proven restaurant concept that generates substantial revenue by attracting hotel guests and local residents. Sagar Ratna & F Bar at Ashoka Hotel; Barista Crème at The Leela Palace Kempinski, Bengaluru; Café Coffee Day at Ginger Hotels are some of the examples.

Individual Restaurants: Popularity and brand value of certain restaurants within a hotel enables them to become individual profit centers and move out of the hotels. They hence leverage by opening chain restaurants outside hotels. Some of the popular examples are the Great Kebab Factory- originally at Radisson; ITC retailing Bukhara products.

5. Growth of Budget HotelsLeading groups present in this segment are Ginger Hotels, Lemon Tree, Sarovar Hotels, Fortune Hotels, Ibis, and Choice Hotels. Currently 3 & 4 star hotels together account for 22% of the total room supply in India, which clearly indicates a huge growth potential of budget hotels. Due to the huge demand-supply gap of middle-level hotel rooms, an investment of 835 million is proposed for these hotels in the next 3 years. Further for the Commonwealth games in 2010, the government is expected to provide 10,000 budget rooms while the requirement would be for 40,000-50,000 rooms in the budget category.

Trends in Restaurant Industry

1. Leisure & Entertainment with Eating OutEating out is an activity closely associated with fun. Almost half the Indian eat out regularly, even if it might not be an immensely entertaining activity just yet. It is seen as a way of reinforcing the need to be socially active and connected. Increasingly Food and entertainment are being brought together by Indian Entrepreneurs.

Café with Library: • The Library Bar- Leela Palace Kempinski, Bengaluru; Ego Thai- New Delhi

Café with Movie screening:• The Mocha Film Club

Name of Company Partner Hotel Brand Investment (USD)

Gammon India Ltd Wyndham Hotel Group - 75-100 Mn

Accor Emaar MGF Land Ltd Formule 1 & Ibis 200 Mn

Bessemer & New Vernon Private Equity

Sarovar Hotels Hometel 8.5 Mn

Lemon Tree Hotels Warburg Pincus (PE Firm)

Lemon Tree & Red Foxx 62 Mn

Roots Hotels (Part of IHCL)

- Ginger 33-44 Mn

Berggruen Hotels Berggruen Holdings Keys 100 Mn

Istithmar Hotels (Dubai) easyHotel (UK) - 80-120 Mn

Golden Tulip Leyland Group Golden Tulips & Tulip Inns

200 Mn

Source: Industry Reports, News Articles

Restaurant Group Specialty Multi Specialty

Asia 7 Lite Bite Oriental Burmese, Thai, Vietnamese, Japanese, Indonesian, Korean, Malaysia

Fresco & Co Lite Bite Mediterranean Portuguese, Spanish, French, Moroccan, Italian and Greek

Aromas of China BJN Group Chinese Cantonese and Shanghai

Samarkand BJN Group North West Frontier Mongolian, Afghani and Samarkand

Olive Bar & Kitchen Mediterranean French, Italian and Spanish

Source: Industry Reports, India leisure and entertainment trends 2008-09 – The Knowledge Company

25%

18%

13%

13%

7%

3%

Reasons for Eating Out

Fun

Time with Family

Relaxation

Mood upliftment

Time for Self

Refresment

Source: Industry Reports, India leisure and entertainmenttrends 2008-09 – The Knowledge Company

13


3. Integration of Business and E-Commerce Technologies The development of new technologies has made it possible for businesses to use Internet technologies to transform their old business technology solutions into an integrated system. With the same IP network, companies can run video over the network for teleconferencing, a feature that can potentially accrue tremendous savings in travel. Hotels are increasingly using 2 way interface Central Reservation Systems that enables complete integration of their systems and helps to manage their inventory and pricing across multiple channels

4. Disintermediation and Re-IntermediationThe process of cutting off the middlemen is what has been referred to as disintermediation and the trend is widely seen today. Companies are increasingly revamping their brand websites to reach the end consumer directly. They are also incorporating the loyalty factor and corporate account structure to enable a secured environment

The Internet also creates a new platform for introducing new e-commerce businesses to fill the void left by traditional middlemen. This process is referred to as re-intermediation. Websites like Expedia & Travelocity have taken up the online travel agent role very effectively.


4. Front End and Back End IntegrationWith increased focus on productivity and efficiency level enhancement, companies are moving towards front end and back end integration. ‘Farm to Fork’ concept aims at minimizing the steps from the farmer to the final consumer. Retailers are in the process of establishing direct consumer points to enable a smooth transition of goods from the farm to the consumer and enhance brand value.

Key Technology Trends

1. Convergence of All ElementsConvergence refers to the integration of voice, data, and video into a single, Internet Protocol (IP) based network. Destination Management Companies (DMCs) are using Internet as a central platform for streamlining functions of marketing, travel information distribution and customer service. Hotels’ Property Management Systems (PMS) are not only transformed by the use of Intranet, but also become accessible to customers by way of extranet, providing 24/7 customer service. With the same Internet Protocol (IP) network, companies can run video over the network for teleconferencing, a feature that can potentially accrue tremendous savings in travel

2. New CRM Tools to Meet ExpectationsNew technologies are being used by Online Travel Agents (OTA) companies and hotels to get users to visit their sites. It allows customer to easily find and buy the products they need and enable electronic customer relationship management (e-CRM) by customization and personalization. In the Internet age, mass marketing and commercialization are out, and personalization, customization, and target marketing are in.

Source: News Articles and Publications

Group Activity Restaurant Products Presence

Alchemist Chicken Processing Republic of Chicken Chicken Dishes Chandigarh, Delhi, Gurgaon, Faridabad

Amul Dairy Coop Amul Utterly Delicious

Ice creams, Milkshakes, Sandwiches, Pizzas

Ahmedabad, Bangalore, Baroda, Delhi, Mumbai, Hyderabad, Surat


14

The optimism surrounding the Indian Hospitality sector isn’t without glitches. There are a certain challenges that face the sector, which need to be overcome to realize its potential to the fullest. The key challenges facing the sector may be broadly classified as below.

Regulatory Challenges

1. No Uniformity in Taxes & High Tax StructuresPrime amongst regulatory challenges emanates from the tax structure. Due to high duties and the imposition of several taxes by the various state governments the industry ends up paying multiple taxes, which increases their overall costs by a huge margin, impacting their profit. India has the highest tax rate on tourism projects in the Asia Pacific region. Each state has its own criteria for luxury tax, varying from 5% to 20% on rack rate, rather than the actual. Luxury tax on the rack rate increases the effective rate of tax by 25% to 30%.

The service tax levied on tour operators leads to double taxation and increases the burden for the tourists.

Similar challenges also face the restaurant industry some of which are as below.

Highest import duty on imported liquor used in hotelsAlthough the rates of basic duty have been brought down to 182% •from 210%, the same remain at considerably high levels.

High Import duty on Kitchen equipmentCurrent import duty on Kitchen Equipment is 31% + 4% surcharge.•

External challenges

1. Economic SlowdownThe dreaded “R” has cast its gloom over the hospitality industry too. Its impact can be felt by way of a drop in room occupancies and restaurant customers. Average Room Rate has dropped by 10-15%. As cost cutting measures hotels have put on hold their expansion plans for the moment. There has also been a freeze on new recruitment.

2. Impact of TerrorismTerror attacks have created a sudden shortage of room supply of about 885 rooms from a total of around 2,238 premium segment hotel rooms in South Mumbai. Leisure destinations like Goa, Kerala etc. are likely to be affected more than business destinations. It is expected that average occupancy levels across major cities is likely to decline from the current average of 65-66% to 57-58%.

To mitigate the crisis situation leading hotel chains like the Taj & Oberoi have set up a panel to handle security related issues and are investing towards upgrading their existing security infrastructure

3. Cost of LandLand prices in India constitute almost 25% of the cost of the property, whereas it accounts for only 15 -20% of project cost overseas. This cost has only been on the upward side. The rising land cost and low FSI, adds to the industry’s financial dilemma.


InternalChallenges

External Challenges

Regulatory Challenges Multitude of TaxesHigh Taxes

Economic SlowdownImpact of TerrorismCost of LandCost of Debt

Skilled Manpower Shortage

Source: Steering Committee on Tourism of the Planning Commission for the 11th five year plan (2007-2012), Industry Reports

Taxes (%) Delhi Gujarat Maharashtra Goa Kerala Haryana

Luxury Tax applicable on Room

Published Rates

Published Rates

Actual Rates Actual Rates Actual Rates Actual Rates

Luxury Tax 12.5% 6% 10% 10% 15% 10%

Value Added Tax-F&B

12% 15% 12.5% 12.5% 12.6% 12.5%

Land cost as a % of Total Investment in Tier I

Cities-1990


Cities-2000


Cities-2008

~5% ~15% ~25%

15


Internal Challenges

1. Skilled manpower shortageThe hotel sector is labor-intensive with an average employee-to-room ratio of 1.8: 1 in India, compared to 1.5: 1 globally. However there exist a huge gap in manpower availability, especially so with the budget hotel segment.

Currently there are 25 Institutes of Hotel Management with 180 other Institutes providing Degree/ Diploma courses in F&B service, F&B production, Housekeeping. These training facilities produce around 10,500 graduates in various courses every year. However this doesn’t solve the crisis faced by the budget hotel segment, given the preference of graduates for the 5 star segments.

Other reasons contributing to the manpower worries includes: Bright and educated younger generation has never considered hotel •industry as a progressive employment option;

Even with trained hospitality workers, there is more demand •overseas.

4. Cost of DebtThe industry is capital intensive and has a long gestation period, with

repayment of loans beyond 11 to 15 years. But the current borrowing and lending scenario is not something to cheer about, as (a) banks are not looking at funding beyond the period of 7 to 9 years; and (b) they have made lending norms and process more rigorous. Even the RBI has stopped foreign currency loans under its External Commercial Borrowing (ECB) guidelines to the hospitality sector, thereby further choking debt funds.

Further since the sector has not yet received ‘Infrastructural’ status, it has impacted government allocations and subsidies towards the sector.

The only silver lining remain in the fact that there has been no major impact on the private equity fund flow into the country as these funds prefer to stay invested for the longer term.


Total EmploymentGeneration in Next

5 Years

CurrentEmploymentbandwidthof Hotels

GapNo of Graduatesin next5 years from105 Institutes

Gap

42,100

52,500234,900

140,300

Gap in manpower availability

Source: Crisil Report, Industry Reports

0

4

8

12

16

20 FSI Comparision in CBD

0.75 1.753 3

10 1012

15

Bangalore

Delhi-NCRMumbai

ParisTokyo

ShanghaiLahore

Manhattan

Population2007 (Cr)

.70 1.71 2.19 .05 1.27 1.64 .70 1.50

Source: Technopak Analysis, Industry Interaction & Reports


16

Towards achieving this international linkages have been formed for the qualitative growth of these institutes, the National Council has signed a MoU with VATEL International Business School (France), Cooperative Research Centre for Sustainable Tourism of Australia, Singapore Hotel Schools.

Growth of Group Purchase Organizations (GPO)Currently, in India there is no major domestic player existing that can leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members. There is an annual opex addressable market of USD 1 billion in the current year and by 2010 it will be USD 1.2 billion and USD 1.5 billion by 2013. There will be with a total capex (FF&E) addressable market of USD 4 billion over the next 5 years.

Based on assumption of 10% of the Market Share and a 2% admin fee GPO revenue potential from FF&E categories would be USD 8 million over the next 5 years. Annual admin fees revenues from opex categories would be USD 2.45 million in 2010 and USD 3 million by 2013.

Home Meal Replacement MarketMarket for ready to eat/ make products in India is fast catching up. Factors such as increased pressures on time, busy lifestyles and increase in the number of dual income households have lead to a steady growth in sales of ready to eat packaged food. Ready-to-eat food sector is growing by 20% annually. Today, the market is worth USD15.56-17.78 million (discounting the bigger ready-made market comprising juices, noodles etc which together put the market cost to USD 222.22 million).

There is also a rising demand for frozen food. As per industry estimates by year 2009, Indian market for frozen and processed foods products will be USD 148.22 million.

Companies currently engaged in a particular product line, like Sabols based in South India, which specializes in packaged drinking water, is repositioning itself, to tap this growing market.

Innovative Operating ModelsHotels are adapting to innovative modeling by bringing in external brands of restaurants, spas, lounges on lease or management contract to benefit from the proven concept that generates substantial revenue. Success and popularity of restaurants, spas, lounges within hotels enables these players to become individual profit centers and move out of hotels as separate chains and thereby expand their presence in the market.

New Avenues of Growth

MICE: Meetings, Incentives, Conventions and Events - are a new concept which many hospitality companies including travel trade are adapting to. The inbound MICE segment is growing at 15 to 20% annually. Countries like Singapore and Malaysia have grown exponentially in the MICE market. India gets close to 0.96% share of the world’s meetings which although miniscule, has ample room for growth.

Mall-hotel a win-win scenario: For the Commonwealth games in 2010, government is expected to provide 10,000 budget rooms while the requirement would be for 40,000-50,000 rooms in the budget category. In this scenario, the mall-hotel arrangement is a win-win situation for both hoteliers and developers. Smaller hotels in malls would lead to lesser investment due to decrease in real estate cost and smaller inventory.

Overall opportunity for new hotels exists across all segments or star ratings. With the current growth levels and supply gap and 100% FDI allowed, the country provides opportunities for various International brands to enter India for long term commitment

Investment in Hospitality InstitutesAs mentioned there are 25 Institutes of Hotel Management (IHM’s) and there are about 180 institutes (150 colleges in the private sector) granting certificate/diploma/degree courses in specialized areas like F&B production, F&B service, Housekeeping. Some examples are as

below.Together all the institutes produce 10,500 graduates in various courses every year, showing a clear demand-supply mismatch. To overcome the shortage of manpower there are scope for more hotel groups can come up with their own institutes or programs to meet the demand for trained personnel in the industry.

High

Medium

Low

Low Medium High

Availability

Price

Budget Hotels

5 Star Hotels

Car RentalsConvention Centers

Chapter 9Key Opportunities

Group Program

Welcomgroup Welcomlegionnaire Program – 4 years

Taj Taj Management Training – 1.5 yearsHotel Operations Management Training – 2 years

Source: Technopak Analysis, Ministry of tourism, Crisil

Source: Technopak Analysis, Ministry of tourism

Category 3 Star 4 Star 5 Star

Capex Purchase per Hotel(USD Mn)

8.89 22.22 50

Annual Opex Purchase per Hotel(USD Mn)

0.89 1.56 2.67

Key playersMTR, ITC, Tasty Bite,Currie Classic, Kohinoor


17

Chapter 10Key Recommendations

harnessed through the introduction of private sector investors who contribute their own capital, skills and experience. The major advantages of PPP are:

Accele• ration of Infrastructure Provision

Faster Implementation•

Value for Money•

Partnership Building•

Enhanced Public Management•

Genuine Risk Transfer•

Output Specification•

Asset Performance & Reduced Costs•

Performance-Related Reward•

Private Investment Promotion•

Improved Quality of Service•

With the targets that have been kept for the tourism growth in the country, it is imperative to ensure that we do have a trained manpower and resources. Annual demand for trained manpower in hotels and restaurants is likely to touch 29,000 by the year 2010. However, only a total of 10,500 students are being trained in hotel management and food craft annually. Hotel-run-institutes will also tackle the escalating attrition rates, growing at 10 per cent per annum, on a base of 18-25 per cent, in metro hotels.

India is out pricing itself as a holiday destination over other competing destinations like China, Brazil and South Africa which have followed a much better approach of gradual increase in tariff with parallel growth in quality of product and services. As per the annual Hogg Robinson Hotel survey, Mumbai has seen a growth of 18% in its Average Rates over 2007 and has moved up from 6th most expensive city last year to the 4th position in 2008. Uniformity in price points across various seasons and a competitive pricing against the SE Asian destinations will definitely help in getting more tourist arrivals in the country in the long run

Technopak takes this initiative to re-emphasize the recommendations made earlier on various platforms.

The Government of India should accord the Infrastructure status for Hotel Industry under Section 80 I/A of the Income Tax Act 1961. It should be given full benefits of concession for infrastructure facilities available to other sectors like airports, seaports, power projects and gas distribution networks.

Section 32 of the IT Act should be amended to restore the depreciation rate to 20%. The additional depreciation applicable to Plant & Machinery u/s 32 1 (ii a) should also be allowed to hotels which have to make heavy investments in plant and machinery

Rising land costs coupled with low FSI is making hotel projects appear financially unfeasible as breakeven projections and the stabilization forecast run well beyond the typical ten year cycle. The FSI norms need to be rationalized across the country in order to allow maximum utilization of space and thereby making rooms affordable. FSI norms are frozen in India as opposed to the typical practice of raising FSI rates. Most comparable cities across the world offer better FSI’s than their Indian counterparts. New York offers up to 15 FSI while NCR offers a dismal 1.75 FSI

High taxes in the country and a non-uniformed tax structure have been a key challenge when it comes to traveling a trip to the country – be it a leisure tour group or a corporate incentive group. The abolition of service tax on tour packages will also help push tourism in the country. A uniform tax structure for Rooms and Food & Beverage across the country is much required.

The special tax holidays were introduced by the GoI for the NCR region of New Delhi. This was introduced to get more hotel rooms in the city with a clear vision for the 2010 Commonwealth Games. However, the demand supply imbalance is not just limited to NCR. The other metro cities are also struggling with the same problem and with an extension of tax holidays to pan India basis, it will definitely help new hotel development.

Poor infrastructure including power shortages, bad roads, inadequate water supply and unreliable communications has a direct impact on the growth of the hospitality sector. While the airports are now going for an aggressive face uplift, it’s still has to be ensured that the consumer experience is uniform across the country. The NE states of Sikkim & Arunachal Pradesh have seen a growth of 20% in tourist arrivals over last year (2007) thanks to primarily the free air fare scheme of the GoI which resulted in approximately 8% of the total work force of central government employees visiting the region. However, increased demand and lack of infrastructure is today leading to a huge shortfall of rooms and this could lead to negative brand image for the region.

Technopak proposes in Public Private Partnership (PPP) across various tourism projects in the country. PPPs enable the public sector to benefit from commercial dynamism, the ability to raise finances in an environment of budgetary restrictions, innovation and efficiencies,


18

About Confederation of Indian Industries (CII)

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes.

CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in India’s development process. Founded over 113 years ago, it is India’s premier business association, with a direct membership of over 7500 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 83,000 companies from around 380 national and regional sectoral associations.

CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity management, skill development and water, to name a few.

Complementing this vision, CII’s theme “India@75: The Emerging Agenda”, reflects its aspirational role to facilitate the acceleration in India’s transformation into an economically vital, technologically innovative, socially and ethically vibrant global leader by year 2022.

With 64 offices in India, 8 overseas in Australia, Austria, China, France, Japan, Singapore, UK, USA and institutional partnerships with 271 counterpart organisations in 100 countries, CII serves as a reference point for Indian industry and the international business community.

Confederation of Indian IndustryThe Mantosh Sondhi Centre

23, Institutional Area, Lodi Road, New Delhi – 110 003 (India)Tel:911124629994-7•Fax:911124626149

email:[email protected]•Website:www.cii.in

Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244


19

About Technopak

A leading Management Consulting firm offering strategic advice, start up assistance, performance enhancement impetus, consumer insights and capital advisory, to leading Indian and International companies, operating in Retail, Consumer Products, Fashion (Textiles & Apparel), Healthcare, Hospitality, Food Processing, Education, Entertainment and Real Estate sectors

Since it’s inception in 1991, as a Management Consulting firm across diverse industries, Technopak has offered services to have far reaching impact on client businesses.

Founded on the principle of “concept to commissioning”, Technopak is strategic advisors to its clients during the ideation phase, implementation guides through start-up and a trusted advisor overall. Over 70% of the projects come from repeat clients.

The team currently comprises 300+ skilled professionals from leading International and Indian engineering and management institutes. Most of the consultants have hands-on industry experience in their fields of specialization and represent a wide variety of functional backgrounds. This enormous knowledge and talent pool enables Technopak to create special customized teams for each project depending upon the client requirements.

From offices in Gurgaon (National Capital Territory of Delhi), Thane (Mumbai) and Bangalore, Technopak consults with clients across the world. In 2008, it worked with over 170 Clients across 200 projects, in 20 countries besides India, across 5 continents.

With a team of established domain experts at work, Technopak builds and enhances business capabilities for leading Indian and international companies by offering end-to-end solutions that are unique due to its rich experience, strong industry relationships and a global footprint.

Technopak Hospitality Service Offering

Business StrategyA framework to inform and make value creating tradeoffs - facts, •alternatives and Decisions

Market demand Analysis and Entry Strategy, Partner Search, •Turnaround Strategy

Hotel Project Conceptualization, Market Positioning, Financial •Planning

Organizational Design & Structure, Manpower Planning, Customer •Relationship Management

Revenue Management, Assistance of setting up of international •representation offices

Organic growth strategy, Sector specific industry study and analysis•

Start-Up AssistanceOperations and industry expertise to deliver “turnkey” business •incubation and create value for our clients

Market feasibility study, Detailed analysis of market/ industry•

Multiple options for possible entry of any firm into the hospitality •industry,

Real Estate Search – Lease/ Buyout, Brand Partner Search•

Business Start-up, Financial Feasibility Studies, Marketing and sales •implementation

Organization design and creation, •

Destination Promotion, Feasibility and Assistance – Government •Initiatives

Performance EnhancementPerformance Review - Brand Audit, Human Resource Audit, •Remuneration Assessment, Service Line Analysis, Diagnostic Review of existing Customer Relationship Management Strategies

Balanced Scorecard•

Capital AdvisorySupporting business strategy and execution with •comprehensive capital advisory in our industries of focus

M&A, Due Diligence – commercial & financial, Fund Raising, •Corporate Finance

Consumer InsightsHolistic consumer understanding applied to offer implementable business solutions

User Insights•

Trend Insights•

Design and Innovation Insights•


20

Authors

Tarandeep SinghPrincipal [email protected]

Tarandeep has over 10 years of enriched work experience in areas of marketing, sales and revenue optimization with the leading players in tourism and hospitality industry. His last assignment was with The Taj Mahal Hotel.

Dhananjay KumarPrincipal [email protected]

Dhananjay has about 15 years experience in hospitality industry across the most reputed hotel brands with clear expertise in Food & Beverage – Conceptualization, Strategic Planning, Operations , Training, Manpower Management and Budgeting.

Zara SinghSenior [email protected]

Zara has over 5 years experience in hospitality and has worked for leading hotel brands, with the last assignment as Head of Department for Revenue with the Four Points by Sheraton, Sydney, with expertise in Best Revenue Management Practices.

Lokesh KumarAssociate Vice President - [email protected]

Lokesh has worked for leading hotel brands such as EIH Hotels , Hilton Hotels & Unison Hotels for over 10 years in strategic capacities.

Inderpreet KaurSenior [email protected]

Inderpreet has over 5 years of experience in strategy consulting with domain expertise in retail, consumer products and Hospitality. Prior to joining Technopak, Inderpreet was working with Halifax and Bank of Scotland in UK.

For further information, please contact:

Mr. Lokesh KumarAssociate Vice President- Hospitality

Email : [email protected] : +91.9873631276

Mr. Tarandeep SinghPrincipal Consultant- Hospitality

Email : [email protected] : +91.9212305610

Technopak Advisors Pvt. Ltd.4th Floor, Tower A, DLF Building 8

DLF Cyber City, Phase IIGurgaon 122002

INDIAPhone +91.124.4541111

Fax: +91.124.4541198/99

www.technopak.com

hospitality report technopak

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