23-26 February 2009, BIEC, Bengaluru

Organized by Knowledge Partner

Indian Hospitality Industry Outlook

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 2326 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.

Contents
Executive Summary 01

Chapter 1
Indian Hospitality Industry - Overview 02

Chapter 2
Indian Hotel Sector - Overview 03

Chapter 3
Indian Restaurant Sector - Overview 04

Chapter 4
Phases of the Indian Hospitality Industry 05

Chapter 5
Comparisons with Retail & Healthcare 07

Chapter 6
The Key Growth Drivers Regulatory External Internal 08

Chapter 7
The Key Emerging Trends Hotels Restaurant Technology 11

Chapter 8
The Key Challenges Regulatory External Internal 14

Chapter 9
The Key Opportunities 16

Chapter 10
Technopak Recommendations 17

Indian Hospitality Industry Outlook

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 customers 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 slowdown 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--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.

Indian Hospitality Industry Outlook

Indian Hospitality Industry Overview

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 countrys economy. Currently its market size is USD 23 billion, accounting for 2.2% of the GDP.

Chapter 1

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.

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 Product USD 1050 Billion

Contributes 2.2% to GDP

Hospitality Market Size USD 23 Billion

Source: Technopak Analysis and Economic Survey of India

Indian Hospitality Industry Outlook

Indian Hotel Sector - Overview

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

Chapter 2
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

Organised market, 30% Unorganised market, 70%

Source: Technopak Analysis

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.

Market Size & Projections* 40 35 30 USD Bn 25 20 15 10 5 0 2008 Unorganised 2009 1-2 Star 2013 3 Star 2018 4 Star 5 Star 16.7 14.7 30.7 35.7

Breakup of Organised Market (2008)

3 Star (USD Bn) 0.6 12%

2&1 Star (USD Bn) 1.1 22%

5 Star (USD Bn) 2.9 58%

4 Star (USD Bn) 0.4 8%

Source: Technopak Analysis, Industry Reports

* Overall market size (organised & unorganised)

Indian Hospitality Industry Outlook

Indian Restaurant Sector - Overview

Chapter 3

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%. 12 10 USD Bn 8 6 4 2 0 2008 2009 2013 2018
* Overall market size (organised & unorganised)

Market Size & Projections* 9.6 8.1 5.8 6.8 Organised Unorganised

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. Caf Coffee Day, Dominos Pizza, KFC are some examples, with each having further expansion plan.

QSRs Caf Coffee Day Dominos Pizza Barista McDonalds Pizza Hut US Pizza Nirula's KFC Costa Coffee Yo-China Total
* As of January 2009

No. of Outlets 718 220 189 155 137 60 60 59 43 30 1671

Expansion Plans 20-25 cafes every month 300 outlets by 2010-11 300 outlets by 2009 205 outlets by Dec-09 175 outlets by 2010 500 outlets by 2011 140 outlets by 2010 1000 outlets by 2014 75 outlets by 2009 200 outlets by 2009

Indian Hospitality Industry Outlook

Phases of the Indian Hospitality Industry

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.

Chapter 4

Technopak does an attempt to look at various aspects of this lifecycle and has classified the same as follows: 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 cities Promotion of Gateway Cities Only ~27% hotels approved in Tier 1 cities Tier II & III cities Promotion of Gateway Cities Only ~27% hotels approved in Tier 1 cities

PROPOSITION Overall the growth story started in the 80s when the development of various hotels kicked off for the Asiad Games in New Delhi. But its 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.

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

Indian Hospitality Industry Outlook

Phases of the Indian Hospitality Industry

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

Chapter 4

Phase III 2010 - 2020 Phase II 2002 - 2010 Phase I 1991 - 2001
Revenue growth & maximization Customer acquisition Identifying untapped customer segments Focus on CRM Business diversification Addition of new capacity Reliance Industries, UB Group ventures into hospitality Customer retention Business diversification Loyalty Factor

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.

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

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.

The following years 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.

Indian Hospitality Industry Outlook

Comparisons 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. Hospitality 50 40 USD Bn 30 20 10 0
Y2008 Y2013 Y2018 23 CAGR 6% 38.98 42.07

Chapter 5

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 inhouse 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. Hospitality
0.17

Retail 1000 800 USD Bn 600 400 200 0

Y2008 Y2013 Y2018 368 552 CAGR 8% 772

Healthcare 150 100

68 CAGR 15% 136 Sector GDP Contribution ~35.3% ~3.2% ~2.2% CAGR

USD Bn

50 0

Retail Healthcare Hospitality

7.6% 15.0% 6.1%

34

Y2008 Y2013 Y2018

Source: Technopak Analysis (Healthcare Excludes Pharma Sector)

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 fivestar hotel segment in key Indian cities recorded strong growth in revenue per available room (RevPAR) with year-on-year average daily 7

Retail

USD Bn

USD Bn

0.11 0.07

0.04

0.03

0.03

IHCL

EIH

LEELA

Shoppers Stop

Pantaloon Retail

Vishal Retail

0.04

Healthcare

USD Bn

0.01 Apollo Wockhardt

0.01 Fortis

Source: Annual Reports, Wockhardt figures for FY 2007

Indian Hospitality Industry Outlook

Key Growth Drivers

The burgeoning growth of Indias hospitality industry can be attributed to a number of factors which may be broadly classified as below.
Regulatory Growth Drivers External Growth Drivers
Policy incentives and amendments Tax incentives New product development

Chapter 6
New Product Development A 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 visaon-arrival by 2009 (from specific countries under pilot project) in an effort to foster tourism in the country.

Rising GDP FDI In ow Increasing domestic and international arrivals Changing consumer dynamics

Internal Growth Drivers

Demand supply imbalance New entrants in the sector

Regulatory Growth Drivers

Policy & 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.
Incentives at Central Level Incentives at State Level

External Growth Drivers

1. Rising GDP Overall 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.
2500 2000

2135 1050 1487

USD Bn

1500 1000 500 0

783

Y2003

Y2008

Y2013

Y2018

Source: RBI, Industry Reports, JLL Report 2008

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.

1.56
Elimination of Customs Duty for Import of raw materials, equipment, liquor etc Capital subsidy program for budget hotels Fringe Benefit Tax exempted on crche, 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

Non Hospitality Hospitality 98.44

Source: RBI, Industry Reports, JLL Report 2008

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.

Indian Hospitality Industry Outlook

Key Growth Drivers

Chapter 6
Holidays on EMIs: Players like Thomas Cook, Cox & Kings and SOTC have tie-ups with ICICI Bank, CitiBank and Kotak Mahindra to offer holiday nowpay 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 Arrivals There has been an increase of tourist flow, both domestic as well as international. Domestic From 310 million domestic visits in 2003, the number rose to 529 million in 2007, a CAGR of 14%. The Ministry of Tourisms vision is to achieve a level of 760 million domestic visits by the year 2011, with an annual average growth of 12% Domestic Tourist Arrivals
800 600
15% 19% 18% 760 15% 529 12%

3. Changing Consumer Dynamics & Ease of Finance Nominal per capita income growth averaged around 7.3%, which was higher than the average inflation rate of 5.1% during 2004-08
Household Income Bracket INR 000 Globals (>1,000) Strivers (500-1,000) 2005 Seekers (200-500) Aspirers (90-200) Deprived (<90) Number of Households Aggregate disposable Income

Figs in Mn 1.2 2.4 10.9 91.3 101.1

INR, Trillion 2 1.6 3.1 11.4 5.4

Globals (>1,000) Strivers (500-1,000) 2015 Seekers (200-500) Aspirers (90-200) Deprived (<90) Globals (>1,000) Strivers (500-1,000) 2025 Seekers (200-500) Aspirers (90-200) Deprived (<90)

3.3 5.5 55.1 106 74.1 9.5 33.1 94.9 93.1 49.9

6.3 3.8 15.2 14.6 3.8 21.7 20.9 30.6 13.7 2.6 Source: Technopak Analysis, Industry Reports

25% 20% 15% 10% 5%

7% 2004 2005 2006 2007 2011

400
392

462 366

200 0

309 2003

0%

Domestic Travellers (Mn)

Growth %

Source: Ministry of Tourism, Industry Reports

Credit Cards: India is the second fastest growing financial cards market in the AsiaPacific 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. 7% 10% 35% 10%

International Foreign 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 International Tourist Arrivals
12 10
25%

30
11

25 20

Travel, Hotel and Dining Apparel Jewellery Consumer Durables Others

8 6 4 2
2.7 3.4 14% 15% 3.9 13% 12% 4.4 5.0 5.1 6%

15 10 5 0

35%
Source: Technopak Analysis, Value Retailing Angel Broking 2008

2003 2004 2005 2006 2007 2008 2011

International Travellers (Mn)

Growth %

Source: Ministry of Tourism, Industry Reports

Indian Hospitality Industry Outlook

Key Growth Drivers

Chapter 6

Internal Growth Drivers

1. Demand Supply Imbalance Statistics 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 Current Supply
2,000 1,500 1,000 500 0
30,200 17,600 315 3 Star 1.398 2 & 1 Star 58,400

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. Gap in number of rooms

80,000 60,000 40,000

8,000 95 4 Star 71,473 84,327 114,200 Need Gap to be lled Approved No. of Rooms

270,000

204 5 Star

20,000 0

Total Demand

Total Supply

Gap

No. of Hotels

No. of Rooms

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

2. New Entrants in the Sector Gap 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
New Entrants in the Sector
Real Estate Companies: Real estate companies have the bandwidth to invest high amount of capital required by the hospitality industry

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

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

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

10

Indian Hospitality Industry Outlook

Key Emerging Trends

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

Chapter 7
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 Growth Service 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 isnt 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.

Trends in the Hotel Industry

1. Changing Consumer Dynamics & Ease of Finance Unlike 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 usage Mixed-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 Loyalty James Scott, regional operating officer, Asia, Metro Cash & Carry International, Hong Kong SAR, had said, Indias 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 Starwood Hyatt Intercontinental Marriott Accor group Hilton

Loyalty Program Starwood Preferred Guest Hyatt Gold Passport Priority Club Rewards Marriott Rewards A|Club HHonors

No. of Members 09 Mn (worldwide) 18 Mn (worldwide) 40 Mn (worldwide) 20 Mn (worldwide) 0.6 Mn(Worldwide) 17 Mn (Worldwide)

11

Indian Hospitality Industry Outlook

Key Emerging Trends

5. Growth of Budget Hotels Leading 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.
Name of Company Gammon India Ltd Accor Bessemer & New Vernon Private Equity Lemon Tree Hotels Roots Hotels (Part of IHCL) Berggruen Hotels Istithmar Hotels (Dubai) Golden Tulip Partner Wyndham Hotel Group Emaar MGF Land Ltd Sarovar Hotels Warburg Pincus (PE Firm) Berggruen Holdings easyHotel (UK) Leyland Group Hotel Brand Formule 1 & Ibis Hometel Lemon Tree & Red Foxx Ginger Keys Golden Tulips & Tulip Inns Investment (USD) 75-100 Mn 200 Mn 8.5 Mn 62 Mn 33-44 Mn Aromas of China 100 Mn 80-120 Mn 200 Mn Olive Bar & Kitchen Samarkand BJN Group BJN Group

Chapter 7
Caf with Art Gallery: Kashi Art Caf- Cochin, Le Cafe De Art Coffee Shop- Hyderabad, Monastery of Art - Boutique Art Caf- Kolkata Sports Bars: The All Sports Bar- New Delhi; Amoeba Sports BarBengaluru 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.
Restaurant Asia 7 Group Lite Bite Specialty Oriental Multi Specialty Burmese, Thai, Vietnamese, Japanese, Indonesian, Korean, Malaysia Portuguese, Spanish, French, Moroccan, Italian and Greek Cantonese and Shanghai Mongolian, Afghani and Samarkand French, Italian and Spanish

Fresco & Co

Lite Bite

Mediterranean

Chinese North West Frontier Mediterranean

Source: Industry Reports, News Articles

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

Trends in Restaurant Industry

1. Leisure & Entertainment with Eating Out Eating 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.
Reasons for Eating Out Fun Time with Family Relaxation Mood upliftment Time for Self Refresment 3%
Source: Industry Reports, India leisure and entertainment trends 2008-09 The Knowledge Company

3. Changing Business Model External 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 Crme at The Leela Palace Kempinski, Bengaluru; Caf 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.

25% 18% 13% 13% 7%

Caf with Library: The Library Bar- Leela Palace Kempinski, Bengaluru; Ego Thai- New Delhi Caf with Movie screening: The Mocha Film Club

12

Indian Hospitality Industry Outlook

Key Emerging Trends

4. Front End and Back End Integration With 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.
Group Alchemist Activity Chicken Processing Restaurant Republic of Chicken Products Chicken Dishes Presence Chandigarh, Delhi, Gurgaon, Faridabad Ahmedabad, Bangalore, Baroda, Delhi, Mumbai, Hyderabad, Surat

Chapter 7
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-Intermediation The 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.

Amul

Dairy Coop

Amul Utterly Delicious

Ice creams, Milkshakes, Sandwiches, Pizzas

Source: News Articles and Publications

Key Technology Trends

1. Convergence of All Elements Convergence 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 Expectations New 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.

13

Indian Hospitality Industry Outlook

The Key Challenges

The optimism surrounding the Indian Hospitality sector isnt 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.

Chapter 8

Regulatory Challenges

Multitude of Taxes High Taxes

External Challenges

Economic Slowdown Impact of Terrorism Cost of Land Cost of Debt

Internal Challenges
Skilled Manpower Shortage

Regulatory Challenges
1. No Uniformity in Taxes & High Tax Structures Prime 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.
Taxes (%) Luxury Tax applicable on Room Luxury Tax Value Added Tax-F&B Delhi Published Rates 12.5% 12% Gujarat Published Rates 6% 15% Maharashtra Actual Rates Goa Actual Rates Kerala Actual Rates Haryana Actual Rates

External challenges
1. Economic Slowdown The 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 Terrorism Terror 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 Land Land 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 industrys financial dilemma.
Land cost as a % of Total Investment in Tier I Cities-1990 ~5% Land cost as a % of Total Investment in Tier I Cities-2000 ~15% Land cost as a % of Total Investment in Tier I Cities-2008 ~25%

10% 12.5%

10% 12.5%

15% 12.6%

10% 12.5%

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

Similar challenges also face the restaurant industry some of which are as below. Highest import duty on imported liquor used in hotels Although 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 equipment Current import duty on Kitchen Equipment is 31% + 4% surcharge.

14

Indian Hospitality Industry Outlook

The Key Challenges

4. Cost of Debt The industry is capital intensive and has a long gestation period, with
20 16 12 8 4 0
g Ban
Population 2007 (Cr) .70

Chapter 8
Internal Challenges
1. Skilled manpower shortage The 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. Gap in manpower availability
42,100

FSI Comparision in CBD

15 10 10 12

0.75 1.75
alo re lh De
1.71

3
mb ai

3
i Par
.05

i-N

CR

Mu

yo hai Tok ng Sha

1.27 1.64

2.19

an ore att Lah nh Ma .70 1.50

234,900

52,500
Gap No of Graduates in next 5 years from 105 Institutes

Source: Technopak Analysis, Industry Interaction & Reports

140,300

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.

Total Employment Generation in Next 5 Years

Current Employment bandwidth of Hotels

Gap

Source: Crisil Report, Industry Reports

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 doesnt 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.

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.

15

Indian Hospitality Industry Outlook

Key Opportunities
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 worlds 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. Availability High 5 Star Hotels

Chapter 9
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.
Category Capex Purchase per Hotel (USD Mn) 3 Star 8.89 4 Star 22.22 5 Star 50

Medium

Budget Hotels Convention Centers Low Medium Car Rentals High Price

Annual Opex Purchase per Hotel (USD Mn)

0.89

1.56

2.67

Low

Source: Technopak Analysis, Ministry of tourism

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 Institutes As mentioned there are 25 Institutes of Hotel Management (IHMs) 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

Home Meal Replacement Market Market 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. Key players MTR, ITC, Tasty Bite, Currie Classic, Kohinoor

Group Welcomgroup Taj

Program Welcomlegionnaire Program 4 years Taj Management Training 1.5 years Hotel Operations Management Training 2 years
Source: Technopak Analysis, Ministry of tourism, Crisil

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 Models Hotels 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.

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.

16

Indian Hospitality Industry Outlook

Key Recommendations
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 FSIs 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, its 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,

Chapter 10
harnessed through the introduction of private sector investors who contribute their own capital, skills and experience. The major advantages of PPP are: Acceleration 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

17

Indian Hospitality Industry Outlook

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 Indias development process. Founded over 113 years ago, it is Indias 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, CIIs theme India@75: The Emerging Agenda, reflects its aspirational role to facilitate the acceleration in Indias 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.

The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road, New Delhi 110 003 (India) Tel: 91 11 24629994-7 Fax: 91 11 24626149 email: ciico@ciionline.org Website: www.cii.in

Confederation of Indian Industry

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

18

Indian Hospitality Industry Outlook

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 its 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 Strategy A 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 Assistance Operations 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 19 Performance Enhancement Performance Review - Brand Audit, Human Resource Audit, Remuneration Assessment, Service Line Analysis, Diagnostic Review of existing Customer Relationship Management Strategies Balanced Scorecard Capital Advisory Supporting business strategy and execution with comprehensive capital advisory in our industries of focus M&A, Due Diligence commercial & financial, Fund Raising, Corporate Finance Consumer Insights Holistic consumer understanding implementable business solutions User Insights Trend Insights Design and Innovation Insights applied to offer

Indian Hospitality Industry Outlook

Authors

Lokesh Kumar Associate Vice President - Hospitality lokesh.kumar@technopak.com Lokesh has worked for leading hotel brands such as EIH Hotels , Hilton Hotels & Unison Hotels for over 10 years in strategic capacities.

Tarandeep Singh Principal Consultant tarandeep.singh@technopak.com 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 Kumar Principal Consultant dhananjay.kumar@technopak.com 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 Singh Senior Consultant zara.singh@technopak.com 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.

Inderpreet Kaur Senior Consultant inderpreet.kaur@technopak.com 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.

20

For further information, please contact: Mr. Lokesh Kumar Associate Vice President- Hospitality Email : lokesh.kumar@technopak.com Mobile : +91.9873631276 Mr. Tarandeep Singh Principal Consultant- Hospitality Email : tarandeep.singh@technopak.com Mobile : +91.9212305610 Technopak Advisors Pvt. Ltd. 4th Floor, Tower A, DLF Building 8 DLF Cyber City, Phase II Gurgaon 122002 INDIA Phone +91.124.4541111 Fax: +91.124.4541198/99 www.technopak.com