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 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.
 
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 08
• Regulatory
• External
• Internal

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 customer’s satisfaction, safety and
enjoyment are particularly the focus of tourism businesses.
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.

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.
• 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.

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
The Hospitality Outlook report by Technopak aims to look at the Indian
rate mark.
Hospitality industry with a different viewpoint. It identifies the growth
drivers & the challenges the industry faces and at the same time
Paring under the current crisis; the service sector - real estate, aviation,
highlights the opportunities that exist. A significant contribution has
financial services, hotels and tourism are expected to go in a slow-
been made towards identifying key trends that will drive the industry
down further while telecommunication and railway transportation
in near future. Technopak uses its vast experience in this sector to put
are expected to grow at decent pace.
on board the key recommendations that the industry professionals
Ministry of Tourism compiles monthly estimates of Foreign Tourist and key policy decision makers might consider over a period of time.
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.

1

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 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 Product
USD 1050 Billion Contributes 2.2% to GDP
Indian Hospitality Industry Outlook
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.
Hospitality Market Size
USD 23 Billion
Source: Technopak Analysis and Economic Survey of India
2
 Indian Hospitality Industry Outlook

Indian Hotel Sector - Overview Chapter 2

As per an analysis by the Economy Survey of India and Technopak sector.

(2008), the Hotel industry is a USD 17 Billion industry. Of this, 70% A break up of the organized hotel industry indicates that the foremost
(USD 11.85 Billion) contribution comes from the unorganized sector contribution is coming from 5 star rated hotels. Despite a dip in the
and the remaining 30% (USD 5.08 Billion) comes from the organized 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% 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
Source: Technopak Analysis 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* Breakup of Organised Market (2008)

40
35.7
35 3 Star (USD Bn)
30.7 0.6
30 12%

25
USD Bn

20 5 Star (USD Bn)

16.7 2&1 Star (USD Bn) 2.9
14.7 1.1
15 58%
22%
10

5 4 Star (USD Bn)

0.4
0 8%
2008 2009 2013 2018
* Overall market size (organised & unorganised) Source: Technopak Analysis, Industry Reports

Unorganised 1-2 Star 3 Star 4 Star 5 Star

3
 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%.

Market Size & Projections*

12
9.6
10
8.1
8 6.8
5.8
USD Bn

Organised
6

4
Unorganised
2

0
2008 2009 2013 2018
* Overall market size (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. Café Coffee Day, Domino’s Pizza, KFC are some examples, with each having further expansion
plan.

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

4
 Indian Hospitality Industry Outlook

Phases of the Indian Hospitality Industry Chapter 4

A look at the hospitality industry over a period of time will indicate a Technopak does an attempt to look at various aspects of this
shift in focus. lifecycle and has classified the same as follows:

Looking at the past one will indeed realize that the hospitality industry OPERATING MODEL
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
Phase III 2010 - 2020
overall economy of the country. Any recession or downturn first affects
the travel and hotel budgets of companies & the vacation plans of the Management models
leisure traveler. Phase II 2002 - 2010 to continue

Shift towards
Phase I 1991 - 2001 management contracts

Ownership & franchise Carlson Hospitality

model Emergence of
management contracts
Sarovar Hotels was
master franchisee for
Carlson Hospitality
now has management
tie-ups. IHG is also
moving to only
management contracts

GEOGRAPHIC PENETRATION

Phase III 2010 - 2020

Tier II & III cities
Phase II 2002 - 2010 Promotion of

Tier II & III cities ‘Gateway’ Cities

Phase I 1991 - 2001
Tier I cities & famous
tourist destinations
Focus only on markets
in Delhi, Mumbai,
Hyderabad, Bangalore
& Chennai
Promotion of Only ~27% hotels
approved in Tier 1
‘Gateway’ Cities cities
Only ~27% hotels
approved in Tier 1
cities

PROPOSITION

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 Phase III 2010 - 2020
just the development that has happened over a period of 3 decades.
Growth of established
Hotel industry in the past used to be polarized into two extremes – Phase II 2002 - 2010 budget brands for a
Luxury hotels on one end and unclassified hotels on the other. But long term
now there has been an emergence of mid segment chains of hotels, Emergence & growth
which has kind of revolutionized the industry. This is especially keeping Phase I 1991 - 2001 of individual profit Hilton International
in mind the budget travelers. centers* plans to introduce
Luxury hotels on one Entry of mid-segment mid-segment business
end and unclassified chains brands like Hilton
Geographically, while initially the focus was very metro centric, the
hotels on the other Garden Inns, Hampton
shift is now towards Tier 2 and 3 towns and cities. In future there will Taj Group has entered Inns and Scandic
be more multi tourism in the offing, spanning different geographies. into mid-segment
hotels with its Ginger
In terms of operational aspects, there has been a shift from ownership brand
and franchise model to handing out management contracts.

5
 Indian Hospitality Industry Outlook

Phases of the Indian Hospitality Industry Chapter 4

Strategic focus and investment requirements The Tier II and III cities started attracting the eye of a business traveler.
There have also been changes in their strategic focus as well as While the aggressive and rapid expansion started pushing the real
investment requirements. Some of the key highlights are as below. estate costs up, it affected infrastructure development, new businesses
and at the same time new hotel projects. The growing economy did
STRATEGIC FOCUS 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.
Phase III 2010 - 2020
This saw expansion of existing brands to have a budget segment /
Customer retention
Phase II 2002 - 2010 Business diversification mid-market hotel brand to offer and at the same time various new
Loyalty Factor entrants into the business that realized the potential. The investment
Identifying untapped needs for this cycle were achieved by both conventional means
Phase I 1991 - 2001 customer segments and at the same time by forms of Joint Ventures and Private Equity
Focus on CRM investments. Existing players in diverse fields ventured into hospitality
Revenue growth & Business diversification
to take advantage of their brand equity.
maximization Addition of new
Customer acquisition capacity

Reliance Industries, UB
Group ventures into
hospitality

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
Refurbishments &
Expansions under
Brands
JVs with engineering,
construction, real
estate companies, PE
firms Acquisitions
Emaar MGF & Accor
group, HCC group
(lavasa)

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.
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.

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.

6
 Indian Hospitality Industry Outlook

Comparisons with Retail & Healthcare Chapter 5

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.
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.

Hospitality Retail By virtue of first hand feedback from industry experts and its in-
house experience, Technopak is projecting an immediate correction
50 CAGR 6% 1000 CAGR 8% of approximately 10% in the occupancy figures and that will be
42.07 accompanied by 12-14% correction in the ADR. With these de-growth
40 38.98 800 772
figures for the coming year, the RevPAR is expected to be down by
21% for the next financial year.
USD Bn

USD Bn

30 600 552
23 Technopak however looks at the correction in average rates as much
20 400 368
required. The great Indian imbalance between Demand & Supply
10 200 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
0 0 expensive tourist destinations. While the business travel was limited
Y2008 Y2013 Y2018 Y2008 Y2013 Y2018
to key metro cities and did happen because of the great & promising
Healthcare growth potential the country has to offer, the leisure destinations and
Meetings-Incentives-Conference-Exhibitions (MICE) business was
150 CAGR 15%
136 getting effected to a large extent. The flip side of the story was the
Sector GDP Contri- CAGR fact that the same hotels went down by over 40-45% in ADRs during
bution
100 the off seasons (primarily the summers)
USD Bn

68 This correction hence is looked at as a silver lining to the long term

Retail ~35.3% 7.6% growth vision of the country. It will certainly make the destination
50
34 Healthcare ~3.2% 15.0% much more viable to travel and will put in a fresh lease of life even in
Hospitality ~2.2% 6.1%
the current times of global meltdown. Overall the long term view is
0 positive and the occupancies and ADR is expected to make a positive
Y2008 Y2013 Y2018 leap from FY 2010-2011.
Source: Technopak Analysis (Healthcare Excludes Pharma Sector)
A comparison of EBITDA of top three performers within hospitality,
The medium to long term view of fundamentals are very promising. retail and healthcare industry indicate that the hotel industry is infact
In a global context, given the size of the economy, the population well placed. This only goes to corroborate the fact that investment in
and the future potential of India as a tourist destination, the demand the hospitality sector, might well bring in higher returns, in comparison
fundamentals are very good. Technopak expects that continued to the other two sectors.
economic growth, increased interest in the Indian markets and Hospitality Retail
improved international access, combined with the modernization 0.17
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
0.11
USD Bn

USD Bn

to service that future demand. With a current supply of just under 0.04 0.03 0.03
100,000 rooms, stifled stock growth over the last five years is leading 0.07
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
IHCL EIH LEELA Shoppers Pantaloon Vishal
of March 2008) through to 2011 currently stands at just over 29,000
Stop Retail Retail
rooms and some of this supply will be delayed given the turmoil in
the global financial markets. Healthcare
0.04
The hotel investment market in India will see an increase in volume
USD Bn

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 0.01 0.01

During FY2006-2007 and FY 2007-2008, the five-star deluxe and five- Apollo Wockhardt Fortis
star hotel segment in key Indian cities recorded strong growth in
Source: Annual Reports, Wockhardt figures for FY 2007
revenue per available room (RevPAR) with year-on-year average daily

7
 Indian Hospitality Industry Outlook

Key Growth Drivers Chapter 6

The burgeoning growth of India’s hospitality industry can be attributed New Product Development
to a number of factors which may be broadly classified as below. 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
Regulatory Growth Policy incentives and amendments owners by classifying these facilities as the ‘Incredible India Bed and
Drivers Tax incentives
New product development Breakfast Establishments’, under Gold’ or Silver’ category

External Growth In context to the development of tourism in the country, rural areas
Drivers Rising GDP hold great potential and the Ministry of Tourism has tied up with
FDI Inflow the United Nations Development Program (UNDP) to promote
Increasing domestic and international arrivals
Changing consumer dynamics rural tourism. The Ministry has also sanctioned 102 rural tourism
infrastructure projects to spread tourism and socio economic benefits
Internal Growth
Drivers to identified rural sites with tourism potential.
Demand supply imbalance
New entrants in the sector 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.

Regulatory Growth Drivers External Growth Drivers

Policy & Tax Incentives and Amendments
1. Rising GDP
The Department of Tourism, Government of India has initiated a Overall there has been a positive growth of the India economy with
number of steps to ensure full utilization of the potential which a growth rate of 9.6% and 9% in 2006-07 and 2007-08 respectively.
tourism holds in India. 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
As of date the Government is allowing foreign direct investment (FDI) GDP.
in all construction development projects including construction of
hotels and resorts, recreational facilities and city and regional level 2500 2135
infrastructure. Further, there has been a reduction of expenditure tax 2000
for upscale hotels. 1487
USD Bn

1500 1050
1000 783
A new form of tourism fast catching up is medical tourism, and the
Government of India has introduced a new category of visa - ‘Medical 500
Visa’ (M’-Visa), which can be given for specific purpose to foreign 0
tourists coming into India. Y2003 Y2008 Y2013 Y2018
Source: RBI, Industry Reports, JLL Report 2008

To give a boost to the hospitality industry at the central and the state
level, several number of incentives have been announced at the 2. FDI Inflow
Central as well as the State level. 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
Incentives at Central Level Incentives at State Level Billion.

1.56
Elimination of Customs Duty for Import of Exemption of Luxury Tax and Sales Tax for Non Hospitality
raw materials, equipment, liquor etc 5-7 Years for new Projects
Hospitality

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'
Small capital subsidy for the development of
98.44
budget hotels
Source: RBI, Industry Reports, JLL Report 2008
Below market rate allotment of land
controlled by State for development projects
The hospitality sector requires over USD 10 Billion investment in the
Five year income tax holiday for 2-4 star next two to three years for which the government is relying on FDI as
hotels and convention centers (minimum
seating 3,000 people) in NCR well, in-line with the past investment trends.
In order to increase Built-up area in Delhi,
zonal auction rate has been brought down

8
 Indian Hospitality Industry Outlook

Key Growth Drivers Chapter 6

Holidays on EMIs:
3. Changing Consumer Dynamics & Ease of Finance Players like Thomas Cook, Cox & Kings and SOTC have tie-ups with
Nominal per capita income growth averaged around 7.3%, which was ICICI Bank, CitiBank and Kotak Mahindra to offer “holiday now…pay
higher than the average inflation rate of 5.1% during 2004-08 later” schemes like Thomas Cook-Citibank Holiday loans. These banks
also offer products like personal loans for the purposes of travel.
Household Income Number of Households Aggregate disposable Income  
Bracket
4. Increasing Domestic & International Tourist Arrivals
INR ‘000 Figs in Mn INR, Trillion There has been an increase of tourist flow, both domestic as well as
international.
Globals (>1,000) 1.2 2
Domestic
Strivers (500-1,000) 2.4 1.6 From 310 million domestic visits in 2003, the number rose to 529
Seekers (200-500) 10.9 3.1 million in 2007, a CAGR of 14%. The Ministry of Tourism’s vision is to
2005

91.3 11.4
achieve a level of 760 million domestic visits by the year 2011, with an
Aspirers (90-200)
annual average growth of 12%
Deprived (<90) 101.1 5.4
Domestic Tourist Arrivals

Globals (>1,000) 3.3 6.3

800 25%
760
Strivers (500-1,000) 5.5 3.8 19% 18% 20%
600 15%
2015

Seekers (200-500) 55.1 15.2

15%
Aspirers (90-200) 106 14.6 15%
400 462 529
Deprived (<90) 74.1 3.8
392 12% 10%
Globals (>1,000) 9.5 21.7 200 366
309 5%
Strivers (500-1,000) 33.1 20.9 7%
Seekers (200-500) 94.9 30.6 0 0%
2025

2003 2004 2005 2006 2007 2011

Aspirers (90-200) 93.1 13.7
49.9 2.6
Domestic Travellers (Mn) Growth %
Deprived (<90)
Source: Ministry of Tourism, Industry Reports
Source: Technopak Analysis, Industry Reports International
Credit Cards: Foreign tourist arrivals (FTAs) were up by 5.7% during 2008 and clocked
India is the second fastest growing financial cards market in the Asia- 5.37 million compared to 5.08 million during 2007. Foreign exchange
Pacific region. The Credit Card base in 2008 is estimated at 25 million earnings increased by 8%, to USD 11.5 billion in 2008 from USD 10.70
and this is expected to grow at 20-25% per annum. Driving this growth billion in 2007
is the increased use of credit cards for the purpose of purchasing due
to attractive and consumer friendly schemes being offered by various The Ministry of Tourism aims to achieve a figure of 11 Bn by 2011
banks. 35% of those who use credit cards use it for travel, hotel as well International Tourist Arrivals
as dining.
12 30
25%
10 11 25
7%
Travel, Hotel and Dining
8 20
10% Apparel
14% 13% 12%
35% Jewellery 6 15% 15
10% Consumer Durables 5.1
4 4.4 5.0 10
Others 3.9
3.4
2 2.7 6% 5

35% 0 0
2003 2004 2005 2006 2007 2008 2011

International Travellers (Mn) Growth %

Source: Technopak Analysis,
Value Retailing – Angel Broking 2008 Source: Ministry of Tourism, Industry Reports

9
 Indian Hospitality Industry Outlook

Key Growth Drivers Chapter 6

Internal Growth Drivers

1. Demand Supply Imbalance impact of this demand and supply gap is felt by way of increased room
Statistics on the demand and supply for hotel rooms indicate that tariff. In metro cities the room rents have simply sky rocketed. This is
India currently has around 114,200 hotel rooms spread across the especially the case with mid segment and budget hotel categories
various hotel categories and is facing a shortfall of 156,000 rooms. The where exists a large gap in supply.

Current Supply Gap in number of rooms

2,000 80,000

58,400 Need Gap

1,500 60,000 71,473 to be filled
270,000
Approved
1,000 30,200 40,000 84,327
No. of Rooms

17,600 114,200
500 8,000 20,000
204 1.398
95 315
0 0
5 Star 4 Star 3 Star 2 & 1 Star Total Demand Total Supply Gap
Source: Technopak Analysis, FHRAI, Ministry of Tourism, Industry Reports
No. of Hotels No. of Rooms

2. New Entrants in the Sector

Gap in demand and supply of hotel rooms is one major shortcoming, the emergence of different players in the industry ranging from real
marring the hospitality industry. This is likely to be negated as in estate companies, private equity firms, and IT companies. Provided
response to the shortfall the Government of India until December below is a snap shot of few entrants in the sector.
2007 has approved construction of 85,000 hotel rooms resulting in

New Entrants in the Sector Example

Real Estate Companies: Real estate companies In 2007 DLF ltd. announced its equal partnership with
have the bandwidth to invest high amount of capital Aman resorts. The transaction is estimated to be valued at
required by the hospitality industry USD 360 million

IT Companies: IT and ITeS companies are amongst

the biggest hospitality clients. The need of Infosys Technologies has a country wide room inventory
accommodating their clients and visitors luxuriously of 13000, Wipro has an inventory of 500 rooms
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
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

Internal Diversification: Established leaders in
their luxury brand, St. Regis in India via SPV after acquiring 30%
various core sectors and at times family owned have
stake in Viceroy Hotels
diversified into hospitality business on a strong
financial backing and an urge to make a mark in this
Vijay Mallya owned UB Group diversified to set up Kingfisher
sector
Airlines and acquired Air Deccan

Source: Industry Reports, JLL Report 2008

10
 Indian Hospitality Industry Outlook

Key Emerging Trends Chapter 7

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 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
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 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
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.

• 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, “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)

11
 Indian Hospitality Industry Outlook

Key Emerging Trends Chapter 7

5. Growth of Budget Hotels • Café with Art Gallery: Kashi Art Café- Cochin, Le Cafe De Art Coffee
Leading groups present in this segment are Ginger Hotels, Lemon Tree, Shop- Hyderabad, Monastery of Art - Boutique Art Café- Kolkata
Sarovar Hotels, Fortune Hotels, Ibis, and Choice Hotels. Currently 3 & 4
star hotels together account for 22% of the total room supply in India, • Sports Bars: The All Sports Bar- New Delhi; Amoeba Sports Bar-
which clearly indicates a huge growth potential of budget hotels. Bengaluru
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 2. Rise in Multi Specialty Cuisine
years. Further for the Commonwealth games in 2010, the government With higher inclination towards “Fun” and “Time with family”, and rising
is expected to provide 10,000 budget rooms while the requirement “individualism”, guests in a specialty restaurant are restricted to order
would be for 40,000-50,000 rooms in the budget category. food from just one cuisine. Hence “multi specialty” restaurants draw a
balance by providing choice while maintaining a specialty theme or
Name of Company Partner Hotel Brand Investment (USD)
cuisine and offering wider options to the consumers.
Gammon India Ltd Wyndham Hotel Group - 75-100 Mn
Restaurant Group Specialty Multi Specialty
Accor Emaar MGF Land Ltd Formule 1 & Ibis 200 Mn
Asia 7 Lite Bite Oriental Burmese, Thai,
Bessemer & New Vernon Sarovar Hotels Hometel 8.5 Mn Vietnamese, Japanese,
Private Equity Indonesian, Korean,
Malaysia
Lemon Tree Hotels Warburg Pincus (PE Lemon Tree & Red Foxx 62 Mn
Firm) Fresco & Co Lite Bite Mediterranean Portuguese, Spanish,
French, Moroccan, Italian
Roots Hotels (Part - Ginger 33-44 Mn and Greek
of IHCL)
Aromas of China BJN Group Chinese Cantonese and Shanghai
Berggruen Hotels Berggruen Holdings Keys 100 Mn
Samarkand BJN Group North West Frontier Mongolian, Afghani and
Istithmar Hotels (Dubai) easyHotel (UK) - 80-120 Mn Samarkand

Golden Tulip Leyland Group Golden Tulips & Tulip 200 Mn Olive Bar & Kitchen Mediterranean French, Italian and
Inns Spanish

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

3. Changing Business Model

Trends in Restaurant Industry External Brands: Hotels are bringing in restaurateurs under a
management contract or lease to capitalize on a proven restaurant
1. Leisure & Entertainment with Eating Out concept that generates substantial revenue by attracting hotel guests
Eating out is an activity closely associated with fun. Almost half and local residents. Sagar Ratna & F Bar at Ashoka Hotel; Barista Crème
the Indian eat out regularly, even if it might not be an immensely at The Leela Palace Kempinski, Bengaluru; Café Coffee Day at Ginger
entertaining activity just yet. It is seen as a way of reinforcing the need Hotels are some of the examples.
to be socially active and connected.
Increasingly Food and entertainment are being brought together by Individual Restaurants: Popularity and brand value of certain
Indian Entrepreneurs. restaurants within a hotel enables them to become individual profit
Reasons for Eating Out centers and move out of the hotels. They hence leverage by opening
chain restaurants outside hotels. Some of the popular examples are
Fun 25%
the Great Kebab Factory- originally at Radisson; ITC retailing Bukhara
Time with Family 18% products.
Relaxation 13%
Mood upliftment 13%
Time for Self 7%
Refresment 3%
Source: Industry Reports, India leisure and entertainment
trends 2008-09 – The Knowledge Company

• Café with Library: The Library Bar- Leela Palace Kempinski,

Bengaluru; Ego Thai- New Delhi

• Café with Movie screening: The Mocha Film Club

12
 Indian Hospitality Industry Outlook

Key Emerging Trends Chapter 7

4. Front End and Back End Integration 3. Integration of Business and E-Commerce Technologies
With increased focus on productivity and efficiency level The development of new technologies has made it possible for
enhancement, companies are moving towards front end and back businesses to use Internet technologies to transform their old
end integration. ‘Farm to Fork’ concept aims at minimizing the steps business technology solutions into an integrated system. With the
from the farmer to the final consumer. Retailers are in the process of same IP network, companies can run video over the network for
establishing direct consumer points to enable a smooth transition of teleconferencing, a feature that can potentially accrue tremendous
goods from the farm to the consumer and enhance brand value. savings in travel. Hotels are increasingly using 2 way interface Central
Reservation Systems that enables complete integration of their
Group Activity Restaurant Products Presence systems and helps to manage their inventory and pricing across
Alchemist Chicken Processing Republic of Chicken Chicken Dishes Chandigarh, multiple channels
Delhi, Gurgaon,
Faridabad 4. Disintermediation and Re-Intermediation
Amul Dairy Coop Amul Utterly Ice creams, Ahmedabad, The process of cutting off the middlemen is what has been referred to
Delicious Milkshakes, Bangalore, Baroda, as disintermediation and the trend is widely seen today. Companies
Sandwiches, Delhi, Mumbai,
Pizzas Hyderabad, Surat
are increasingly revamping their brand websites to reach the end
consumer directly. They are also incorporating the loyalty factor and
Source: News Articles and Publications
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.

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 Chapter 8

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.

Multitude of Taxes
Regulatory Challenges High Taxes

External Challenges Economic Slowdown

Impact of Terrorism
Cost of Land
Cost of Debt
Internal
Challenges
Skilled Manpower Shortage

External challenges
Regulatory Challenges
1. Economic Slowdown
1. No Uniformity in Taxes & High Tax Structures The dreaded “R” has cast its gloom over the hospitality industry too.
Prime amongst regulatory challenges emanates from the tax structure. Its impact can be felt by way of a drop in room occupancies and
Due to high duties and the imposition of several taxes by the various restaurant customers. Average Room Rate has dropped by 10-15%. As
state governments the industry ends up paying multiple taxes, which cost cutting measures hotels have put on hold their expansion plans
increases their overall costs by a huge margin, impacting their profit. for the moment. There has also been a freeze on new recruitment.
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% 2. Impact of Terrorism
to 20% on rack rate, rather than the actual. Luxury tax on the rack rate Terror attacks have created a sudden shortage of room supply of
increases the effective rate of tax by 25% to 30%. about 885 rooms from a total of around 2,238 premium segment hotel
rooms in South Mumbai. Leisure destinations like Goa, Kerala etc. are
The service tax levied on tour operators leads to double taxation and likely to be affected more than business destinations. It is expected
increases the burden for the tourists. that average occupancy levels across major cities is likely to decline
Taxes (%) Delhi Gujarat Maharashtra Goa Kerala Haryana
from the current average of 65-66% to 57-58%.
Luxury Tax Published Published Actual Rates Actual Rates Actual Rates Actual Rates
applicable Rates Rates
To mitigate the crisis situation leading hotel chains like the Taj & Oberoi
on Room have set up a panel to handle security related issues and are investing
Luxury Tax 12.5% 6% 10% 10% 15% 10%
towards upgrading their existing security infrastructure
Value Added 12% 15% 12.5% 12.5% 12.6% 12.5%
3. Cost of Land
Tax-F&B
Land prices in India constitute almost 25% of the cost of the property,
Source: Steering Committee on Tourism of the Planning Commission
for the 11th five year plan (2007-2012), Industry Reports whereas it accounts for only 15 -20% of project cost overseas. This cost
has only been on the upward side.
Similar challenges also face the restaurant industry some of which are The rising land cost and low FSI, adds to the industry’s financial
as below. dilemma.

Highest import duty on imported liquor used in hotels Land cost as a % of Total Land cost as a % of Total Land cost as a % of Total
Investment in Tier I Investment in Tier I Investment in Tier I
• Although the rates of basic duty have been brought down to 182% Cities-1990 Cities-2000 Cities-2008
from 210%, the same remain at considerably high levels.
~5% ~15% ~25%

High Import duty on Kitchen equipment

• Current import duty on Kitchen Equipment is 31% + 4% surcharge.

14
 Indian Hospitality Industry Outlook

The Key Challenges Chapter 8

4. Cost of Debt Internal Challenges

The industry is capital intensive and has a long gestation period, with
1. Skilled manpower shortage
FSI Comparision in CBD The hotel sector is labor-intensive with an average employee-to-room
20
ratio of 1.8: 1 in India, compared to 1.5: 1 globally. However there exist
16 15
a huge gap in manpower availability, especially so with the budget
12 hotel segment.
12 10 10
Gap in manpower availability
8

4 3 3
0.75 1.75 42,100
0 234,900
re ai s hai
52,500
alo i-N
CR mb Par
i
Tok
yo
ng ore att
an
g lh Mu Lah nh
Ban De Sha Ma
Gap
Population .70 1.71 2.19 .05 1.27 1.64 .70 1.50 No of Graduates
2007 (Cr) in next
Source: Technopak Analysis, Industry Interaction & Reports 140,300 5 years from
105 Institutes
repayment of loans beyond 11 to 15 years. But the current borrowing
and lending scenario is not something to cheer about, as (a) banks
Total Employment Current Gap
are not looking at funding beyond the period of 7 to 9 years; and (b) Generation in Next Employment
they have made lending norms and process more rigorous. Even the 5 Years bandwidth
RBI has stopped foreign currency loans under its External Commercial of Hotels
Borrowing (ECB) guidelines to the hospitality sector, thereby further Source: Crisil Report, Industry Reports
choking debt funds.
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.

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

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 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.
Availability
High
5 Star Hotels
Medium
Budget Hotels
Convention Centers Car Rentals
Low
Low Medium High
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 (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
Group Program
Welcomgroup Welcomlegionnaire Program – 4 years
Taj Taj Management Training – 1.5 years
Hotel Operations Management Training – 2 years
Source: Technopak Analysis, Ministry of tourism, Crisil
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.
Indian Hospitality Industry Outlook
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 3 Star 4 Star 5 Star
Capex Purchase per Hotel
8.89 22.22 50
(USD Mn)
Annual Opex Purchase
per Hotel 0.89 1.56 2.67
(USD Mn)
Source: Technopak Analysis, Ministry of tourism
Price 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 Key players
food. As per industry estimates by year 2009, MTR, ITC, Tasty Bite,
Indian market for frozen and processed foods Currie Classic, Kohinoor
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 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.
16
 Indian Hospitality Industry Outlook

Key Recommendations Chapter 10

Technopak takes this initiative to re-emphasize the recommendations harnessed through the introduction of private sector investors
made earlier on various platforms. who contribute their own capital, skills and experience. The major
advantages of PPP are:
The Government of India should accord the Infrastructure status for
Hotel Industry under Section 80 I/A of the Income Tax Act 1961. It
• Acceleration of Infrastructure Provision
should be given full benefits of concession for infrastructure facilities
available to other sectors like airports, seaports, power projects and • Faster Implementation
gas distribution networks.
• Value for Money
Section 32 of the IT Act should be amended to restore the depreciation • Partnership Building
rate to 20%. The additional depreciation applicable to Plant &
Machinery u/s 32 1 (ii a) should also be allowed to hotels which have • Enhanced Public Management
to make heavy investments in plant and machinery • Genuine Risk Transfer

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.
• 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.

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 India is out pricing itself as a holiday destination over other competing
city with a clear vision for the 2010 Commonwealth Games. However, destinations like China, Brazil and South Africa which have followed a
the demand supply imbalance is not just limited to NCR. The other much better approach of gradual increase in tariff with parallel growth
metro cities are also struggling with the same problem and with an in quality of product and services. As per the annual Hogg Robinson
extension of tax holidays to pan India basis, it will definitely help new Hotel survey, Mumbai has seen a growth of 18% in its Average Rates
hotel development. 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
Poor infrastructure including power shortages, bad roads, inadequate seasons and a competitive pricing against the SE Asian destinations
water supply and unreliable communications has a direct impact will definitely help in getting more tourist arrivals in the country in
on the growth of the hospitality sector. While the airports are now the long run
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,

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 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 Industry

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

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 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 Strategy Performance Enhancement
• A framework to inform and make value creating tradeoffs - facts, • Performance Review - Brand Audit, Human Resource Audit,
alternatives and Decisions Remuneration Assessment, Service Line Analysis, Diagnostic
Review of existing Customer Relationship Management
• Market demand Analysis and Entry Strategy, Partner Search, Strategies
Turnaround Strategy
• Hotel Project Conceptualization, Market Positioning, Financial • Balanced Scorecard
Planning
Capital Advisory
• Organizational Design & Structure, Manpower Planning, Customer
• Supporting business strategy and execution with
Relationship Management
comprehensive capital advisory in our industries of focus
• Revenue Management, Assistance of setting up of international
representation offices • M&A, Due Diligence – commercial & financial, Fund Raising,
Corporate Finance
• Organic growth strategy, Sector specific industry study and analysis
Consumer Insights
Start-Up Assistance Holistic consumer understanding applied to offer
• Operations and industry expertise to deliver “turnkey” business implementable business solutions
incubation and create value for our clients
• User Insights
• Market feasibility study, Detailed analysis of market/ industry
• Trend Insights
• Multiple options for possible entry of any firm into the hospitality
industry, • Design and Innovation Insights

• 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
 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