After several aborted attempts to enter the Indian hotel market in the last decade, French hotel chain Accor Asia Pacific has formally sealed a 40:60 joint venture with Gurgaon-based InterGlobe Hotels to develop the mid-market Ibis brand in India.
Marriott International, which already has five-star and luxury brand presence with JW Marriott and Renaissance in India, is negotiating to introduce its four-star brand Courtyard. Several other mid-priced foreign chains like Traders from the Shangrila group and Spanish brand Sol Melia are also eyeing the Indian market.
Industry sources say about 100 economy hotel are expected to come up in Gurgaon, Bangalore and Mumbai followed by Hyderabad and Chennai.
"This will be the first big investment in the hotel sector in India," says Uttam Dave, CEO, InterGlobe Hotels.
The company, which is a subsidiary of the Rs 790-crore (Rs 7.9 billion) InterGlobe Enterprises, with interests in airline management and reservations, has signed up with Accor Asia, a global leader in economy lodging with a market capital of $11 billion in management and services, to build seven properties in the next five years. Worldwide, there are 650 Ibis hotels with a total of 70,000 rooms.
Says Navjit Ahluwalia, Marriott director, hotel development India, "Currently, we are negotiating with at least 40 parties and close to signing a few deals."
Given the huge demand, from travelling sales executives and domestic tourists (according to government sources, domestic travel tourism has grown by 40 per cent in the last four years) hotel chains are chalking out expansion plans and scouting for a mix of holiday destinations and business districts in big and small towns.
Choice Hospitality, which has 26 franchisee properties under the Comfort Inn and Quality Inn brands plans to be a 50-hotel chain in two years while Sarovar Park, which operates about 30 properties, wants to open another five by next year. Lemon Tree, which opened its first property in Gurgaon this year, plans to open 25 more in the next seven years. ITC-owned Fortune Hotels similarly wants to be a 50-hotel chain by 2010.
Says Ajay K Bakaya, executive director, Sarovar Park Plaza, "The mid-market segment has no seasonality and is not effected by global epidemics like Sars. Since it is linked to domestic economy, even if the number of rooms double overnight, everyone can still do a decent business."
Mid-market hotel tariff is almost 40 per cent of five-star rates, with prices falling within the Rs 1,200-Rs 4,000 price band.
Says Rahul Pandit, general manager, operations, Lemon Tree: "What we would like to do is wean a chunk of the five-star consumers to our product."
Sunil Mathur, COO, Choice Hospitality India, adds that 80 per cent of its business is driven by the domestic sector. "More and more senior level executives are taking frequent holidays. While they don't want to short-change quality, they want friendly rates."
With increased competition, brands like Fortune Hotels are also upscaling their products and prices. For instance, ITC's upcoming 84-room property in Gurgaon will be branded as a Fortune Select hotel. Currently, Fortune operates 14 properties and has an average price of Rs 2,200.
According to hotel consultancy firm HVS International, the revenue per available room of the three-star category grew at 10.9 per cent while the five-star deluxe segment grew marginally at 1.2 per cent.
Industry sources put the current mid-price hotel market size at Rs 800 crore (Rs 8 billion), of which the branded segment is roughly over Rs 400 crore (Rs 4 billion). But experts reckon that with a buoyant economy, the business potentials are huge. "The mid-market segment will double every four to five years," says Mandeep S Lamba, president of Fortune Hotels.