Rushabh Vora is the Co-Founder and Director at SILA.
From hyper-competitive markets, changing demography, oversupply of hotel rooms and an untapped religious tourism market, the Indian hospitality sector is set to see a big change.
The hospitality industry got a shot in the arm when investments in the sector were booming between 2005 and 2010. With large private equity and bank funding, hotel and tourism infrastructure, the sector came to be defined as a separate entity from real estate. Subsidies and schemes were introduced to push hotel construction and tourism in India, and were hopeful about the subsequent growth in this sector.
However, the sector has advanced rather unpredictably since then. Factors such as oversupply of hotel rooms, competition from shared economy models, a blind spot in events based tourism, and experiential hospitality to appeal to a new generation has changed the landscape of the Indian hospitality sector today.
Oversupply, slowing demand
With oversupply of rooms and slowing demands, a lot of hotels today are struggling to keep up. New brands entered the country which gave stiff competition to local hotels as well as established chains. Many hotels opened up venues at unfavourable locations in Tier I and Tier II cities. Some are now up for sale and even though investors are looking at buying, the yields don’t seem to be attractive. Low occupancy rates have made it tougher. With limited corporate travel and fewer overnight stays, the sector will need to research other avenues besides tourism to stay afloat in a price-conscious market.
On the upside, the sector will see a further rise in investment. According to a report released by Meraqi, a real estate advisory firm, the hospitality sector is likely to witness an annual investment of $0.5-0.6 billion during 2018-2022 and a total investment of up to $2.8 billion by 2022.
Most of the investments are likely to be in mid-scale chains with multiple properties. They will eventually be eligible for REIT listings, acquisitions and buyouts of operational properties as well as follow-up investments from hotel room aggregators. A majority of the investment is likely to be in Bengaluru, Chennai and Hyderabad as these cities constitute for almost 65 percent of the total demand for additional rooms.
Airbnb, Oyo Rooms and initiatives like CouchSurfing have changed the face of global hospitality. Pricing, location and convenience have converted many traditional hotel users to Airbnb clients which is in-turn is preferred by price conscious young travelers looking for new local experiences.
Shared economy and budget/value stays have cannibalised the demand for traditional hotels and disrupted the hospitality industry. Reduced startup costs and reaching out to the digital customer have allowed smaller companies to compete with bigger players for the same revenue.
Larger hotels need to use their inventory in clever ways with the help of intelligent marketing while providing exceptional service at competitive rates.
The next frontier: Event-based tourism
Visiting holy places is a huge draw for a large number of Indians. This domestic travel category is seeing steady growth as the burgeoning middle class continues to travel for religious and festive reasons.
Ticket booking sites often report that there are month-on-month, double-digit growth in hotel bookings for cities with religious connections like Puri which is famous for its Jagannath Temple, Varanasi, Tirupati and Shirdi.
Wedding tourism also still remains a largely untapped market. There is strong demand in this sector and has the potential to grow exponentially in the next few years.
Almost 150 million people reportedly attend the Kumbh Mela in Prayagraj (formerly Allahabad), which is close to the population of 100 countries put together. This is just one of the holy sites in India that sees such a large gathering annually.
The Indian travel and tourism sector didn’t see any concrete provisions in the recent budget but with the Rs 19,000 crore push under the Pradhan Mantri Gram Sadak Yojana, most rural and semi-rural locations will have better connectivity and easier access to popular spiritual destinations.
Millennials and specifically the Gen Z generation gravitate towards unique experiences and shared platforms, compared to baby boomers who are used to standardised and impersonal hotel rooms.
International businesses are now focusing on this demography by introducing open lounges and social spaces for consumers who are tech-savvy, social media users and for those who are budget conscious. Some are even customising spaces and food to be Instagram friendly. Keeping up the long stays and staycation trends, West Asian countries have made it big in this sector.
The hospitality sector, especially chain hotels, will have to innovate their offering to attract the spenders in this category. For survival, developers and brands will have to invest in design and tech innovation that appeals to the youth.
Unpredictability in travel and tourism
According to the ministry of tourism, India hosted 8.89 million tourists in 2016 compared to only 2.65 million tourists in 2000. But when compared with other countries, even those from our own subcontinent, India’s performance was not at par.
Even though India hit an all-time high in tourism numbers in 2016, the numbers are nowhere close to tourist heavy destinations such France, United States, Spain, China and Italy.
There is a large opportunity for India to perform better with its many diverse offerings. There is something for everyone, from our rich cultural and historical heritage to the variety in ecology, terrains, natural beauty and cuisine diversity spread across the country.
We expect a boom in the Indian travel and tourism industry in the coming years. India’s increasing popularity as a medical tourism destination, steadily growing Meetings, Incentives, Conferences and Exhibitions (MICE) segment and an increasing fondness among millennials and Gen Z generations to travel, will result in overall growth in room tariffs and may offset the current imbalance of supply and demand.
There is a lot of scope for growth in India’s hospitality sector, but not without some necessary changes to keep up with changing trends. With the right targeting, brands can reach out to new audiences and target new sectors in the domestic and international travel industry.
The author is Co-Founder and Director of SILA.