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hospitality industry in india - February 15th, 2010

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HOSPITALITY INDUSTRY – AN OVERVIEW
Hospitality is all about offering warmth to someone who looks for help at a strange or unfriendly place. It refers to the process of receiving and entertaining a guest with goodwill. Hospitality in the commercial context refers to the activity of hotels, restaurants, catering, resorts or clubs who make a vocation of treating tourists.

Helped With unique efforts by government and all other stakeholders, including hotel owners, resort managers, tour and travel operators and employees who work in the sector, Indian hospitality industry has gained a level of acceptance world over. It has yet to go miles for recognition as a world leader of hospitality. Many take Indian hospitality service not for its quality of service but India being a cheap destination for leisure tourism
With unlimited tourism and untapped business prospects, in the coming years Indian hospitality is seeing green pastures of growth. Availability of qualified human resources and untapped geographical resources give great prospects to the hospitality industry. The number of tourists coming to India is growing year after year. Likewise, internal tourism is another area with great potentials.
The hospitality industry is a 3.5 trillion dollar service sector within the global economy. It is an umbrella term for a broad variety of service industries including, but not limited to, hotels, food service, casinos, and tourism. The hospitality industry is very diverse and global. The industry is cyclical; dictated by the fluctuations that occur with an economy every year. Today hospitality sector is one of the fastest growing sectors in India. It is expected to grow at the rate of 8% between 2007 and 2016. Many international hotels including Sheraton, Hyatt, Radisson, Meridien, Four Seasons Regent, and Marriott International are already established in the Indian markets and are still expanding. Nowadays the travel and tourism industry is also included in hospitality sector. The boom in travel and tourism has led to the further development of hospitality industry.
In 2003-04 the hospitality industry contributed only 2% of the GDP. However, it is projected to grow at a rate of 8.8% between 2007-16, which would place India as the second-fastest growing tourism market in the world. The arrival of foreign tourists has shown a compounded annual growth of 6 per cent over the past 10 years. Besides, travel and tourism is the second highest foreign exchange earner for India. Moreover, it is also estimated that the tourism sector will account for nearly 5.3 per cent of GDP and 5.4 per cent of total employment.


GDP Employment Visitor Export Personal T&T Capital Investment Govt. Expenditure
Outlook for 2006 7.80% 1.40% 10.90% 6.90 % 8.30% 7.70%
Outlook for 2007-2016 6.60% 1.00% 7.80% 6.70% 7.80% 6.60%
ATITHI DEVO BHAVO (Guest is God) - We have all heard this phrase many times during our childhood from our parents and grand-parents. We can also find its presence in the earliest Vedas and religious epics. Hospitality is deep-rooted in our traditions and comes as an integral part of our heritage. In very simple terms, hospitality is the art of being warm to strangers and has been derived from the Latin word hospitalitem, which means “friendliness to guests”.
The hospitality industry covers a diverse range of establishments in the form of accommodation, food and drinks. It includes hotels, motels, restaurants, bars, ships, airlines and railways. The concept of hospitality business started when people started traveling away on business and they needed a place away from home which could cater to all their needs.
Today hospitality has evolved from the basic food and accommodation industry and taken a very important position in almost all businesses. In fact, it has become a huge industry and drives economies across the globe. The scope of hospitality/ service industry today is far more than one could have ever imagined a few years back. Earlier people who graduated from a Hotel School could get employed either in Hotels, Cruises or airlines.
But service is the BUZZ word for all businesses today. Be it the Retail Sector, Banking Industry, BPO, Telecom world, Real Estate or any other sector having direct customer contact, a person with hospitality background has an edge above the rest, because of their sheer capability of understanding the needs of a customer better and handling difficult customers/ situations efficiently.
Hotel industry depends largely upon the foreign tourist arrivals further classified into business travelers (around 65% of the total foreign tourists) and leisure travelers. The following figures show that business as well as the leisure travelers (both domestic and international) formed major clientle for hotels in 2004.
Over the last two years, the hotel industry has seen higher growth rates due to greater number of tourist arrivals, higher occupancy rate (being around 75% in FY'06) and significant increase in average room rate (ARR). The major factors contributing to this growth include stable economic and political conditions, booming service industry, FDI inflow, infrastructure development, emphasis on tourism by the central as well as state governments and tax rationalization initiatives to bring down the tax rates in line with the international levels.






CONTRIBUTION TO INDIAN ECONOMY
The Indian hospitality industry is going great guns presently, with high operating margins and increase in the number of travelers visiting India - both inbound and outbound. Thus, the only direction left for the sector points upwards. However, what needs to be focused on is the fact that opportunities are not missed, which presently include the large gaps in rooms supply as compared to demand. India has approximately 100,000 rooms only in totality, which is lesser than that in Las Vegas, besides contributing to an insignificant portion of the GDP - just 5.4 per cent. In comparison to nations like China, Thailand and Malaysia where the hospitality share ranges between 12 and 15 per cent, India's growth potential is boundless. "By 2020, the hospitality and tourism sector would be a major contributor to the Indian economy," says Sudeep Jain, executive director of JLLM.
South Asia is and will remain a must-visit destination and India is looking more and more lucrative. Within the nation, major contribution as destinations will be from the growing tier I and II cities with a special emphasis on business hotels across categories as well as the prime leisure destinations like Goa, Rajasthan, etc, which will remain on the growth path, creating the aura for India as a leisure destination. Accordingly, the needs of the traveler will be nothing less than perfection. Jain With an increase in choices available, they will be less forgiving of service deficiencies. Guests will require higher levels of service in the full-service segments, which will warrant greater training requirements for hotel staff. The limited service hotels will require a complete shift in the perception of customer service. Nevertheless, this is directly related to the travelers’ travel personal.
SWOT ANALYSIS OF HOSPITALITY INDUSTRY As A Whole
STRENGTHS

1. Natural and cultural diversity: India has a rich cultural heritage. The "unity in diversity" tag attracts most tourists. The coastlines, sunny beaches, backwaters of Kerala, snow capped Himalayas and the quiescent lakes are incredible.

2. Demand-supply gap: Indian hotel industry is facing a mismatch between the demand and supply of rooms leading to higher room rates and occupancy levels. With the privilege of hosting Commonwealth Games 2010 there is more demand of rooms in five star hotels. This has led to the rapid expansion of the sector

3. Government support: The government has realized the importance of tourism and has proposed a budget of Rs. 540 crore for the development of the industry. The priority is being given to the development of the infrastructure and of new tourist destinations and circuits. The Department of Tourism (DOT) has already started the "Incredible India" campaign for the promotion of tourism in India.

4. Increase in the market share: India's share in international tourism and hospitality market is expected to increase over the long-term. New budget and star hotels are being established. Moreover, foreign hospitality players are heading towards Indian markets.

WEAKNESSES

1. Poor support infrastructure: Though the government is taking necessary steps, many more things need to be done to improve the infrastructure. In 2003, the total expenditure made in this regard was US $150 billion in China compared to US$ 21 billion in India.

2. Slow implementation: The lack of adequate recognition for the tourism industry has been hampering its growth prospects. Whatever steps are being taken by the government are implemented at a slower pace.

3. Susceptible to political events: The internal security scenario and social unrest also hamper the foreign tourist arrival rates.

OPPORTUNITIES

1. Rising income: Owing to the rise in income levels, Indians have more spare money to spend, which is expected to enhance leisure tourism.

2. Open sky benefits: With the open sky policy, the travel and tourism industry has seen an increase in business. Increased airline activity has stimulated demand and has helped improve the infrastructure. It has benefited both international and domestic travels.

THREATS

1. Fluctuations in international tourist arrivals: The total dependency on foreign tourists can be risky, as there are wide fluctuations in international tourism. Domestic tourism needs to be given equal importance and measures should be taken to promote it.

2. Increasing competition: Several international majors like the Four Seasons, Shangri-La and Aman Resorts are entering the Indian markets. Two other groups - the Carlson Group and the Marriott chain - are also looking forward to join this race. This will increase the competition for the existing Indian hotel majors





CHALLENGES FOR HOSPITALITY INDUSTRY



1. Shortage of skilled employees: One of the greatest challenges plaguing the hospitality industry is the unavailability of quality workforce in different skill levels. The hospitality has failed to retain good professionals.

2. Retaining quality workforce: Retention of the workforce through training and development in the hotel industry is a problem and attrition levels are too high. One of the reasons for this is unattractive wage packages. Though there is boom in the service sector, most of the hotel management graduates are joining other sectors like retail and aviation.

3. Shortage of rooms: The hotel industry is facing heavy shortage of rooms. It is estimated that the current requirement is of 1,50,000 rooms. Though the new investment plan would add 53,000 rooms by 2011, the shortage will still persist.

4. Intense competition and image of India: The industry is witnessing heightened competition with the arrival of new players, new products and new systems. The competition from neighboring countries and negative perceptions about Indian tourism product constrains the growth of tourism. The image of India as a country overrun by poverty, political instability, safety concerns and diseases also harms the tourism industry.

5. Customer expectations: As India is emerging as a destination on the global travel map, expectations of customers are rising. The companies have to focus on customer loyalty and repeat purchases.

6. Manual back-end: Though most reputed chains have IT enabled systems for property management, reservations, etc., almost all the data which actually make the company work are filled in manual log books or are simply not tracked.
7. Human resource development: Some of the services required in the tourism and hotel industries are highly personalized, and no amount of automation can substitute for personal service providers. India is focusing more on white collar jobs than blue collar jobs. The shortage of blue collar employees will pose various threats to the industry.

TRENDS IN HOSPITALITY SECTOR

Trends that will shape the future of hospitality sector are:
1. Low Cost Carriers
2. Budget Hotels
3. Service Apartments
4. Technology
5. Loyalty Travel

1. Low cost carriers: Travelers in general are more price sensitive to airfare than they are to hotel room rates. Often a low airfare will stimulate demand for travel even if hotel prices are increasing. LCCs are a good option for business travelers, as they have advantages like low costs, more options and connectivity.

2. Budget hotels: More than 50 per cent of occupancy of a majority of hotels comes from the business travel segment. The average room rate (ARR) realized from business travelers is normally higher than from leisure travelers. Heightened demand and the healthy occupancy rates have resulted in an increase in the number of budget hotels. Some of the new players entering into this category of hotels include Hometel, Kamfotel, Courtyard by Marriott, Country Inns & Suites, Ibis and Fairfield Inn.

3. Service apartments: The concept of service apartments, though a recent phenomenon in India, is an established global concept. Villas in Spain, flats in the UK and apartment complexes in the US have all created a viable market for those who want more than just a room in a hotel. Service apartments are the latest trend in accommodation, offering the comfort and convenience of a home without the hassles of having to maintain or look after it. Ideally suited for medium-to-long staying guests, service apartments are a natural choice for corporate employees or expatriates relocating to a particular city, non-resident Indians visiting the country for long spells and foreigners visiting the city for long duration.

4. Technology: Travel and technology have become inseparable. Technology is making its own advances with high-tech video conferencing facilities, web cameras and virtual reality mode of conferencing. On-line bookings, e-ticketing, Wi-Fi Internet connectivity, easy access to information, etc. are just a few areas where technology has completely changed the way we travel.

5. Loyalty travel: Today, airline-credit card company tie-ups have brought a whole range of benefits to the travelers. These include insurance cover, upgrades, free tickets, access to executive lounges, and a host of other goodies.


Critical factor to drive future growth and performance






THE HOTEL INDUSTRY



Hotel Industry in India has witnessed tremendous boom in recent years. Hotel Industry is inextricably linked to the tourism industry and the growth in the Indian tourism industry has fuelled the growth of Indian hotel industry. The thriving economy and increased business opportunities in India have acted as a boon for Indian hotel industry. The arrival of low cost airlines and the associated price wars have given domestic tourists a host of options. The 'Incredible India' destination campaign and the recently launched 'Atithi Devo Bhavah' (ADB) campaign have also helped in the growth of domestic and international tourism and consequently the hotel industry.

In recent years government has taken several steps to boost travel & tourism which have benefited hotel industry in India. These include the abolishment of the inland air travel tax of 15%; reduction in excise duty on aviation turbine fuel to 8%; and removal of a number of restrictions on outbound chartered flights, including those relating to frequency and size of aircraft. The government's recent decision to treat convention centres as part of core infrastructure, allowing the government to provide critical funding for the large capital investment that may be required has also fuelled the demand for hotel rooms.

The opening up of the aviation industry in India has exciting opportunities for hotel industry as it relies on airlines to transport 80% of international arrivals. The government's decision to substantially upgrade 28 regional airports in smaller towns and privatization & expansion of Delhi and Mumbai airport will improve the business prospects of hotel industry in India. Substantial investments in tourism infrastructure are essential for Indian hotel industry to achieve its potential. The upgrading of national highways connecting various parts of India has opened new avenues for the development of budget hotels in India. Taking advantage of this opportunity Tata group and another hotel chain called 'Homotel' have entered this business segment.

According to a report, Hotel Industry in India currently has supply of 110,000 rooms and there is a shortage of 150,000 rooms fueling hotel room rates across India. According to estimates demand is going to exceed supply by at least 100% over the next 2 years. Five-star hotels in metro cities allot same room, more than once a day to different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-supply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by 80%, over the next two years. This will affect the competitiveness of India as a cost- effective tourist destination.

To overcome, this shortage Indian hotel industry is adding about 60,000 quality rooms, currently in different stages of planning and development, which should be ready by 2012. Hotel Industry in India is also set to get a fillip with Delhi hosting 2010 Commonwealth Games. Government has approved 300 hotel projects, nearly half of which are in the luxury range. The future scenario of Indian hotel industry looks extremely rosy. It is expected that the budget and mid-market hotel segment will witness huge growth and expansion while the luxury segment will continue to perform extremely well over the next few years

A hotel is an establishment that provides paid lodging, usually on a short-term basis. Hotels often provide a number of additional guest services such as a restaurant, a swimming pool or childcare. Some hotels have conference services and meeting rooms and encourage groups to hold conventions and meetings at their location.

Some of the main features of the Indian hotel industry include the following:
• The industry is more dependent on metropolitan cities as they account for 75% to 80% of the revenues, with Delhi and Mumbai being on top.
• The average room rate (ARR) and occupancy rate (OC) are the two most critical factors that determine profitability. ARR depends on location, brand image, star rating, quality of facilities and services offered. The occupancy rate depends on other seasonal factors.
• India is an ideal destination for tourists. Approximately 4.4 million tourists visit India every year. Thus the growth prospects are very high.
• In the hotel sector, a number of multinationals have strengthened their presence. Players like Four Seasons are also likely to enter the Indian market in the near future. Moreover, Indian hotel chains are also expanding internationally. A combination of all these factors could result in a strong emergence of budget hotels, which could potentially lower the cost of travel and related costs.

The hotel industry can be further categorized into three segments:

 Hotels
 Restaurants
 Contract Caterers.























A. HOTELS

The hotels in India can be broadly classified into the following segments:













1. Star rated hotels:


2. Heritage hotels.










3. FACILITY HOTELS




4. Budget hotels:
They’re usually preferred by domestic travelers seeking economical accommodation. These are reasonably priced, offer limited luxury, seasonal discounts and decent services.. Budget hotels are also preferred by business travelers contributing to greater ARR (average room rate) than leisure travelers. Increased demand and healthy occupancy has fueled the growth of budget hotels in a short time.

5. Unclassified hotels: They’re motels spread across the country. They form 19% of the industry size. Low price is their only USP.

B. RESTAURANTS
These typically include fast food chains, ethnic restaurants, fine dining and coffee bars. The major players include Barista, Mc Donalds, Ruby Tuesday, Bercos, etc.

C. Contract Costing
This includes any catering business unit that is formally not a part of the hotel industry but is closely allied to it. Some of the major players in this category include Sodexho, Compass Group, etc.






Type of hotels, location and target customer









Various reputed Domestic and International hotels









Analysis on some Prominent and Prestigious Hotels

RADISSON HOTELS & RESORTS

 Radisson is a division of Carlson Hospitality Worldwide, a global leader in hospitality services encompassing more than 1,530 hotel, resort, restaurant and cruise ship operations in 80 countries.
 Upscale & Luxury Hotels
 Radisson Hotels & Resorts, one of the world's leading, full-service global hotel companies, operates, manages and franchises more than 400 hotels and resorts in 66 countries.

SWOT Analysis

Strengths
•Customer satisfaction
strategies
•Technological prowess
•Well established brand
•Global presence Weakness

Only serving the upscale market

Threats
•Growing terrorism
•Economic downturn
•competitors Opportunities
•Unexplored territories
•Globalization


Porter’s Five Forces Model












Key Success Factors (KSF’S)
• Total customer satisfaction
• Industry leading technology
• Brand value
• Global presence at convenient locations

Taj Groups Hotel
• Taj Hotel established on December16, 1903
• Taj Hotels resorts & places comprise 57 hotels in 40 locations across India.
• 18 International Hotels in the Malaysia,Australia.UK,USA,Sri lanka, Africa.
• Taj is recognised as the premier Hospitality provider.
• Innovator in dining:- Taj was the first to introduce thai,Italian ,Mexican into the country.

Marketing strategy
 A higher emphasis was placed on the business segment as the profits are higher (this market being less price-sensitive) as compared to the luxury segment.
 There was a proliferation of the Taj Presidency hotels not only in new cities, but also smaller towns.
 The action plan is more opportunities, adding to and complementing the brand.

Services
• Health & Fitness facility to its Guests.
• Latest cardico vascular machines, strength-training equipment.
• Spa also includes steam rooms &sauna,specialized treatment rooms.
• Swimming pool, Gardens, Waterfall
• The beauty saloon of the Taj hotel offer a wide range of beauty and hair treatment for men &women.

SWOT Analysis
Strengths
 Brand loyalty
 Credibility
 Huge Reputation
 Patent protection Weakness
 High cost service
 Lack of safety measure
 Not proper network in semi- urban
Threats
 Fluctuations in international tourist arrivals
 Increasing competition
 Terrorism
Opportunities
 Rising income
 Globalization
 New Geographical location
Porter’s Five Forces Analysis



KSFs

 Technology related:-
Used of advance technology in hotel premises.
 Manufacturing- related: -
High utilization of fixed assets.
Quality control know-how.
Serving customer according to their specification.
 Distribution-related:-
Presence of hotel chain at various places.
A strong network.
 Marketing related: -
Breadth of product line and product selection.
Personalized customer services.
A well-known and well-respected brand name.





Oberoi hotels
The Oberoi Group, founded in 1934, operates 27 hotels and three cruisers in five countries under the luxury ‘Oberoi’ and five-star ‘Trident’ brands. The Group is also engaged in flight catering, airport restaurants, travel and tour services, car rentals, project management and corporate air charters.

Strengths
• Cost advantage
• Effective communication
• Innovation
• Loyal customers
• Market share leadership
• Strong management team

Weaknesses
• Diseconomies to scale
• Not diversified
• Poor supply chain
• Weak real estate

Opportunities
• Acquisitions
• Emerging markets and expansion abroad
• Product and services expansion
• Takeovers

Threats
• Competition
• Exchange rate fluctuations
• Price wars








Recent figure on Indian hospitality industry

The current scenario
• Existing hotel rooms in India: 202,963, source FHRAI
• Revenue of the Indian hotel industry FY 2007-08: INR 38,558 crore
• 30% of this revenue i.e. INR 11,567.4 crore went back into the market in FY 2008-09 as operating expenses

Number of hotels and restaurants in India:
Hotel category No. of Hotels No. of Rooms
5 star deluxe/5 star 165 43, 965
4 Star 134 20, 770
3 Star 505 30,100
2 Star 495 22,950
1 Star 260 10,900
Heritage 70 4,200
Uncategorised 7,078 -
Total 8,707 1,32,885
Restaurants 12,750






Emerging trends in Indian hospitality industry

The Indian Hospitality sector is expected to show a healthy growth in the medium term. Strong economic growth, increased FDI, greater emphasis on tourism development, favorable Government policies, impending 2010 Commonwealth games, 2011 Cricket World Cup and other international events, will be the major drivers for the growth. There exists a lot of scope for growth in tourism sector. According to the Ministry of Tourism, the contribution of tourism to India’s GDP is only 5.9 per cent as compared to the worldwide average of 11 per cent.
By 2020, the Government of India expects travel and tourism to contribute Rs 8,500 billion to GDP, almost four times the value in 2005. With successive Governments committed to reform, a strong manufacturing sector and a private sector that already has a critical mass that is needed to drive growth, it is unlikely that the strong growth in GDP is likely to be reversed. The rising middle class is also becoming increasingly affluent, mobile, Internet savvy and more sophisticated in terms of what is demanded in terms of tourism products and services, and more importantly the price they are willing to pay for it.

Entry of international brands through joint ventures and tie-ups is likely to enhance the service levels and will narrow demand-supply gap of rooms. But ICRA expects the shortage in rooms to remain for next five years leading to higher occupancy levels and increase in Average Room Rates (ARR). Currently, according to industry estimates, there are only 1,05,000 hotel rooms in India while in China the figure is much higher at 7,65,000 rooms. The annual growth rate of hotel rooms in India is only 6 per cent, compared to 22 per cent in China, 18 per cent in Thailand and 15 per cent in Malaysia.

Economic growth in tier II and tier III cities have put these on the hospitality industry map. ARR are likely to harden in these cities in next 2-3 years due to shortage of room. Niche areas like health tourism and spiritual tourism are emerging as lucrative business opportunity for the industry. The overall buoyancy in the market is attracting increased interest from investors and higher inflow of capital in the industry is expected. The growth for hotels is also likely to come from proliferation of Special Economic Zones.

Major impediments to the growth are sensitivity to business cycles and adverse political and social events (including terrorist attacks), high rate of tax, high land price, bureaucracy, and poor infrastructure. For instance, the effective rate of taxation on tourism in India is 21 per cent as compared to 7 per cent in Thailand, 4 per cent in Malaysia and 1 per cent in Hong Kong. Furthermore, owing to high land prices, there are more five star hotels than budget hotels, making India a high cost deluxe destination. Additionally, India still does not have facility of modernised e-visa. The existing visa process is cumbersome and comparatively more expensive than other destinations. Yields are expected to be low in coming years on account of continuing price-cutting and discounts.

The Government is planning to grant infrastructure status to all budget hotels and convention centres set up in Delhi and National Capital Region till 2010 Commonwealth Games. This will enable them to enjoy a 10 year tax holiday as in case of other infrastructure projects such as roads, ports and power.

Emerging hotel concept in India





Projected investments years 2009-015
• Rooms being built across hotel categories: 114,000, source HVS
• Investment in rupees: INR 40,463.10

Conclusion and Recommendations
The outlook for the hospitality market in India is optimistic and will continue to remain so, in our opinion. The economy’s buoyancy, initiatives to improve infrastructure, growth in the aviation and real estate sectors and easing of restrictions on foreign investment will fuel demand for hotels across star categories in the majority of markets. India’s hotel industry is increasingly being viewed as investment-worthy, both within the country and outside, and several international chains are keen to establish or enhance their presence here. We anticipate that, over the next three to five years, India will emerge as one of the world’s fastest growing tourism markets and will be hard to ignore.

Recommendations

 Tie – ups with institutes: It is the duty of the Industry to make necessary tie-up / arrangement for their required human resources with one or two hospitality institutes in the country.

 Continuous training: There is a need of continuous training to all categories of employees in the organization. When they have a tie – up with the institutes, the institutes will offer in – house training to different category of employees from time to time to update their skills.

 Sponsoring: It is the duty of the industry to sponsor some amount / equipment to the institute for their betterment. If possible the sponsor a chair for continuous funding and research for that institute.

 Research: Every institute must spend some amount for the research which is essential for further development and understand the present situation. The industry should involve in the researchers by providing timely information and data which is ultimately useful for them only.
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