Ginger Hotels’ offering is aligned to its customers’ needs of improved functional efficiencies. The aim is to quicken several processes, including check-in and check-out time, keeping in mind the time crunch faced by business travellers
It’s a plain fact that India’s mass consumers come from its buoyant middle-class. And given the price sensitiveness of this demographic, all service industries are creating quality options at affordable price points. For the hospitality industry alone, there exists a potential to build 50, 000 affordable hotel rooms as against the current availability of 8, 000 rooms, indicates P.K. Mohankumar, the managing director and CEO of Ginger Hotels, a chain of budget hotels run by Roots Corp. Ltd., a unit of Indian Hotels Co. Ltd. While this remains a fact to most, he sees this as ample opportunity to drive volumes for his business.
Mohankumar began his career with the Taj Group in 1974 and worked across the group’s luxury, up-scale and mid-market segments in India and overseas for 39 years. He joined Ginger Hotels in March 2013, following a four-year stint as the COO at Gateway Hotels and Resorts. For him, the timing of his move was just right because he believes that the mid-market segment has reached a certain inflection point, where the domestic demand is enormous.
By FY17, Ginger Hotels is planning to expand into 50 properties and 5, 000 rooms, with a presence across metropolitans, Tier-I and Tier-II cities, from the current 2, 700 rooms spread across 27 properties. It will fuel these expansions primarily through Greenfield operations and through the adoption of an asset light model, which includes management contracts, leasing and franchising.
In the years to come, Mohankumar envisions Ginger Hotels as a global brand and the best mid-market business hotel in India, with a balanced portfolio, spreading across uptown, downtown and sub-urban business destinations.
Building economies of scale
For a chain of budget hotels, managing costs is paramount. Despite economic recessions, demand fluctuations and operational constraints, a budget hotel, unlike a premium hotel, has a cap on the price point, that is, it cannot charge a customer beyond a certain price. In order to address this concern, Ginger Hotels entered into a strategic workshop with the Tata Group, to review how hotels in emerging economies such as China and developed countries such as the U.S, established themselves in the mid-market segment.
In India, the customer is king. It is he who primarily dictates the price point. Having said that, I believe that the price charged at a budget hotel can also depend on the market dynamics of that location.
“We noticed that though China and India are similar markets, within the same time period, a few hotels there had setup 1, 000 to 1, 500 properties across 400 locations. This, despite the fact that we enjoy a higher middle-class, floating population (estimated to be 1.2 billion this year). From this, we realised that it is all there for us to happen. It is a matter of how quickly we can expand,” states Mohankumar.
Eventually, the company identified two key aspects that will help it achieve rapid growth and profitability. Firstly, despite high land rates, expand into key source metropolitan markets such as Mumbai and New Delhi, and secondly, create a balanced presence for Ginger Hotels across downtown, uptown and suburban locations. “Typically, the mindset of budget hotel owners is to lean towards Tier-I and Tier-II cities because the real estate costs are comparatively lower. But I believe it is not just about the cost of land, it is about how well a hotel will do,” explains Mohankumar. That is, if Ginger Hotels records a 70 per cent to 80 per cent occupancy rate throughout the year, across these locations, it will be profitable. It can achieve this by identifying where the floating business population is high and establishing Ginger Hotels in those locations.
To aid this expansion, Ginger Hotels has developed a scalable and replicable model, which will also help the company achieve a good internal rate of return (IRR). While it will expand through Greenfield projects in Tier-I and Tier-II cities, it will adopt an asset light model, in the form of leasing, management contracts or franchising, when foraying into metropolitan cities. “There are more than 500 privately run family hotels in India, which cannot sustain without a good presence, because the future is all about branding, technology, technical expertise and competition. My advocacy is that, being the first movers in the market and belonging to a reputed hospitality group, we can partner with such hotels, provide them the required expertise and in turn, expand our own presence,” reasons Mohankumar.
Apart from this, the company is also planning to leverage corporate costs by converting all its fixed costs into variable costs. One form of variable cost is corresponding to the sales or occupancy levels, the price points will also keep fluctuating. On the other hand, managing administrative and operating costs, tackling manning issues and energy conservation will also become important for Ginger Hotels. “We aim to do this by substituting manual resources with technology, wherever possible. There is a huge back-end infrastructure that supports the operation of these clusters. Thus, by converting all fixed to variable costs, we can bring economies of scale into back-end operations, such as finance, IT, HRD, training and more,” says Mohankumar.
Need for government action
Mohankumar indicates that the challenges during this expansion phase are beyond the company’s control. “Often, when hospitality investors identify a land for the construction of a hotel, the real estate prices soar overnight,” he shares. There is a definite need for the central or state government to introduce a system of zoning, where land can be allocated to the budget hotels, in the same space as luxury hotels, at an affordable price.
A second challenge he highlights is the lack of control over the time taken to construct a hotel. “A simple budget hotel with two basements, one lobby and three floors should not take more than 18 months. But we lose a considerable amount of time in gaining approvals and licenses. The government should come up with a completely different policy for budget hotels and not club them along with the luxury and upscale segments, because here, investors are sensitive to cost,” explains Mohankumar.
Riding on the first mover advantage
As one of the first brands to enter the budget hotel segment, Ginger Hotels enjoys a considerable advantage. To sustain this, it will focus on building the operational efficacy, credibility and integrity of the brand. “Our customers are more keen on functional efficiencies (such as quicker reservation and check-in and check-out process, access to Internet) than on personal touches. Understanding their value proposition, our hotels are primarily technology-driven and design led, not customisation led. Ultimately, what we are trying to do is address the time challenge,” states Mohankumar.
Simultaneously, Ginger Hotels is managing brand consistency by creating an emotional connect with its customers and constantly engaging with them, at every step of the way. Moreover, being a part of the TATA Group, which enjoys trust and a huge equity from Indians, there is a huge responsibility on Ginger Hotels to live up to the resultant expectation. “The difference lies in whether we look at our customers in numbers or as individuals,” says Mohankumar.
Going forward, the key growth drivers for Ginger Hotels lie in expanding through an asset light model and in developing its portfolio in a balanced manner, by extending its presence across business destinations. It aims to expand into 50 properties with 5, 000 rooms by FY17 and foray into regions such as Bhubaneswar, Vapi, Jaipur, Greater Noida and Vadadora, apart from metropolitans such as Mumbai and New Delhi.
“Given its democratic advantage and dividend (people), India will one day, emerge as a hospitality giant. In less than two decades, you will find India’s best minds in the hospitality industry, because, the market presents a huge learning opportunity, which requires a lot of intellect and knowledge to identify, build, design and operate budget hotels,” concludes Mohankumar.
Managing Director and CEO: P.K Mohankumar
Industry: Mid-market hospitality segment
Current penetration: 2, 700 rooms spread across 27 properties
- Position Ginger Hotels as a global brand and best mid-market business hotel in India
- Drive profitability through volume and scale
- Expand into 50 properties with 5, 000 rooms across metropolitans, Tier-I and Tier-II business destinations by FY17
- Expand through Greenfield operations and an asset light model, which includes management contracts, leasing and franchising