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Low Budget Hotel Industry in India - Introduction
Travel & Tourism continues to be one of the world’s largest industries. The total
impact of the industry means that, in 2011, it contributed 9% of global GDP, or a
value of over US$6 trillion, and accounted for 255 million jobs. Over the next ten
years this industry is expected to grow by an average of 4% annually, taking it to10%
of global GDP, or some US$10 trillion. By 2022, it is anticipated that it will account
for 328 million jobs. or 1 in every 10 jobs on the planet.
Budget travel in India for the discerning traveller has always been hard to negotiate.
Luxury hotel brands are predictable and standardized. But not everybody is at the top
end. The changing trends in the Indian travel and tourism market have altered the
course of the hospitality industry and the growing affluence of the Indian middle class
has opened up new opportunities. The country’s economic growth, coupled with
increased tourist inflow and more domestic travel thanks to cheaper domestic flights,
has resulted in a boom in hospitality and the need for quality accommodation at
affordable prices.
As per the latest data available, the Sales of the Hotel Industry in India is
Rs.28,28,42,00,000 (Year Ending Jan 2012). Thus there is witnessed great potential in
the hotel industry sector and the first to recognize the requirement for high quality at
small budget hotels were the larger hotel companies. But budget hotel chains, as a
separate segment in India, are not yet there. The large gap between demand and
supply can be seen in the tourist inflows - 4.2 million visitors and 400 million
domestic trips made by Indians in the last year, and the total capacity of all listed or
classified hotels is just 120,000 rooms1. The two-to-four-star hotel category is
practically untouched by any branded player. Competition is thus poor, with only 20
percent to 25 percent of the market catered to by a known brand.
Source : World Travel and Tourism Council and the Corporate Information website
1 Great potential for budget hotels in India; Chitra Balasubramaniam; 28 Oct 2008; Hotel News Now
Some Players
Ginger, a TATA enterprise, from Roots Corporation Ltd. – a subsidiary of the Indian
Hotels Co. Ltd. (Taj Group of Hotels) has been among the first to set up low cost
hotels with no compromise on comfort and standards. It now has hotels in 14 cities,
with a special emphasis on Tier-II cities, and with many more coming up. Ginger
Hotels believes the dependence on sub-par, unclassified, hotels needs to go and
service quality needs to become the motivator. Ginger operates in the three-star
category and its prices range from a competitive Rs.999 for a single room to not more
than Rs.1799 for a double room, inclusive of taxes. And the tariffs are the same across
destinations and seasons.
One of the other new brands in this sector is Lemon Tree. Lemon Tree Hotels,
financed by Warburg Pincus, offer full-service, moderately priced hotels for business
and leisure travellers. Typically, each Lemon Tree Hotel has about 125 smartly
furnished rooms with facilities designed for safety, security, hygiene and comfort.
They offer a spate of facilities that feature on any larger hotels tariff. Multi-cuisine
dining, a bar, recreation and fitness facilities, a swimming pool (where possible) as
well as a business centre, meeting rooms and state of the art conference halls along
with basic services like housekeeping, laundry and room service. Their marketing
motto is the picture of youth, spirit, efficiency, and genuineness.
Hometel by Sarovar Hotels initially came up as an offering to the IT traveller. It
positioned itself as a classic, conveniently located stop-over for business travellers. It
offers all modern facilities at affordable prices, something the corporate world was on
the look out for. Hometel now has a presence in three cities and has another four
properties in the pipeline. 50 hotels in the next 5 years is their target.
Red Fox properties are slated to come up in 148 locations in the next 12 years, with
one each in Delhi, Hyderabad and Jaipur in the next two years. The founder of
Deccan Aviation is planning to open a chain called Deccan Hospitality. New York-
based Berggruen Holdings' Indian hospitality venture Berggruen Hotels is also in the
process of setting up the their brand of 38 boutique budget hotels called "Keys" in
India at an investment of $100 million. Walton Street Capital, a US-based real estate
private equity fund, has invested in Shriram properties, which is opening up 70 budget
hotels. Foreign investment and international joint ventures include French Accor
teaming with Emaar to bring 100 Formule 1 and Ibiz hotels to India. Hilton Hotels
International has tied up with DLF Group to offer the same service. Super8 Motels,
CountryHearth, America’s Best Inns and Best Value Inn are also all set to enter the
Indian market through the franchisee route. Even the railway ministry has leased out
land at 11 places for budget hotels and plans to upgrade its Yatri Niwas properties
across the country.
GINGER HOTELS – INTRODUCTION
In June 2004, what is now called Ginger Hotels, launched the Smart Basics™ concept
that changed the game for the Indian hospitality industry. A new generation of hotels,
Ginger signifies simplicity, convenience, informality, style, warmth, modernity and
affordability. This unique concept was developed in association with renowned
corporate strategy thinker, Dr C. K. Prahalad, with the hotels being designed and
developed by IHCL.
The Ginger hotels are built around a unique concept that provides facilities to meet
the key needs of today's traveller, at surprisingly affordable rates. The primary
objective behind the launch of these hotels is to provide a superior product offering
and consistent experience to travellers, beyond the present offerings in the industry.
Value pricing by providing intelligent, thought-out facilities and services is the central
idea. Ginger offers this affordability using product design and simplicity to make as
many service gateways controlled by individual guests themselves. For example, there
are no bellboys, no lift operators, etc. and computerization and IT-enabling ensures
minimal use of physical man-hours.
Vision, Mission, Values
The vision statement “Ginger is a fresh and warm experience, of an unsurpassed
value”.
Their mission : To provide smart, clean and safe hospitality offerings by adopting
next-practices that constantly enhance value for patrons. They are driven by respect
for people and nature and passion for our stakeholders.
Values :
Customer-driven excellence: We anticipate expectations and delight our patrons
with convenient and modern facilities at an unsurpassed value
Entrepreneurship: We strive to take ownership of the tasks we perform and to
create an environment that encourages and supports initiative and appropriate
risk-taking
Innovation: We believe that making meaningful changes to improve products,
services and processes to create value for all stakeholders is an integral part of the
daily work of the organisation
Valuing employees, partners and communities: We believe in nurturing and
developing internal and external partnerships, balancing the growth of the core
business while preserving natural resources and contributing to society
Speed and agility: We deliver on promises with a sense of urgency and short
response time
Fun, joy and zing: We believe that a happy employee leads to a delighted guest
IDENTIFYING & CLASSIFYING THE FIRM’S RESOURCES - RESOURCE
BASED VIEW
The RBV framework sees firms as a unique combination of valuable tangible assets,
intangible assets and organizational capabilities that lead it toward a competitive
advantage among rivals. The resource heterogeneity between various players provides
for the construction, accumulation and achievement of competitive advantages.2 The
relative strengths and opportunities possessed by the ownership of certain resources
ensure the barriers to duplication by competitors. The tangible assets/intangible
assets/capabilities typology gives an implicit hierarchy of resources that provides the
basis to formulate a strategy of sustainable development. Broadly speaking intangible
resources and capabilities are more difficult to duplicate and form the basis for
strategy development.
Masstige Service – Differentiation Strategy
Differentiation strategy hotels always have higher room costs than those using a cost
leadership strategy, and also have competitive advantage that is not easily imitated.
Ginger differentiates itself from other budget hotels by its SMART BASICS feature.
Smart Basics concept was co-created by Ginger with the help of the Management
Guru CK Prahlad. Smart Basics provide a value proposition that signifies simplicity,
2 Innovation in Hospitality and Tourism By Mike Peters, Birgit Pikkemaat
convenience, informality, style, modernity and affordability. The hotel’s offering is
high end, reliable and standardized facilities at an affordable price tag. Ginger offers a
customer A/C, electronic lock, comfortable beds, work area, 17" Flat TV, Direct Dial
with STD, Gym, cyber cafe etc. at a rate of Rs 999 for single and 1790 for double
room. The hotels operate with skeletal staff but is highly process oriented so that most
of the necessities of the customers are taken care. Some of the services are outsourced
but available to the customer on call. As the tagline says " Please Help Yourself",
most of the services are self service ( to reduce cost) including check in. Ginger thus
effectively fills the gap for a budget hotel that delivers reasonable/assured service.
Ginger is an example of a Masstige service, in marketing terminology.
The price proposition
Ginger’s competitive prices ranging from Rs.999 to Rs.1799, inclusive of taxes,
follow a standardized rate format. Flexible pricing according to city, season, location,
would add to consumer confusion. The cost-saving on labour comes into the picture
with Ginger believing that the young traveller doesn't mind doing things on his own
and so he would rather have price as a USP and compromise on the frills of full
service. This has even made Ginger price conscious on the food (there is no room
service). Not only are meals at the in-house restaurant priced affordably but tie-ups
with branded food outlets like Cafe Coffee Day, Harbour Market Restaurants, etc.
afford them the value of additional brands along with increased service availability,
without compromising on investment and thus lower prices.
Keeping Occupancy Levels
Given its value-for-money pricing proposition, it is critical for Ginger to constantly
push up occupancies. Since it is a fixed price model and tariffs cannot be increased
even if there is a sudden surge in demand, occupancies need to be maintained at a
high throughout the year3. There is a need to meet revenue parameters without inflow
from high-priced F&B segment, usually an area that brings in up to 35% of hotel
revenues. The operating cost per room is low, estimated by industry experts to stand
3 Mona Chhabra, vice-president, Ernst & Young
at about 50 % gross margins with an estimated 70 % occupancy year round to cover
costs. Currently, Ginger Hotels is operating at an 85 % occupancy rate.
Locational Advantages
Ginger’s targets are mainly either smaller business centres like Tirupur or Durgapur
or tourist destinations that attract visitors round the year. That is why it has a property
at Nashik, given its proximity to Shirdi, but not Manali, which is empty during the
winter months. The 70 % occupancy target makes the choice of location an all-
important one. This strategy is different to some others like Red Fox who are willing
to undergo expensive real estate and high competition to be located in bigger cities
and metros in order to benefit from the higher demand. Potential demand is the real
factor Ginger Hotels is considering. Minimizing on real estate costs of setting up
properties is another factor. 50 % of the cost of a room in India is due to real estate
prices, compared with as little as 15 % overseas.
Segmentation/Positioning
The resource-based view of the firm focuses attention on the ability of the firm to
deliver on its desired positioning strategy. These may involve positions based on
price, premium quality, superior service and innovativeness (Hooley 1998). For
example, in the luxury hotel business, Marriott Hotel's renowned positioning as a
customer service leader is related to the resources of customer-focused organisational
culture and an obsession with detail (Stalk, Evans and Schulman 1992). The pursuit of
a low price strategy like that of Ginger Hotels necessitates resources such as cost
control systems, TQM processes, skills in procurement, revenue optimization models
and extensive use of information systems. Its positioning caters to the middle class
and the urban working youth, offering no frills ‘Smart Basics’.
Brand Association with Taj Group of Hotels and TATA Enterprises
The brand imagery of Ginger Hotels is contemporary, progressive and customer-
oriented. Its greatest strength is the promise of a sophisticated and elegant hotel stay
at an affordable price. The Tata Enterprise name tag drives brand identity and brand
recognition. Association with the Tata brand not adds to its brand equity and assures
consumers of the quality of its services. The Tata promise has come to be a symbol of
quality, reliability, and real value for Ginger Hotels.
Financials – Light Asset Policy
The budget segment generated revenues of Rs. 33 m in FY06, however, the company
made an operating loss of Rs. 21 m.4 This is because of the fact that the venture is in
an early stage where the company is making significant high investments, which lead
to margin dilution and a drain on financial resources. With time, margins will rise and
the budget segment is projected to turn very profitable.
In a bid to establish a an asset-light policy, Ginger Hotels is looking at management
contracts, partnerships including public-private partnerships, franchise options, joint
developments, as well as conversions, as it aims for over 70 hotels by 2011. To beat
high real estate costs, the company operates by leasing land and investing in building
and interiors, opting for hotels in malls, searching for opportunities available in
existing hotels, modifying them to meet the brand's set standards and is in talks with
tourism development corporations for conversion of tourist bungalows into hotels. To
yield long term advantage, technology is being used to introduce 'smart' rates with a
price advantage of Rs 200 to Rs 400 for a confirmed advance booking online. Tie-ups
with Landmark Bookstores, The Harbour Market restaurant chain, Café Coffee Day
and spa facility 'Smart Wellness' are expected to bring down investment levels.
Competition
The absence of national level competition from organised chains in the low budget
hotel segment has allowed Ginger hotels to capture a new market in the industry. The
major sources of competition are from standalone properties, company guest houses
and from service apartments. So they have tapped the market of people, like women
executives and corporates, who hitherto did not visit a town because there was no safe
4 Company Financial Statements 2007-2008
hotel available. This has meant high occupancy levels for the Hotel’s 1500 rooms
across 15 properties. 5
IDENTIFYING THE FIRM’S CAPABILITIES – RESOURCES AND
COMPETITIVE ADVANTAGE
To enable companies to achieve a competitive advantage and ultimately, a superior
business performance, its strategic resources must be valuable, rare, imperfectly
imitable and non-substitutable. Valuable and rare resources create a competitive
advantage. Resources that are difficult to imitate and non-substitutable create a
sustained competitive advantage. Seen in this light, intangibles are much more likely
to facilitate superior business results than physical and financial assets.
Tangible Resources
Tangible resources of a firm are seen in the form of physical capital and assets. In the
case of Ginger Hotels, tangible resources are
Intangible Resources
Some of the know-how, such as creativity of offering, teamwork abilities and learning
capacity, is generally applicable. Other know-how is job-specific, to expertly operate
particular applications, like the ‘Smart Basics’ concept. Another set of intangible
resources consists of resources that provide an efficient structure for day-to-day
operations and facilitate achievement of goals and objectives. In this category lies
data within the company’s files and databases : codified knowledge on the company’s
organizational structure and on its operational and management systems.
Organizational culture, largely implicit and almost metaphysical is decidedly vital. At
Ginger Hotels this culture banks on the belief that a customer is intelligent, capable of
self-help, does not require special assistance, requires a standardized, simplified
service at the best cost and the company and its employees are set to provide that. The
company’s reputation as perceived by customers, shareholders and the public in 5 Company Website
general and the company’s brand name under the Tata umbrella are particularly
valuable resources. All the resources that come into the company from the parent
becomes important here, as the knowledge and extensive experience of the Taj Group
is a non-imitable source of competitive advantage.
Organizational Capabilities
The tacit and explicit knowledge systems that exist within the company become
capabilities that develop, accumulate and evolve over time to become competitive
advantage drivers. Examined closely, at Ginger Hotels, capabilities constitute a
collective know-how and are special resources themselves. Operational capabilities
are set down in company guidelines to meet the requirement to deliver affordable,
quality services according to the ‘Smart Basics’ concept. Dynamic capabilities to
expand and adapt to environmental change can be seen in Ginger Hotels. Its constant
improvisations to cut down costs and boost revenues, for example locating inside
malls, outsourcing/franchising F&B services, enable it to improve and extend its
existing resource base and continually create competitive advantage.
These intangible resources and capabilities become sources of competitive advantage
when they meet the various criteria of sustainability.
The Test of Value
Ginger Hotel’s strategic relevance in generating advantages has a value-creating
characteristic in the low budget hotel industry. Its distinct ‘Smart Basics’ offering to
customers is perceived by guests to have a unique utility to them that is bound in the
firm intrinsically (attributed to brand value to a certain extent). This utility-
maximizing capacity in a differentiated manner meets the test of Value for the hotel.
The Test of Rarity
The array of options in the low budget segment in the Indian Hotel Industry shows the
absolute lack of standardized, clean, safe and reliable hotel rooms for the small budget
traveller. Most offerings are not what they are pitched to be and expectations are
rarely met. The resource capabilities of Ginger Hotels in making such a satisfactory
offering to the market prove its rarity. Although every player in the industry operates
on the same service principle, the dynamism of adaptation to environments and needs
of Ginger keeps it at the front of the race. The durable nature of these processes meets
the requirement of rarity.
The Test of Imitability
1. Physical uniqueness of the product can be seen in the décor and physical
infrastructure of the hotel. Since the décor can be copied almost precisely, the
physical uniqueness here cannot be highlighted.
2. Path dependency resources need to be built over time in ways that are difficult
to accelerate6 by design. For Ginger Hotels, this translates to the high brand
value attached with its name (Tata Enterprise) that cannot be replicated over a
very long period of time. Similarly, its work processes that ensure successful
operations cannot be repeated anywhere.
3. Causal ambiguity arising from organizational capabilities cannot be
disentangled and broken down into components to identify the individual
factors contributing to success. The causal ambiguity of Ginger Hotels
prevents easy duplication. The parts of offerings may be individually offered
in the open market, but the entire experience may not be reproducible by any
competitor.
4. Economic deterrence or social complexity is not relevant for Ginger Hotels as
seen in the high number of entrants into the industry.
The Test of Substitutability
Innovative concepts and ideas exploding onto the market often threaten the possibility
of maintaining a non-substitutable product. The competition in this case has to create
the very same basic offerings with the available resources. What Ginger Hotels has
done using low labour-high technology may be trumped with a new conceptual use of
resources like changing the fixed price model to variable pricing like in the airline
industry to erode cost leadership.
6 “Asset Stock Accumulation and Sustainability of Competitive Advantage” Ingemar Dierickx and Karel Cool; Management Science, p.1504, December 1989
The Test of Durability
Ginger Hotels competitive advantage cannot remain a durable aspect due to the
dynamic trends in the industry. The only guarantee of maintaining the competitive
advantage will lie in its ability to continuously innovate in the face of competition.
Resources depreciate once they become popular and mass adoption makes them
standard instead of unique.
The Test of Competitive Superiority
Core competence? External Environment?
LOW COST STRATEGY OR BEST COST STRATEGY?
The low cost model of operations are driven by the following sources of advantage ;
- relatively low investment in hotel building
- standard hotel design with no extra/luxury features
- simple furnishings and decorations
- few or no complementary services
- located in tier-II cities and suburbs
But the Ginger Hotels offering is not just low cost leadership driven. It provides
differentiation too :
- business facilities and restaurant, gym, swimming pool where possible
- high level of investment in technology, embedded in design
- intense marketing activity, especially among corporates/professionals
- high quality inputs at all stages
- comfortable and posh interiors to suit discerning business traveller
Therefore, Ginger Hotels may be classified as more of a Best Cost Offering,
combining low cost and limited differentiation. Customers get what they perceive
as valuable, at the same time the company offers it at a cost efficient level.
Resource dedication to build centres of competence around specific components of
the service takes place at all levels of operation. With the increasing volumes, this
becomes all the more necessary to focus on continuous refinement of quality and
service-delivery productivity. With dedicated service delivery a more self-contained
business line emerges and capabilities and competencies get shaped into relatively
large components that can be configured to support the specific needs of customers.
Strategic design processes are replaced by innovative resource utilization in the long
run.