Indian hotels cannot escape the turbulence

A fortnight or so ago, Vikram Oberoi, who heads the Hotel Association of India (HAI), invited me to speak at the organisation’s annual convention.

I’ve spoken at HAI conventions before and always feel that I make a fool of myself each time by giving basically the same speech on every occasion.
 

 

This time around, the HAI had the bright idea of getting Priya Paul, head of The Park Hotels group (and, full disclosure, an old friend) to engage me in conversation on stage. Priya asked all the right questions even though I suspect I may have given the same old answers.

 

   Here, for those of you who are interested in hotels, is a broad summary of what I said.

 

Internationalisation

 

The HAI consists of the big boys of Indian hoteliering (Oberoi, ITC, Leela, Taj, Park, etc.) so I am not sure they were thrilled when I told them that they would be a less and less important part of the Indian hotel scene as time went on.

 

   The big change in Indian hoteliering over the last decade has been the invasion of the global hotel chains. In the old days, even when a hotel had an international tie-up (Delhi’s Oberoi Intercontinental, for instance), the foreign partner never really counted for much. And when foreign chains did open properties they managed themselves (such as Delhi’s Hyatt Regency in 1982), these were isolated examples and had no real impact in the hotel sector.

 

   All that has changed. I remember feeling proud when Ratan Tata told Taj general managers in 1997 that though the Taj was now India’s number one hotel company, his dream was that within a decade, it would be the best hotel company in the world.

 

Good dream: wrong strategy

 

Companies like the Taj have managed to acquire great properties abroad (the Pierre in New York, for instance) but they looked outwards at a time when the rest of the world was looking to India. Every international hotel chain of consequence now has an Indian operation or is dying to open here. There were something like 25 Hyatts at last count, a slightly smaller number of Marriotts and those are just the chains whose hotels I am familiar with. Hilton, Accor, Holiday Inn/Intercontinental, Starwood and the rest have a substantial Indian presence.

 

   This affects the Indian hotel scene in two crucial ways. First of all, it means that the four or five big chains now have high-quality, heavyweight competition. Secondly, and there’s no getting around this, when it comes to international sales and marketing, the foreign chains have a massive advantage. It isn’t just the loyalty programmes (though that’s a big factor), it is also that the global giants understand the new world of Internet sales much better than their domestic rivals. For years, the Indian chains bragged about how big they were. But now, compared to their foreign counterparts, they seem like minnows.

 

My Father’s Hotel

 

Ever since the late 1980s, when the likes of Ian Schrager and André Balazs reinvented the modern hotel by adding hipness and lifestyle to the mix, the big global chains have been conscious of the need to appeal to a younger demographic. Their concern is that smaller, trendier places appeal to young people much more than the Hiltons and Sheratons of old.

 

   Ever since Starwood took the hip hotel formula and successfully corporatised it with the W brand, hoteliers have realised that hip hotels can actually be mass produced, if you know how to do it. Yes, there will always be the achingly-hip people who will seek out the independent small hotels that are in vogue, but for the vast majority of younger people it is enough that a hotel tries to be hip. How many guests at a W hotel even recognise that it is part of the same chain as Meridien or Westin?

 

"So, it gives me no pleasure to say that over the next five years, hotels will lose their pre-eminent position in the food sector."

   Nearly all of the global giants now have a lifestyle brand in their portfolio. Hyatt opens the first Andaz in Delhi later this year. Marriott has tied up with Ian Schrager, the originator of the hip hotel concept, to open Edition Hotels. And so on.

 

   In India, we haven’t felt the need to create our own hip/design hotels. Only Priya Paul has even understood the concept and her contemporaries have usually missed what she is doing. Indian chains have had it easy because the growth in the economy and the middle class has meant that five-star hotels are attracting guests who are new to the concept and are thrilled by the idea of hotel-style luxury.

 

   But the middle class is maturing. Demographics are not on the side of the old-style hotels. Within the next few years, younger Indians will tire of staying at hotels that haven’t really changed that much in 30 years. Worse still, the children of the new middle class that emerged in the 1990s, will now be of an age to afford deluxe hotels.

 

   Will they really want to stay in the same hotels that their fathers preferred? Or will they want something fresher or hipper?

 

   I think the answer is obvious. And so do the global giants. The Andaz in Delhi is only the beginning. There will be more of such brands as W and Edition. Every global chain will tell you that investors in new properties want to open lifestyle hotels.

 

   It is still not clear to me how the Indian hotel companies will compete in this space as none of them has any corporate understanding of the concept of the lifestyle hotel. (At the Taj they are lucky to be headed by Rakesh Sarna who invented and subsequently refined the Andaz concept when he was big boss of Hyatt International. But I have seen no evidence that his juniors understand the idea of a lifestyle brand.)

 

Trends in Restaurants

 

Let’s come right out and say it. The Indian food scene is largely a creation of the hotel industry. Oh yes, we all know some dhaba somewhere that serves great food. But nearly every food trend of consequence has been launched by an Indian hotel company. The Dum Pukht biryani and the Dal Bukhara, which are now copied all over the world, were invented by ITC. Sichuan food became a craze only because the Taj brought it to India. The sushi boom can be dated almost exactly to the opening of 360 at the Delhi Oberoi a decade ago. And so on.

 

   So, it gives me no pleasure to say that over the next five years, hotels will lose their pre-eminent position in the food sector. When it comes to Indian food, the action has already shifted to the non-hotel space (Indian Accent, Masala Library, Bombay Canteen, etc.). The best European food in Bombay is also to be found outside of hotels (The Table, anywhere Gresham Fernandes cooks, etc.).

 

   What makes the standalone sector more attractive to guests is that prices are significantly lower. Why would you go to a five-star hotel for sushi when you could get better quality at Delhi’s Town Hall for half the price? Even service standards are now on par with hotels because the standalone sector has stolen so many managers from the big hotel chains.

 

   There is also a change in eating-out patterns that I attribute to demographics. Many of the people flocking to restaurants in this era are first-generation diners, which is to say that their parents did not really frequent restaurants or hotels.

 

   This new generation does not have the sophisticated palates of guests in, say, New York or Hong Kong. They go out to restaurants to have fun. The cuisine comes second.

 

   This explains why the biggest growth area in the Indian restaurant scene is the so-called multi-cuisine restaurant. Speak to anyone who is planning a new restaurant in Delhi or Bombay. Unless it is a high-end operation, his menu will include everything from hamburgers to sushi rolls to dim sum to butter chicken. The restaurateur will have his explanation ready: “If a party of six comes for dinner, then one person may want Indian, another may want Chinese; why should I restrict their options?”

 

   In hotel terms, the only multi-cuisine restaurant is the coffee shop. And yet, to effectively compete with the standalones, hotel coffee shops must lower their prices to half of what they charge at present. Given the economics of most hotels, this is only possible if you stop treating the coffee shop as a profit centre or decide to regard it as a loss leader. (This is possible. In 1978, the Delhi Taj became the city’s most talked-about hotel by charging rock-bottom prices at Machan. But it is not sustainable.)

 

   None of this is to say that hotel restaurants will die out. There will always be foreign visitors, hotel residents, gourmet diners and business lunchers on expense accounts. But let’s not pretend that hotels will still be at the centre of India’s food scene.

 

   The world is churning. And Indian hotels cannot escape the turbulence.