Low Budget Hotel Industry in India - Introduction Travel & Tourism continues to be one of the worlds 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 countrys 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

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 Yorkbased 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, Americas 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 risktaking 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 FIRMS 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 hotels 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 Gingers 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

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 Gingers 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 allimportant 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 customeroriented. 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, Caf 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

Company Financial Statements 2007-2008

hotel available. This has meant high occupancy levels for the Hotels 1500 rooms across 15 properties. 5

IDENTIFYING

THE

FIRMS

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 companys files and databases : codified knowledge on the companys 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 Website

companys reputation as perceived by customers, shareholders and the public in general and the companys 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 Hotels 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 utilitymaximizing 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 dcor and physical infrastructure of the hotel. Since the dcor 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

Asset Stock Accumulation and Sustainability of Competitive Advantage Ingemar Dierickx and Karel Cool; Management Science, p.1504, December 1989

resources like changing the fixed price model to variable pricing like in the airline industry to erode cost leadership.

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.