Southern Comfort Why The Hospitality Industry Is Changing Direction

In the run-up to the Express Hotelier & Caterer Tradeshow in Bangalore, Susan George analyses the factors behind the evolution of south India as a premium destination for hospitality investments

With a glut of industries in the north, the commercial enterprises looking at investing in the south of India are increasing. Consequently, there has been a burgeoning of hotels of all categories in the region and industries which support hospitality, especially the food and beverage segment, are flourishing. Moreover, state governments in the region are pumping unprecedented amounts into developing the region's tourism assets and infrastructure, in turn favourably impacting the hospitality segment.

Increased government support

Thanks to consistent lobbying by South India Hotels and Restaurants Association (SIHRA), the luxury tax in Tamil Nadu was lopped by a chunky 50 per cent, bringing it down from 25 per cent to 12.5 per cent, early this year. Yet, SIHRA’s efforts did not end with its pre-budget memorandum to the Tamil Nadu government. The association continues to lobby the government for sops for the hotel industry in the state. In its follow up on the luxury tax cut, SIHRA has pinpointed that the tax is applicable to the published tariffs, rather than the actual rates charged. If the state governments in the region agree to SIHRA's petition, it will create a more profitable environment for the industry. However, even in the current scenario, the association points to the congenial atmosphere, cheap labour costs and relatively low land prices in the south, complemented by the state governments in the region vying with each other to enhance investment.

Simultaneously, the state governments are also adding momentum to their tourism initiatives. While ‘God's Own Country’ Kerala, has an made an indelible mark on the world tourism map, other states in the region are also in the running. The Tamil Nadu department of tourism, for instance, has identified specific tourism products it will develop in 2003-04, in its policy note for the year. One of the primary objectives of the department will be to increase the inflow of tourists visiting the region. The current budget provision for the tourism sector is at an all-time high of Rs 26.79 crores, which, the department avers, could be stepped up, depending on requirements for thrust in the sector. In 2002, the number of domestic arrivals in Tamil Nadu was 246.61 lakhs, while foreign tourists accounted for 8.05 lakhs. This year the government plans to increase the inflow of tourists to 10-12 per cent per annum. The government also intends to encourage tourists to extend the number of days they spend in the state – for domestic tourists from seven-nine days to ten-twelve days and foreign tourists from four-seven days to six-eight days.

Infrastructure and industry

SIHRA views the south as a prime investment destination, due to the boom in industries like automobiles, information technology, food processing and banking in the region. Experts in the industry agree that that the south is India's new commercial Mecca. Dr Palani G Periasamy, chairman of Le Royal Meridien Chennai, says that the southern market is fast emerging as a tourist and business destination. "I think our industry is now getting enough attention and encouragement from both the Central and state governments, which would go a long way in promoting tourism," said Periasamy. Having established a luxury hotel in Tamil Nadu, he believes that the infrastructure of the region contributes to the growth. "Nowadays, more and more IT companies and automobile companies are setting up base in Tamil Nadu, one of the reasons being that Chennai has an international airport. Our communications network is also very good, Tamil Nadu being a pioneer in telecommunications," he added.

In the past year, the number of hotels in the area has soared, with most properties falling in the three- or four-star segment. However, investment in the five-star segment has also grown in the region. For instance, the Apeejay Surrendra group of hotels set up The Park Chennai about a year ago, branding it a luxury boutique property. V V Giri, general manager of The Park Chennai, says that the company saw that the potential in Chennai was tremendous, and it was enhanced by the fact that the city has a railway, a seaport and airports. "Apeejay Surrendra is bullish on Chennai," said Giri. "The business climate here is very secure." He also pointed to the fact that recent surveys have revealed that Chennai stands among the top five cities in the country, in terms of its business environment.

Most major cities in the region also have international airports and no longer is Chennai the only gateway to the south. Airports in Bangalore, Thiruvananthapuram, Kochi, Hyderabad, etc have sprung up over the past few years, drawing more travellers to the south. Also, smaller towns are becoming industrial hubs, leading to an upward spiral in the number of hotels being established in the region, especially in the business class category. For instance, Coimbatore in Tamil Nadu, traditionally a textile centre, has thrown open its doors to the IT sector, prompting increased investment in the hospitality segment. Development is no longer contained to the mega metros of the south.

Food and beverage segment

The growth in the hospitality industry is complemented by rapid developments in related industries as well. N Kannan, executive chef of Taj Air Caterers, Chennai, sources products from around the region to prepare more than 6000 meals a day for flights. "The supplier base has developed over the years. There is also an awareness of new ingredients – now international ingredients are available in the southern domestic markets," said Kannan. With more manufacturers of products, intense competition produces better results, averred Kannan. "Quality and service has improved a lot over the years. The suppliers are aware of the standards expected of them," he says.

He also asserted that the trend to "eat-out" is becoming a way of life in the south, hence encouraging associated industry in the region. "Today, even small families like to go out on the weekend, at least for one meal, even in the south. This has given the industry a boost," said Kannan. With respect to food and beverage suppliers, Kannan also says that standards of hygiene and safety which may not have been considered important earlier are now held in high regard by suppliers. "They ensure that there are no ‘free foreign objects’ in the items supplied and they are willing to take suggestions from us about how to improve their hygiene standards," he added. He cited examples of how vendors have incorporated his suggestions on cleanliness standards of their vans, as well as optimum temperature to be maintained during transport.

Potential for breakthrough

The south is also opening up to new ventures and ideas that support the hospitality segment. Suresh Bharathan is managing director of Boltzmann, an IT company that develops CRM solutions for hotels. Started in Chennai in 2001, Boltzmann offers entry-level, web-enabled base solutions for the hospitality industry. "We're the only company in India offering stand-alone CRM software for the hospitality industry," says Bharathan. In less than two years the company has installed its software in several hotels in the south and is looking at expanding its base in the three- to five-star category. Says Bharathan, "There is tremendous potential for growth in the region with so many hotels opening up. There is still potential that remains untapped."

Possible changes in the future

While the state governments in the four southern states and the Union territory of Pondicherry have encouraged industry, there are still several loose ends. Harish Dhingra, CEO of Servqual Plus, a service management solutions provider, and former executive director of Oriental Hotels Ltd, is passionate about the direction the southern hospitality segment should take in the coming years. Having worked in the industry for almost three decades, he firmly believes that the state governments in the region should come together to promote "brand south India". Says Dhingra, "South Indian hospitality is the finest. We're the most hospitable people, but we should come together as one unit." Common taxation, Private Participation in Infrastructure (PPI) whereby tourism assets are developed via corporate initiatives, and a common regional platform to develop the hospitality and tourism segments are some of the proposals that Dhingra advocates in order to create a distinct brand in the south.