The key to mass appeal

Sanjay Sethi, CEO and managing director, Berggruen Hotels, shares the group's future plans and speaks of what he foresees of the future trends in the industry. By Dinkar Farwaha

Sanjay Sethi CEO and managing director Berggruen Hotels

It is no exaggeration to say that the mid-market and budget brands have the ability to change the tourism landscape in the country. As more and more customers (both leisure and business) are looking for quality rooms at wallet-friendly rates, both budget and mid-market segments will slowly but gradually prove to be a force to reckon with in the hotel sector. Berggruen Hotels is one such chain, which has set its sight on the mid-market and budget segment of hotels and is focused on bridging the enormous gap between five-star hotels and guesthouses in our country.

Leading the way

The group is setting-up budget and mid-market hotels and resorts across tier I, tier II and tier III cities in the country. "We have a pan-India outlook and are open to land acquisition opportunities in all cities that hold promise," says Sethi. The company aims to have 38 operational hotels in five years under the brand, Keys. It has already acquired hotel sites in cities like Bangalore (Hosur Road and Whitefield Road), Trivandrum, Thiruvananthapuram, Ludhiana, Goa, Cochin, Kovalam, Pune, Nasik, Pondicherry, Aurangabad, Vadodara, Jammu, Kolkata, Lucknow, Baroda, Raipur, etc. It has also tied up with Major Exports to manage an upcoming 120-room hotel in Jaipur under the Keys brand. This is the second property that the group has signed in the management model after the one in Mahabaleshwar.

The group has also made a foray into the upscale segment. "There is a huge potential for both budget and upscale properties in the country. Considering this, we have decided to go for a brand extension of Keys and enter the upscale segment," informs Sethi. Having already acquired land to build the upscale hotel in Goa, the group is now in the stage of advanced negotiations to acquire land in Hyderabad and Mumbai (Andheri). The group is also looking at acquisitions in Bangalore and Kolkata. It plans to open eight to ten such properties in tier I and II cities in the next three to four years. The company has tied-up with internationally-renowned architects Kazuyo Sejima & Associates and Shigeru Ban Architects, both based in Tokyo, Japan to design its upscale hotels.

It has also finalised its plans for the international foray of its Keys brand of hotels, resorts and apartments in the Middle East, North Africa, South East Asia and neighbouring countries like China, Vietnam, Bangladesh, Pakistan and Maldives as possible destinations. This is all part of its plans to open 30 hotels outside India by 2011-12. Says Sethi, "Primarily, we are looking at the ownership model, but are open to the management model also, in case there are any barriers regarding ownership in a particular country." It is also looking at the joint venture model. The group is also working on branding its restaurants and bars which every Keys hotel will possess along with introducing innovative F&B concepts.

Challenges and solutions

Sethi believes that land acquisition, construction approvals and trained manpower are the biggest challenges that the industry is facing today. He says, "We have been able to address the issue of high land costs and construction approvals through diligent processes and a strong team on the ground. We have addressed the manpower issue to some extent by starting our own education company, UEI Global." He feels that travel infrastructure and a single window clearance system for hotel projects across the nation are the crying needs of the industry. "Industry leaders must be brought on board as the key decision making panel for the development of travel and tourism infrastructure. The tourism industry has the potential of doubling the GDP of the country and needs to be leveraged to its optimal potential."

The US recession has halted the growth of other economies. On its possible impact on the Indian hospitality, Sethi opines, "A temporary slow down in all sectors is imminent. I expect a more wary and patient investment strategy by new investors in the sector and lower growth rates (if any at all) in the average room rates (ARRs) in the coming years in most cities."

Forseeing the trend

Sethi is of the opinion that the realty market is cooling down and hence new opportunities are expected to arise. "I foresee realty companies partnering hotel companies more aggressively since they are now sitting on land banks that need to be put to use. With downward trends in retail and a demand-supply gap in hospitality, I would expect realty companies to change course from retail to hotels and office spaces." He envisages price segmentation to be more prominent in the coming years and reckons that an alignment of cross industry partners would cater to similar client bases. "In a flat world, national boundaries will become more porous as far as the businesses are concerned. Hence there will be transgression of brands to and from India," he foresees. The traveller of tomorrow (and indeed today), according to Sethi, will be more conscious of value, quality and convenience. "For leisure travel he will continue to experiment and look for experiential offerings. He will want to be in control of the service spectrum and will hence expect hotels to be flexible. For example, 24-hour use of gymnasiums and pools."

As far as the company's future growth strategy is concerned, it will be an aggressive asset-based one for the next two to three years. "Thereafter we are likely to consolidate and partner owners of hotels in managing their hotels. The idea is to create a critical mass of hotels for an effective sales and marketing roll out." The company's vision remains the same as it was 20 months back- to be a leading value-creating hospitality company in the budget and upscale space in India and other emerging markets of the world.