Increasing popularity of budget-midscale hotels
Picture this: There have been 20 Midscale (1,329 keys) and seven Budget (394 keys) branded hotel openings in Q1 2023 with 26 branded hotel signings in the Midscale (1,759 keys) and six Budget (347 keys) categories taking place during the same period. Now, let us have a look at the the branded hotel openings in Luxury, Upper Upscale and Upscale categories. While only eight Luxury (365 keys), three Upper Upscale (332 keys) and eight Upscale (525 keys) branded hotel openings were witnessed in Q1 2023, only three (393 keys) in Luxury, 10 (1,310 keys) in Upper Upscale and nine (688 keys) in Upscale categories’ branded hotel signings happened during the period. These statistics from JLL’s recently released Hotel Momentum India Quarterly Hospitality Monitor Q1 2023 clearly indicate a shift towards the increasing popularity of midscale and budget hotels in India in the recent past. These figures are also proof of the two categories slowly making inroads into Luxury, Upper Upscale and Upscale segments.
Witnessing this movement, international and domestic hotel companies have channelised their energies in this direction to leverage the growing demand from middle-income domestic travellers and international budget travellers, especially in Tier II, III and IV cities.
We turned to a few hoteliers in the budget-midscale segments under different brands to know if the growth of domestic tourism, changing lifestyles and expansion of business activities to non-metro cities have given a boost to the popularity of these categories and do they think this is that ‘big’ opportunity for them to get a bigger share of the pie.
Rahul Bhatt, General Manager, Holiday Inn Express Ahmedabad Prahlad Nagar
Sustaining growth for future
The expansion has been in Tier II and III cities due to high cost of business in metros as also scarcity of land. As corporate demand expands, the need for affordable accommodation, primarily for executive and mid-management level employees of a company or young entrepreneurs can only be met by budget and midscale hotels. In fact, they can be best termed as ‘low-cost carriers’ which are high in efficiency but low in cost not because quality has been compromised upon but due to its design to value propositions wherein all unnecessary frills are removed and only what is needed is offered. We offer everything guests need and provide more where it matters most. Our current footprints are at more than 2,700 locations and many more are in the pipeline.
Biggest opportunity for budget-midscale segments
The midscale-budget categories have always enjoyed better occupancies in their respective markets due to soft pricing. However, with current demand and technology integration, there is a clear opportunity to take up the rates which will help improve profitability. Hotels must leverage the advantage of generative AI tools which forecast the right demand in respective geographies and the hotel should adopt right pricing with its help. We should move out from revenue management prospect to ‘profitable’ revenue management prospect. What matters is total revenue and not total room nights or in other words, bottom-line and not top-line. Data is the key and our decisions should be data-driven and not based on gut feelings.
Emergence of homestays as competition
Homestay is a different experience and a currently flourishing business at leisure destinations to offset demand-supply gap. Some states are supporting homestays to promote local culture and ancient heritage. At business destinations and metros, most homestays are operating in industrial or the ‘not-so posh’ areas at a very nominal price band. At this point in time, they are not a direct threat to a midscale hotel considering the fact they are operating with a minimal inventory.
USP of the property
Our USP is our people who are highly euphoric and take pride in doing all that brings smile on our guests’ faces. The location of the property is convenient and advantageous as also is Laundromat, the complimentary onsite self-service laundry. We are also committed to a sustainable environment and the strong distribution channel which makes us visible to the global audience.
REVpar and ADR in current calendar year
2023 so far is a performing year breaking all the previous records our ADR has registered a growth of 37 per cent while RevPAR is improved by 69 per cent vis-à-vis 2022.
Striking a balance between affordability and quality
Quality at IHG is non-negotiable and we are committed to provide high class of quality which has been possible through wide network of our India and global suppliers, dedicated team and quality products at optimum prices, careful selections of amenities and best in-class practices backed by our intuitive processes. Training plays an important role in delivering finest quality to the customers and our resources are well-trained in IHG Academy (virtual and onsite) to deliver the best.
Outlook on future of Indian budget-midscale hospitality sector
India is travelling like never before and the genre of the traveller is changing. They now include millennials and Gen Z and their changing preferences and behaviour viz less budget for travel but a strong desire to escape. Many will move to budget-midscale hotels to satisfy their travel cravings. Price will remain the most important factor for new-age customers when selecting accommodation. Due to its sensible returns on investment, this segment is gaining popularity amongst the investors too. The industry is robust and the next few years will witness more growth.
Arun Khurana, General Manager, Shyama Sarovar Portico Orai
Biggest opportunity for budget-midscale segments
In recent times, budget and midscale segments have been impacted by a range of factors – from a surge in middleclass to an increase in business and leisure travel, urbanisation, higher economic growth and doubling of air travel over the past few years except for the challenges between 2020 and 2022. It has certainly bolstered the mid-market brands in India’s hospitality sector. The mid-market or mid-priced segment refers to hotels straddling two-star, three-star and four-star properties categorised as business hotels, resorts, boutiques, havelis and full-service or limited-service hotels, broadly priced at Rs 4,000 a night. The road looks clear as there is undoubtedly an increase in demand, investment value is lower than in metro cities and so far, we see lack in supply as compare to demand.
USP of the property
The hotel is built on Balinese theme and is one-of-its-kind in the region. Our location is on the highway that connects Kanpur, Jhansi, Agra and Lucknow. Shyama Sarovar Portico Orai is the biggest banqueting hotel in entire Bundelkhand region. We offer several types of rooms, with the smallest coming at 300 sq ft and the biggest one at 520 sq ft.
Emergence of homestays as competition
They are coming up fast but homestays and hotels are different concepts and do not fall into primary competition for a hotel like ours. They offer limited inventories, partial services with restricted or no other facilities. The concepts of homestays or vacation rentals are more towards that segment of people who want to be on retreats while at work (from home).
Striking a balance between affordability and quality
Affordability is more about controlling and smart negotiating on payouts, fixed or variables at the same time without diluting the standards and multitasking of available resources. Quality assurance is the constant improvisation in accordance, which includes guest’s demands, cities’ trends, competition, keeping a right price point to attract masses and taking their feedback in order to retain them.
Renu Varghese, General Manager, Ramada Encore Bangalore Domlur
Sustaining growth for future
Indian middle-class population has risen from 14 per cent in 2004-05 to 31 per cent in 2021 and is projected to be 46 per cent and 63 per cent in 2030 and 2047 respectively. This segment is educated and predominantly urban earners, a majority are working migrants who are highly aspirational and generate about 30 per cent of India’s disposable income from which about 37 per cent is spent on leisure including F&B and services and utilities (as per a recent study by a reputed payment gateway) and a large chunk goes to hotels and on travel.
This segment’s CAGR is 13-14 per cent while disposable income is growing at 9.5 per cent YoY. The budget segment of hospitality industry whose target customer would be the mid-level business traveller who is happy with no or low frills but with an ambience and comfort of star hotels and offered at a much cheaper price. This segment enjoys a significant percentage of small and medium-sized businesses that can’t afford to accommodate their employees in premium hotels but, at the same time, are willing to pay for rooms in budget hotels.
Recognising the humongous potential of this segment, the hotel industry is gung-ho about it and going all guns blazing for developments and expansions. Moreover, the economic advancement and a significant growth of trading activities in India have necessitated people in trading to travel more. Specifically, business executives holding positions in small / medium scale establishments have to undertake travel and are continuously on the run for the sake of business-related purposes.
Honestly, budget hotels which constitute about 37 per cent share of the total inventory, if addressed well, have the potential to reach 50 per cent in foreseeable future as we speak. Needless to say, the success of this segment depends on low capital cost. Since the growth of ‘Great Indian Middle Class’ is here to stay for the next 50 years whose travel mantra is ‘Value for Money, India’s budget and midmarket opportunities are extremely promising for future.
Biggest opportunity for budget-midscale segments
The last two-and-a-half decades have seen many quiet and peaceful towns turn into mini metros bustling with industrial growth, as IT hubs and education centres. Growth of other business units’ work, culture and climate are some elements that propel the growth in demand. Many global companies are doing bustling business in these cities (Tier II & III) in many states, particularly in South India. This is driving the demand growth in the hospitality sector. India is dotted with a huge range of tourism products for leisure, heritage, pilgrimage, Nature, wildlife and adventure besides others which are awaiting exploration. And the middleclass is driven by ‘What’s New, What’s Different?’. For them, a budget option is in the core of their exploration meaning ‘cost-friendly’. This segment is growing exponentially.
A new phenomenon has gripped the young traveller: Sustainability. These young minds want to embrace (and contribute towards) ‘climate change’ in whichever way they can. They are happy to simplify their travel and hotel stay to consciously help save the earth by living in sustainable way during travel. Here also, the demand of budget and mid-segment products has their opportunities, adequately.
Emergence of homestays as competition
Homestays are a different segment which is now getting formalised but they pose no threat to hotels, primarily due to their very limited inventory. Also, their product profile is different though they are a part of the ecosystem and complement the industry.
Striking a balance between affordability and quality
While we make sure that we cut the fat and not the muscle scientifically to sustain affordability, our strength is quality through service excellence. It’s a unique balance which we work on tirelessly by adopting various methodologies to achieve optimum ROI and GSI (Guest Satisfaction Index).
RevPAR and ADR in current calendar year
The two have been the same as we have been doing 100 per cent occupancy around the year for the last eight years.
Outlook on future of Indian budget-midscale hospitality sector
Real estate cost being at an all-time high now, midscale is the only way forward in prominent locations as this fits all segments and is easier to service, sustain and scale up when required.
Radhika Tata, General Manager, Ibis Hyderabad Hitec City
Sustaining growth for future
Post-pandemic, the Indian tourism industry continues to be dominated by the domestic sector and its expansion among non-metro cities has the highest share. Transient segment shows a greater increase in the mix versus any other segment as compared to 2019. The popularity of budget-midscale hotels among mon-metro business owners / travellers has increased owing to better connectivity, newer technologies and increase in budget travel trends. Data suggests the ease of travel by road is the first and foremost reason the travellers don’t intend to spend more money on a flight but rather spend that amount at popular hotel brands which adds to their experience. We have noticed the growth of pilgrim tourism, medical tourism, staycations and workations.
At present, the domestic segment is the most sustainable segment and the future is not volatile or doesn’t have much impact from the macro environment. Because of the Make in India initiative, the SMEs, start-ups, small businesses and cottage industries are the future of the growing Indian economy. This adds to the major increase in domestic conferences and conventions which helps attract bleisure travellers. International events like Formula-E speak volumes about the kind of infrastructural and cultural development Hyderabad has gone through and it really opens up the avenues for many such conclaves and events in the future too. Hyderabad market was predominantly dominated by IT-ITES but the dependency on them in the last few years has reduced with no major impact on overall hospitality market.
Biggest opportunity for budget-midscale segments
The way forward for all segment types in hospitality is sustainability as we all saw the advent of responsible tourism took precedence post-pandemic. Travellers now opt for sustainability as there is lot of awareness due to multiple factors like social media and classroom trainings. It comes as the first choice during corporate contracting. Sustainability of businesses, people and environment remains a major focus area for the industry. Also, inbound tourism taking leap in 2023 opens up many avenues for the hospitality industry. F&B too remains to be the key focus for the industry.
Emergence of homestays as competition
Hyderabad as a city has enough demand currently which helps with the survival of all the categories, be it homestays, economy-midscale or luxury hotels. The target audiences are so well defined that there is no competition. The choice of travel and accommodation type is well understood by the guests themselves so much that the bookings are made basis the experiences they are looking for. Larger community with bigger family or the long staying guests, the choice of stay is based on type of travel (business, leisure, with family or group, etc).
USP of the property
The key USPs for ibis as a brand are convenient location, comfortable stays, longest breakfast hours (4am to noon), services (Mission 15) and sustainable practices among others. We always focus on three aspects which drive the business – People, Product and Price. Our team is our biggest asset as they manage and maintain the property which yields the price. So, we believe in taking care of everyone in the team as people are the core of our business. Accor invests a lot on learning and development of each individual. All members are well trained and equipped to become future leaders and grow with the company; our Culture and Values drive all of us and the business.
Striking a balance between affordability and quality
Quality is first priority for all of us. The price points are always dynamic and are commanded by the market demand. Our hotel still is affordable as compared to the rest of the category. While value for money is something we all strive for, most of the time and energy is invested in providing the best-in-class services and making the stay for our guests more comfortable. Today’s traveller is very well informed and has more market intelligence as compared to any of us in the industry and makes well-informed choices when it comes to picking affordable hotels while not compromising on the quality.
RevPAR and ADR in current calendar year
In 2023, we have seen growth in all parameters vis-a-vis 2022, ADR growth of 40 per cent and in RevPAR of 70 per cent vs 2022 YTD.
Outlook on the future of the sectors
The future of the segment looks great but we might have little fluctuations in different cities and micro-markets. Corporate travellers have resumed work in full swing, many new upcoming projects in different cities will boost work-based travel and occupancy levels, leisure travel will also thrive. Experience tourism will keep developing and evolving as we move forward.
