Indian Hospitality Sector is Poised to Reach Greater Heights

THE INDIAN hospitality sector has evolved significantly in the last decade, driven by the growth in the country’s travel and tourism (T&T) sector, while adapting to changing traveler preferences and technological advancements among other things. As we enter the next decade the industry is gearing up for what we feel will be the most transformational period ever for the hotels & hospitality sector globally.

Though the current economic headwinds in India are expected to soften demand in the near term, we anticipate the ongoing reform plan of the government to start showing results in the latter part of 2020, reinvigorating the economy and fueling hotel demand. 

We believe that the Indian hospitality sector is poised to reach greater heights in the next five years, as the Indian T&T sector continues its tremendous growth. As per the World Travel and Tourism Council (WTTC), India’s T&T sector’s contribution to GDP is expected to increase by 6.9% annually to reach INR32,053.3 billion by 2028, which will have a positive cascading impact on the Indian hospitality sector.

Here are some key trends that we expect will shape the sector in the next five years.

Recognition and growth of Ancillary Revenues: Hotels will increasingly look at non-core revenue streams (NCR) by utilizing existing infrastructure for newer business opportunities. This could include using food delivery platforms, conducting weight management & wellness programs, having dedicated area for co-working spaces, monetizing car parking spaces, leasing kitchens for cloud kitchen requirements during non-peak hours and similar optimization of available spaces and services. Ancillary revenues currently account for only 3-5% of the total revenues of a hotel. Going forward, the hotel sector will consider leveraging the best practices employed by other travel-related industries such as the airline industry which has mastered the art of unlocking ancillary revenue in the past decade by charging for all add-on services.

Development of new leisure destinations and demand growth in small town leisure destinations: With road, rail and in particular air connectivity improving at a rapid rate along with corresponding improvement in related infrastructure through some of the government initiatives such as PRASAD and UDAN, the travel to smaller and lesser known towns & cities is expected to find favour with travellers. Given the trend of the new age traveller towards experiential travel and stays, the number of smaller, well designed and well managed hotels, resorts and glamping sites (glamorous + camping) is quickly rising in off-beat or smaller city locations. We expect this trend to become more established over the next few years with major players foraying into these tier - 3, 4 and unknown markets. 

Soft branding will become the new norm: With increasing competition especially in destinations with limited room for growth and customers, looking for ‘experiences’, shifting away from standard brands has resulted in the growing popularity of soft brands. The growth in non-conformist hotels which are more experiential and differentiated by design without the typical norms followed by conventional branded hotels is a trend we expect to increasingly see. Traditional brands will increase their distribution through soft branding which will provide these hotels the advantages of distribution and marketing support while not needing to be bound by the traditional brand standards.

Increased focus on Sustainability: With the new age traveller giving sustainability a thumbs up, more and more hotels will look at turning green by building greener hotels and using more environment-friendly products. We are already witnessing a movement to reduce and remove single-use plastic in hotels. This will see larger traction over the next couple of years.Hotel marketing communications will actively incorporate the green initiatives taken by the company. 

Adopting technology across the guest journey: The hospitality sector has successfully adopted technology at the first point of customer contact with increasing number of bookings being done online today. However, technology adoption during the other phases of the customer journey is still lagging. Hotel rooms still follow standard practices using nearly defunct tech in rooms and have been slow to adapt technology compared to other allied sectors. As the hospitality sector is always trying to enhance customer experience, latest technological advancements such as smart rooms, mobile as key, use of ‘Alexa’ for accessing standard services and ready access to streaming services such as Netflix, Prime and others will become the new normal. 

Changes in workforce management: Skill shortage has been a perennial challenge for the Indian hospitality sector. With the global changes in the places of work and the management of a millennial workforce, hotels will also start making much needed changes to improve retention of employees. 5-day work week with flexible working hours and smarter employee areas in the hotels will soon become a practice. 

Mixing Business with Leisure: ‘Bleisure’ as it is now being referred to is a rapidly growing travel concept. Millennials travelling for work are looking at extending their stay on personal account to explore the destination at leisure by adding a short vacation to the official travel. 

Healthier Food & Beverage options: With growing health-awareness and popularity of new-age diets such as Vegan, Keto etc. Hotels are beginning to introduce specially curated F&B menus to cater to the changing customer preferences. This trend is expected to see significant growth over the next few years.  

Launch of Hotel REITs: The great success of India’s first REIT has shown the way for several other Real Estate players to raise capital from this route. It is only a matter of time before a Hotel REIT (InvIT) is launched once some of the issues pertaining to regulations for the same have been fully ironed out. Hotel REITs could be a game changer for the Indian Hospitality Industry sector which is starved for affordable capital.