Franchise Opportunity in Indian Hotel Industry

The hotel industry is estimated to grow at a Compounded Annual Growth Rate (CAGR) of 15 per cent over the next five years.

According to the World Travel and Tourism Council, India ranks 18th in business travel. The success rate of the hotel industry in India is the second highest in the world after China.

The hotel industry is set to grow by 15 per cent every year. The boom of information technology, telecom, retail and real estate had lead to an increase in demand for hotel rooms. India’s increasing stock market and new business opportunities are attracting foreign investors. Hence, there is a tremendous scope of growth for hotel brands in India.

Opportunity galore

Recently, global hospitality major Wyndham Hotel Group laid its expansion plans. The brand is looking to add 40 new hotels in India by 2020 in India. Currently, the company has 35 operational hotels in India with 3,258 rooms under the brands, Ramada, Ramada Encore, Howard Johnson and Days. 

“We aim to have 75 operational hotels in India by 2020 and plan to further expand our footprint in other high potential regions by exploring new opportunities,” said Deepika Arora, Regional Vice-President, Wyndham Hotel Group, Eurasia.

Another hospitality chain, Choice Hotels, also plans to add 11 properties under the franchise model by the end of 2020 in India. The company, which is a subsidiary of the US-based group Choice Hotels International, currently has 29 operating hotels in India. The company operates in India, offering five brands — Sleep Inn, Comfort Inn, Quality Inn, Clarion and Ascend Collection.

“The new hotels will be under Comfort Inn, Quality Inn and Clarion brands,” said Vilas Pawar, CEO, Choice Hotels India. Sharing a word on the business model, Pawar explained, “As we follow the franchise model, we don't invest in the property. We invest in our distribution platforms, in our systems that deliver values and in training. The investments primarily go into making our brand visible and on brand promotion.”

The midscale segment on high

Considering the demography of India, investment in the mid-scale segment will fetch better returns. Moreover, financing a midscale hotel development is relatively easier, primarily because investors perceive these hotels as assets with a high return on investment and lower risk when compared to hotels in other segments.

“There is more disposable income for the middle-class. With people taking shorter trips, we believe that in India we will have a clear growth in mid-scale and economy market,” shared Ignace Bauwens of Wyndham Hotels & Resorts. The requirements in terms of area are also comparatively lesser. Choice Hotels is present in the mainly mid-scale segment. Pawar said, “We target mid-scale segment primarily as we see great opportunities for growth in this category.

Tier II cities in focus

The economy in tier II cities has seen a sudden boom, making it a profitable market for franchisors. Choice Hotels is targeting Port Blair, Gorakhpur, Ooty, Lucknow, Lakhimpur and Kochi among others, for expansion.

“Growth is happening in the mid-tier market and this is where a global player will like to make a dominating presence,” said Bauwens of Wyndham Hotels & Resorts. The brand is also keen to explore leisure locations such as Kasauli, Lonavala, as well as pilgrim destinations such as Tirupati and Dwarka.