A nice story ahead

The year has belonged to Starwood’s India operations, with a lot of new brands being launched. Punam Mohandas gets behind-the-scene for a closer look at the group’s activities.

Starwood is suddenly going to be seeing a fair bit of action in India; the Four Point Sheraton opened in Mumbai this June, the Luxury Collection was launched, four Westins are due to open in Hyderabad, Pune, Mumbai, and Gurgaon respectively - although they are currently seeing a bit of schedule delay.

“It’s an exciting development of hotels, it’s a win-win situation for all parties,” agrees Nikhil Manchharam, vice president, acquisitions and development, Starwood Asia Pacific Hotels and Resorts.

“This year is very exciting for Starwood in India; in these challenging times that we’re in, it’s a nice story for the group. As for delays, these are natural in a project; you have certain markets where conditions are set by the regulatory environment, however, in India you don’t have these.”

With 23 hotels across five brands in India, he says what they’ve found is that the partnerships they select is one of the most important parts of the intelligence that they do, because when partners respect the brand, the growth potential is relatively high.

However, in the case of the Meridien brand, which was acquired by Starwood in 2005, and early 2006 is when they started to take full ownership, it was only fairly recently that changes have been put into effect, and announced to the industry – an inordinately long time.

“Well, we did a repositioning for Meridien in Mumbai earlier this year, to communicate to the market what the brand represents today. There is a phase when you understand and assess what the brand has been about, and that is an analysis that does take some time, and what do we do with the revitalised brand going forward,” explains Manchharam.

“While building a brand is difficult, taking over one is also time consuming. Progressively, we’ve been able to develop the mindset of the brand, its European culture, and differentiating it within the Starwood portfolio. Today we are at a fundamentally good framework, fitting the brand to what the market demands are.”

There are preliminary discussions on for the W brand in India; as Manchharam says, there are very few markets where the St Regis and the W can be represented.

The focus right now is on the key markets of New Delhi, Mumbai and Bangalore, with perhaps a resort destination like Goa.

However, Chandigarh is a city that will soon see a Sheraton; Manchharam is excited about this market, which he terms as the ‘Gateway to the Punjab’ and is optimistic about the returns here: “Oh yeah, absolutely.

Chandigarh is a very interesting market. The population is small, but per capita income spend is among the highest in India.

It will potentially, in the near future, have international flights, there’s an industrial growth for this city as well. So if you put all those components together and then look at the supply in the market, which is only the Taj really, and ask is there a market for a Sheraton branded product in Chandigarh - yes, there is.

Across India, there are groups that are important, and the Punjabis are an important segment – weddings are a big part of their spend.”

Speaking of Sheraton, which is globally Starwood’s largest brand in terms of number of hotels, would he say that ITC had become complacent in developing and promoting the brand, and had not done as much justice to it as they could have? Starwood has spent a lot of resources revitalising the brand and cleaning up the portfolio, and plans to be consistent with the global strategy of the brand.

“I wouldn’t say its complacency in any way,” he says thoughtfully. ”Following the introduction of the Luxury brand, seven hotels were rebranded, and three remain Sheraton. Fundamentally, they’re very good products, good locations in their cities, well distributed around the country.

There were a lot of positives, which gave the brand a lot of visibility in the market. It’s been organic growth. When you look at cities and locations, the traditional CBD’s have moved out, that is a function of availability of land.”

Manchharam points out that an important component to understand is where the cities have gone in terms of growth - how they have grown, where are the micro markets getting developed, are they still as relevant as they were ten years ago.

The other factor to take into consideration is whose is the supply coming to these markets, since there is a certain drop-off that happens, as in the BPO business.

“What I’m trying to say is, although the pie is getting bigger, it’s not getting as big as quickly as one thinks. There is a challenge of infrastructure and execution capabilities.These are baby steps – but baby steps are required, because you only get one chance. We’ve seen what happens to brands when you run too quickly.

That can have a negative impact on growth as well as perception. We’ve been pretty cautious; a lot of thinking and due diligence goes into what we do.”

Many developers believe in the concept of a land bank; how viable does he think this is?

“There’s a couple of things here; land banking can be good as long as you can get the fundamentals of hotel development right, such as - land costs have to be reasonable, it has to be in a good location, how much value is the brand adding to the total development. It’s good if you have a plan on what to do with it.

One of the things that we’ve certainly discovered is that developers with land banks have historically been able to deliver on hotel projects relatively better than those who went out recently to acquire land.

It just comes down to economics; so long as you meet those criteria, it’s good. If it falls outside that criteria you have to think on what is the best use for that land – hotels, or serviced apartments for instance,” says Manchharam.

He goes on to say that whenthey first established in India, there were a lot of plans made by developers in terms of their goals in hospitality. Those aspirations were positive signals for the industry, that there is a supply-and-demand imbalance.

The regulatory environment also made it easier to build hotels and for FDI to come in. “But, it was also a kind of plan on paper”, he says reflectively. “If we were to look back on those ambitions, it seems none of the major announcements have materialised.

I’m not saying that aspirations are not good, it’s just that a strategy is as good as its executed; there has to be a sense of realism put into context of the market environment that hotels are coming up in,” he adds.

While much has now been written in the mid-market and budget hotel scenario, and there are enough players now in the market, there still remains a) a lacuna, and b) a perception problem regarding branding. What is his take on this?

“The categorisation of hotels has been relatively weak, various consultants have written about this. What do you identify as mid-market; when we talk mid-scale in India, we’re identifying two segments within that same and categorising them as one.

Because land costs are very high in India, the chances are a mid-market would not be considered by a developer. The perception has always been one of price. I think the differentiation hasn’t happened, we haven’t been able to consolidate the market space between mid and upscale and put a price to it. There is a gap, I would agree. It’s just the nature of the market,” he says.

Manchharam goes on to say the concept of Ginger, for instance, is a good one, however, while India may need a hotel at a Rs1,000 in a stable market environment, is it viable to build one in the environment one has just gone through – that’s questionable.

“We’ve seen growth in the mid-market, which is the upscale of Rs4-5,000. And that’s because there is a market need there, and also an economic return, and viability to the investor.

Is it an ego issue to build such hotels? What we’ve seen so far from the development community is upper upscale. To a certain extent, there is ego that is driving the need, but I also think they’re serving a genuine market - the economics of the low price range , those locations are not probably where you want to be as a developer.

It is going to be an education process with the customer, something that they can relate to.”

Having said that, is the Indian customer ready for this transition, this value-for-money concept? “I think it has happened already. We’re at the cusp of a transition. It’s a paradigm shift that needs to be understood,” Manchharam concludes.