The Quiet Turnaround
The Intercontinental Hotel Group was the earliest global entrant in India, but it could not become the market leader. In its second innings, prepare to see a more aggressive entity, as it aims to have 100 hotels within three years
By Vinita Bhatia
There is a popular saying that goes, work hard in silence and let your success make noise. It can be well applied to The Intercontinental Hotel Group (IHG) and its frontmen, Pascal Gauvin, COO, India, Middle East and Africa, and Vivek Bhalla, regional VP for South West Asia.
Since joining IHG in November last year, Bhalla has been working silently behind the scenes overseeing the operational performance of the 33 hotels that the company has in India. His agenda for now is to facilitate the opening of 100 hotels within three years, and he is busy working towards it in cohesion with Gauvin. He prefers to do it quietly rather than announce every breakthrough achieved along the way â€“ not for him the boisterousness of Instagram or Twitter.
There is a reason for Bhallaâ€™s reticence, other than his own natural disposition. Not many know that IHG was the first global hotel operator to enter India in the 1960s through a tie-up with the Oberoi Group in New Delhi. However, this first-mover advantage did not help the company become an industry leader and it ceded ground to other brands like Starwood Hotels & Resorts (now Marriott), Marriott, Hyatt Hotels, AccorHotels, etc, not to mention the indigenous ones like Taj Hotels Palaces Resorts Safaris. But that was in the past, and Bhalla would rather focus on the future than dissect what happened before.
In fact, Bhallaâ€™s restraint is an antithesis to Gauvinâ€™s French exuberance. It is precisely why the combination of Gauvinâ€™s business acumen mixed with Bhallaâ€™s operational judgment is likely to ensure that the stakeholders associated with IHG will profit from high-quality and a regular income stream.
ALL SET FOR THE FUTURE
India is an important market for every hotel brand in the world, and it is no different for IHG. However, having made some mistakes the first time around, the company decided it was time to go back to basics for its second innings. And bring in an industry veteran like Bhalla, who has served as senior director, operations for South Asia with Starwood Hotels and Resorts and was responsible for the pre-opening and operations of the groupâ€™s hotels in India and South Asia. He also held senior management positions in the commercial function with both Starwood Hotels and Resorts, and Hyatt International Hotels in Singapore and the US, respectively.
Soon after Bhalla came on board, IHG announced its alliance with hotel investment firm, SAMHI, to rebrand approximately 2000 rooms (operating and under construction) within its India hotel portfolio, to Holiday Inn Express hotels. The recently signed portfolio comprises 14 hotels, including 10 open hotels across key cities such as Ahmedabad, Bengaluru, Chennai, Delhi NCR, Hyderabad, Kolkata, and Mumbai. The additional four hotels are under construction.
â€śIn addition to Holiday Inn and Holiday Inn Express, we have achieved a great deal of traction with the Crowne Plaza brand. We have 11 Crowne Plaza hotels in the country, which has been well received, and have market-leading positions in the cities they are in. They are also popular for specific segments like MICE and weddings, so we will continue to invest in Crowne Plazas,â€ť Bhalla stated.
Under Gauvin and Bhallaâ€™s leadership, the company has outlined a strategy to focus on those brands that are relevant to India and jettison those that might either be ahead of their time for guests or are not very lucrative for owners. So, while globally the company has 13 brands, in India it has decided to stick to only four â€“InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express.
Explaining this strategy, Gauvin said, â€śOur core business in India is mid-scale, and the best brands we have here are Holiday Inn and Holiday Inn Express. 80% of our hotel pipeline centers around these brands. We will look at bringing in Intercontinental to big cities once we get the right partner.â€ť
THE RIGHT FOCUS
At the same time, both Gauvin and Bhalla believe there is scope to introduce upscale brands like Kimpton Hotels & Restaurants, which IHG bought for $430 million in 2014, and the newly acquired Regent Hotels, as well as Indigo in India. After all, Indian guests are a well-travelled lot who know what they want from hotel brands and also seek personalisation of service. A brand like Kimpton Hotels and Restaurants would, therefore, be well-suited.
After acquiring Kimpton, IHG realised that it needed to make the brand more relevant to local regions and chose to incubate it for several months before exporting it to several countries. â€śSo, we launched it in Amsterdam recently, the one in Paris is under construction, and we are open to bringing it to India. However, this means we need an investor who loves and understands this brand and believes there is a market for it. Once we have an investor and owner who shares our vision for Kimpton, we will develop it before unrolling it, as these brands are very region-specific,â€ť Gauvin elucidated.
This means identifying the target audience before finalising the hotelâ€™s design, its restaurant, public spaces and guestrooms to provide elevated customer experiences.
Theory of granularity
IHG has realised that creating personalised guest experiences is critical when it comes to tapping the luxury segment, which is a $60 billion dollar business globally. A lot more granularity comes into play when catering to the upscale and lifestyle domain, as this segment needs special attention to detail. And the Indian customer is becoming sophisticated and demanding, given that they are travelling frequently.
That is precisely why IHG would like to redefine luxury when it launches its lifestyle brands in the country, rather than compete with well-established players in the luxury sector. â€śThe hospitality business is all about segmentation, and you have to think from your guestâ€™s perspective,â€ť explained Gauvin. As a frequent traveller, who spends 50% of his time either at an airport, in a plane or at hotels, he should know what guests expect when it comes to hospitality.
â€śWhen on a business trip, I love staying at a Holiday Inn Express as it is close to an airport and has all the features I need for a quick trip. When I want a get more luxuriant stay, I love Intercontinental where I more facilities, service and the experience. If I want more upscale luxury with my family, I would head to Crowne Plaza. So, guest are not homogenous â€“ they have a purpose for travel, a need for staying in hotels and a budget,â€ť he elaborated.
To ensure that the same guest enjoys a variety of experiences within the companyâ€™s different brands, IHG is working on ways to incentivise them to stay loyal to the company. And this is possible only by making the brand segmentation more granular â€“ by clearly differentiating and classifying its limited service, midscale, upper midscale, long stay, luxury and upper luxury brands. This segmentation will help the brands to stick to the standards they have set and that customers have come to expect, consistently.
To be able to deliver on the promises it makes to guests and owners, IHG has invested heavily in India. Its regional office in Gurgaon houses over 50 people and has a national sales team with over 30 members. â€śWe also have a revenue optimisation team that goes into the complexities of pricing. Additionally, we have some satellite offices. So, we are now leveraging our network and scale for some of the conversion and new build deals we have signed and are working on,â€ť Bhalla said. He is optimistic that by Q4 2019, the company will have 50 hotels in the country, which will be a big milestone.
On one hand, while Gauvin and Bhalla are working on improving brand understanding for customers, they also see the merit of working closely with owners to sweat assets. It was only a few years ago that IHG opted for the asset-light model. This meant that it benefited from the reduced volatility of fee-based income streams as compared with the ownership of assets.
â€śWhen we decide on a hotel, we need to be transparent about the reasons for the engagement and the owners also have to be convinced that the particular brand will drive the right level of business. We need to be on the ownerâ€™s side while the hotel is designed, built and opened. We need to work jointly to ensure it is always relevant to the market, while IHG uses all the resources it has to ensure it is profitable,â€ť Gauvin stated.
It is this close engagement with owners that helped IHG grow its business by 11.6% year-on-year. This year, it plans to open around nine hotels, which will again be in the mid-scale segment.
To be able to bind all these expectations of owners and guests into a single ecosystem, IHG has invested in a new central reservations system, after retiring its erstwhile Holidex platform. The new technology system, which has been developed by Amadeus, has been tested in the US and will be launched in India shortly.
A new technology platform, new leadership, well-defined brand segmentation and aggressive roadmap â€“ IHG has all the makings of a success story. Will it be able to reclaim its mojo in the Indian hotel business?