The Urgency of Partnership
Prince Hotels’ acquisition of Australian operator StayWell Hospitality Group will help the conglomerate entrench its homegrown brands outside of Japan
By Vinita Bhatia
In October 2017, many dailies carried the news about Tokyo Stock Exchange-listed conglomerate Seibu Holdings’ subsidiary, Prince Hotels’ $55-million acquiring Australian operator StayWell Hospitality Group. Next, came the announcement that Seibu Holdings was entering India since Staywell Hospitality Group already had a presence in the country.
Vinita Bhatia met Victor Osumi, managing executive officer, Prince Hotels Inc along with StayWell Hospitality Group’s president and founder, Simon Wan and its regional MD, India, Rohit Vig, to understand their plans to put more hotels on India’s map over the next couple of years.
Victor Osumi, managing executive officer, Prince Hotels Inc
What are your plans for growing the Prince brand in India?
Victor Osumi: Now that we are married to Staywell, it is a great opportunity for us to grow together. We want to have 250 hotels within 10 years globally. We have about 70 in the pipeline today, so, we have a long way to go. At the same time, since Prince is the largest hotel company in Japan, our priority is to increase inbound business for our properties.
250 sounds like an ambitious number!
Victor Osumi: Well, it is actually 100 within Japan and 100 outside. Now, in Japan, we already have a steady pipeline and we never got into limited services. Coming to the properties in global markets, I have confidence in Simon Wan and Rohit Vig’s team, as they already have around 36 hotels coming up in the next three years.
Simon Wan, president and founder, StayWell Hospitality Group.
In M&As, there is always an interesting tug-of-war when it comes to control between the company that has been acquired and the company that has done the acquisition.
Simon Wan: Not a tug-of-war – we are in love!
So, is this the honeymoon phase, then?
Victor Osumi: Actually, Simon does have a wide network within and outside the industry. One of the biggest reasons for us to opt for this acquisition is because of Simon’s vast experience and the value of his team. He has Fiona Godfrey, who is an expert in sales, marketing and revenue generation and he has Rohit, who knows the development business very well.
Given that you had plans to tap the growing Indian market, why did you choose an Australian company as a partner, rather an Indian brand?
Victor Osumi: We are the largest hotel company in the Japan, but we realise that it can be difficult for us to operate outside the country without having an operational platform at a regional level. To do so, one needs to know the local culture, business habits, etc. That is one reason we do not see many Japanese operators outside of Japan, since they don’t have any know-how about markets outside the country. Hence, we acquired Staywell, which has better understanding of the region.
While India is a very important market for us, so are Australia, Europe and South East Asia. Hence, we also wanted a company that had diverse experiences, which happened to be Staywell. They have regional offices, people with nine people in the area that would help us and they were expert in it. And we looked at – we didn’t look at other company, but if you compare other company, I think Staywell is more stable when it comes to the proper platform to each region.
Rohit Vig, regional MD, India, StayWell Hospitality Group.
Rohit Vig: Staywell has actually has been in India over six years and we have a regional team operating out of Gurgaon. We opened our first Indian hotel, in Jaipur, in 2013, and have five operational hotels already. While we will get a lot of exposure from the team at Prince and Staywell Australia, the team that manages the operations locally is from the country.
Simon Wan: From Prince’s perspective, when they made a strategic decision to expand outside of Japan, they wanted someone with multiple expertise and presence in the countries they wanted to expedite their expansion. By choosing Staywell they got a strong platform in these countries like India, China and Middle East, as we have a regional office in Middle East where our development target is as strong as India. Ditto with China and Australia, which are both mature countries.
What is the network of Staywell properties in India?
Rohit Vig: We have five operational hotels and we have signed 11 contracts so far, and the rest of the six are under various stages of development. Hopefully, we should opening two more this and the next over the next 18-24 months.
Wasn’t your twelfth property coming up in Ahmedabad?
Rohit Vig: Yes, we signed Ahmedabad as well. But there are some legal issues with the land, so we are holding it and are waiting for the licences and approvals to come in place.
Why have you set such a prudent development pace?
We have always been a conservative company. Our motto is always to under promise and over deliver. We are also looking at a lot of rebranding exercises as well now; not only are we looking at newly built hotels, but at converting existing hotels and adding those to our brand. For example, the property that we recently opened in Jaipur was run by an international American operator for a long time. The pace to market after conversion was much quicker.
That is interesting, as it is expected that several distressed assets are likely to be up for acquisition this year.
Rohit Vig: Yes, we are looking at rebranding seriously especially in India because it takes a long time to build a hotel here, from getting approvals, licences to the actual construction period.
Will you focus on metro cities or tier-1 towns?
Rohit Vig: It will be combination since we now have a wide variety of brands within our group, following the Prince acquisition. So the gateway cities, like Mumbai, Chennai and Bangalore, will be our key targets initially. In the North, we are present in Jaipur and Gurgaon and we are also established in Goa. We are now looking at hotels in leisure destinations like Manali and Nainital because with the domestic tourism spend increasing exponentially, 80% of hospitality business is derived from domestic travellers.
Vinita Bhatia: Do you have plans to introduce all the brands in the Prince Hotels’ portfolio – The Prince, Grand Prince Hotel, Policy, Park Regis, Prince Hotel, Leisure Inn Plus, Prince Smart Inn, and Leisure Inn?
Victor Osumi: At the moment, we are studying which brands will be ideal for which region. We have commissioned an external company to conduct a study and hopefully by April, we will come out with a brand best suited for India.
Since Park Regis is an upscale brand and Leisure Inn is a mid-scale extended stay brand, what is the gap that Staywell will try to plug in India?
Rohit Vig: It would be luxury, since we are already present in upscale and midscale. Luxury hotels offer much higher gross operating profit (GOP) margins in the country and better profitability than the economy segment.
Do any of Prince Hotel’s existing brands fit the luxury bill?
Rohit Vig: As Victor said they are going through an exercise to determine which one is going to be the perfect brand for the luxury segment.
Victor Osumi: It could even be a new one because all the existing brands in the Prince Hotels portfolio are used only for the domestic Japanese market right now. We are looking for perfect opportunity to start.
How have the government policies affected the hospitality business?
Rohit Vig: The growth of the domestic middle class as well as the spending of our economy is definitely going to increase over the next couple of years especially with all the initiatives, like visa on arrival, which our Prime Minister, Narendra Modi has undertaken. If you look at the global tourism spend, we get only 0.8% share. In my opinion, if the infrastructure development in our country improves along with quality of accommodation, especially in the luxury segment, we can double that 0.8% global spend; in fact, we won’t have enough rooms!
What are the yardsticks for judging profitability in the business? Do you see your room rates stabilising?
Rohit Vig: RevPAR is the way of the future. Gone are those days when you actually look at average room rate and occupancy. Now you need to look at RevPAR to understand if the business is on a growth stage. Our occupancy levels from 2016 to 2017 and our budget for 2018 have all gone up. So, the RevPAR growth definitely is moving upwards and average room rates are also stabilising.
Staywell in India has always had management relationships, but is now considering getting into the franchise and maybe even the lease model. Is that correct?
Rohit Vig: Besides five properties, we already have franchise agreements with other hotels. Take the instance of Park Regis Jaipur, which is a franchise hotel and has been running very successfully. For 2017, it did the best numbers under a franchise agreement in the last 18 years of operation. We offer franchise very exclusively to owners who understand the hotel business and the value of the brand. We will offer a franchise deal on an exclusive basis with partners, who are experience hoteliers and owners, and who share our vision and can add value to the brand.
Are you confident that the franchisee model will thrive?
Rohit Vig: As long as you have a combination of management and franchise model that comes well together, it will, because of the distribution. However, if you only adopt the franchise model, you might end up diluting your brand.