Industry analysis

Current trends

The Indian Hospitality Industry is one of the fastest growing sectors of the Indian economy. Riding on the economic growth and rising income levels that India has witnessed in recent years, the sector has emerged as one of the key sectors driving the countrys economy. The current market size is US$ 23 billion, accounting for 2.2% of Indias GDP. Rising disposable incomes and increase in double -income households have also played a part in this growth phenomenon. The size of the Indian hospitality industry is estimated as a sum of revenues of two segments; revenues generated from travel for purposes such as business, leisure, visiting friends and relatives, religious, meetings and conferences, and revenue generated by cons umers eating out at any form of outlet restaurants, fine dining, Quick Service Restaurants (QSRs), takeaways, dhabas or any other form of unorganized eateries. As per an analysis by the Economy Survey of India and Technopak (2008), the Indian hotel industry is estimated at US$ 17 billion; 70% (US$ 11.85 billion) contribution comes from the unorganized sector and the remaining 30% (US$ 5.08 billion) comes from the organized sector. The foremost contribution of the organized hotel in dustry comes from 5star hotels. Despite a dip in the year 2009, an upward trend in growth of the overall hotel sector is expected, whereby the industry is expected to grow to US$ 36 billion by 2018. There has been a consistent increase in the number of hotel rooms in recent years; growth of 5% in the last 3 to 4 years. However, this rate of increase is still not enough to meet the rising demand; further investment is required in this sector to meet this demand. The hotel sector is expected to see an estimated investment of US$ 12.17 billion in the next 2 years, and an addition of over 20 new international hotel brands by 2011.
Rapidly Changing Operating Models Unlike in the west, the franchise model has not been a success in India. What accounted for its success in the west is a consistency in the product offering along with strict regulations by the Government on hygiene and health standards, which helped the franchise model to flourish. Recent trends strongly suggest that the franchise model of business has taken a

backseat and the focus is shifting to the management model. Factors driving this operating model are: Hotel operation is a critical area where efficiency has to be spot on and this is where the management model stands out There are a number of properties developin g with a fewer number of operators
Emergence of Mixed Land Usage Mixed-use developments incorporating residential, retail, entertainment, hospitality and corporate offices are fast emerging in metros tier -II and tier-III cities. Some examples are as below: Kshitij introducing Market Cities, retail-led mixed-use development projects in Mumbai, Chennai and Bengaluru Brigade group is focusing on the hotel-cum-mall options with Brigade Metropolis, a business hotel being developed at Chennai The Leela Kempinski, Gurgaon is located in a mixed -use complex of luxury residences, retail spaces, entertainment and wellness facilities Diminishing Brand Loyalty Guests today are becoming increasingly unpredictable and quickly switch their patronage for better deals across hotel segments, thereby reducing efficacy of many loyalty programs which hotels target towards their customers. New Avenues of Growth Service apartments, time sharing, fractional ownership, and company hotels or guest houses, have immense potential to grow. Their growth is likely to be due to increased demand of the IT, ITES, BPO, KPO, biotechnology and medical tourism sectors.

Heightened awareness of consumers towards their environment has brought into prominence the concept of eco touri sm and agri-tourism. There is an increased flow of people, especially those from the west, to India for medical services. This has also brought into limelight the concept of medical tourism. The current market for medical tourism in India is US$ 533 million, and is expected to grow to US$ 3.29 billion by 2018. Diversification holds the key to survival in the long run. The hotel industry isnt behind. Spas are appearing at hotel properties at a remarkable rate and are becoming independent profit cent ers. Cafes, lounges and bars which have high profit margins, are increasing their presence in several hotels.

Growth of Budget Hotels Leading groups present in this segment are Ginger Hotels, Lemon Tree, Sarovar Hotels, Fortune Hotels, Ibis and Choice Hotels. Currently, 3 & 4 star category hotels together account for 22% of the total room supply in India, which clearly indicates a huge growth potential for budget hotels. Due to the vast demand- supply gap of mid-segment hotel rooms, an investment of US$ 835 million is proposed for this hotel category over the next three years. Furthermore, for the Commonwealth Games in 2010, the Government is expected to provide 10,000 budget rooms while the requirement would be for 40,000 to 50,000 rooms in this category.

Contribution of Technology

Hotel industry has been changed from a traditional hands -on, low- tech, locally based industry into a global industry that effectively utilizes technology and implements information technology to combine high touch and high-tech to the benefit of customers, employees and hotels. The development in IT is creating millions of electronic connections around the globe, connecting and transforming information to people, the business community, industries, regional and internatio nal communitys. One way of using IT in tourism and hospitality industry is distribution. The impact of information technology since the advent of the World Wide Web has significantly changed and even transformed the st ructure of tourism distribution. Traditionally, customers had two alternatives to reserve a hotel room directly approach the service provider (hotel) or to use services of a travel agent (intermediary). However, a survey conducted in 2001 by Forrester Research (Harteveldt et al., 2001), indicated that the Global Distribution System (GDS) would continue to remain the most important channels of distribution for hotel industry and the like. In addition, Internet will change the traditional travel and distribution scenario. Because of the Internet, several intermediaries can be by-passed to reach directly to new customers. According to research carried out by Jupiter Research, the number of people who have bought travel product over the internet is likely to double from 18.6 million in 2001 to 38.6 million by 2007. The key benefit of web distribution is its direct route to the customers. Great cost saving can be achieved by encouraging customers to book electronically, which has made many tourism suppliers very excited about this new distribution channel. This technology-

induced structural change offers more choices to costumers; it also fosters an environment of fiercer competition f or channel participants. In recent years, IT has been a primary key that has helped service firms to innovate their service offers and add value to what they offer to their customers. Technology in services is not intended to replace employee, but to support it. Indeed, technology can improve the competitive advantage of an organization only if it can support the em ployees and their performance to offer better service to the customer. IT provides an organization with a better way of doing things -thus benefiting the firm, its employees, customers, return of investment. By implementing the IT applications, the informa tion acquisition, analysis and storage has become a powerful tool that presents junior members of staff in a hotel with an opportunity to take responsibility for making on-the-spot decisions without the need to consult senior management and this ultimately leads to customer satisfaction. Information technology can be considered as the commodity products of this century. It involves the assets and capital resources comparable in magnitude with property or labor. Electronic Distribution Channels, in turn, have huge impact on product innovation, development and customer satisfaction. Specially recently, customers have been able to successfully consolidate their trips with major cost reduction during the shortest available period. Now this model has significa ntly improved customer travel experience.

Major Players in Hotel Industry

The Hotel Industry mainly has following major players:

Hotel Chains They comprise major players including Indian Hotels Company Limited (the Taj Group) and associate companies, EIH Limited (the Oberoi Group), ITC Hotels Limited (the ITC Welcome Group), Indian Tourism Development Corporation (ITDC). Most of these chains had an established presence in one or more metro cities prior to the tourism boom of the 1980s. Subsequent to the tourism boom, these chains aggressively expanded their presence in other locations. The private players among the hotel chains are industry leaders and have well established brand identities across the different industry segments.

Small Chains They are companies that have come up after the tourism boom of the 1980s and 1990s. Due to lack of prior experience in the hotel industry, these players have preferred to opt for operating/management arrangements with international players of repute. Some of the co mpanies in this category are Hotel Leela Venture (with Kempinski), Asian Hotels (Hyatt International Corporation), Bharat Hotels (formerly with Holiday Inn and Hilton and now with Intercontinental). As late entrants, most of these hotel companies have fewe r properties, compared with the big chains. However most of these players have initiated expansion plans during the late 1990s. Public Sector Chains ITDC and HCI boast of some of the best locations in major cities but are relative under- performers, as compared with their private sector counterparts. International Hotel Chains They are also looking at India as a major growth destination. These chains are establishing themselves in the Indian market by entering into joint ventures with Indian partners or by entering into management contracts or franchisee arrangements. Some of the players who have already entered or plan to enter the Indian market include Marriott, Starwood, Berggruen Hotels, Emaar MGF. Most of these chains have ambitious expansion plans especially with a strong focus on the budget segment and tier II cities. Localized Hotel Companies They are mainly comprise early entrants who have an established localized presence and who preferred not to expand during the tourism boom but focus on building and catering to a loyal customer base.

Competition

In those clusters with high similarity, one group of chains had the same type of hotel in different states. Since these chains are located in many of the same locations and have the same type of ho tels, they can be considered key rivals. Their rivalry is intense because they are competing for the same type of customer in many of the same cities. As long as there is enough interaction in the same sets of cities and similarity on some

other competitive dimension such as type of hotel, the lesson for managers is that chains with a great deal of experience most likely will have rivals with similar characteristics. To avoid a potential competitive blind spot, therefore, managers should develop an affiliat ion matrix for any chain moving into the same cities as their own chain. Lack of familiarity with a chain from another nation does not mean it may not potentially become a competitor. Due to price discounting, chains in different segments can compete wit h each other. Therefore, such chains have the potential to be key rivals, given the large number of shared cities in which they have hotels. For this reason, managers should not use price alone to identify rivals. Instead, managers should start with an affiliation matrix again. It is important to keep track of chains in the same locations regardless of price/segment because they could become direct rivals in the future by being acquired by rival chains or by using price discounting. Keeping track of chains i n the same locations should also help managers with strategic decisions about when or whether to discount prices in specific hotels. The finding that size is not common among chains in a cluster implies size may not be as important to rivalry as was previously thought. The rationale for the mimetic behavior is because such firms are similar in structure and strategy, depend on the same environmental resources, and have the same constraints. The implication is that once managers have identified chains in similar sets of cities as their own, they should not use size to further distinguish between the relative threat of those competitors.
Internal Rivalry

The degrees of internal rivalry consist of competitors in the hotel industry that differentiates their strengths, cost, product offering, and positioning within the industry. In the hotel industry there is a lot of competition that takes place between different providers. Each company finds their strengths and does everything in their power to be acknow ledged by the customer. Once they uncover how they can serve their consumers better than leading competitors they position themselves in the industry that better serves the consumers.
SWOT Analysis STRENGTHS A very wide variety of hotels are present in the country.

 There are international players in the market such as Taj and Oberoi & International Chains A manpower cost in the Indian hotel industry is one of the lowest in the world. India offers a readymade tourist destination with the resources Natural and cultural diversity Demand-supply gap Government support
WEAKNESSES The cost of land in India is high at 50% of total project cost as against 15% abroad. The hotel industry in India is heavily staffed. High tax structure in the industry makes the industry worse off than its international. Only 97,000 hotel rooms are available in India today. Only limited value added services Slow implementation SNIST OPPORTUNITIES Demand between the national and the inbound tourists can be easily managed due to difference in the period of holidays. In the long-term the hotel industry in India has latent potential for growth. Unique experience in heritage hotels. Rising income. THREATS Guest houses replace the hotels. Political turbulence in the area reduces tourist traffic and thus the business of the hotels Changing trends in the west demand similar changes in India The economic conditions of a country have a direct impact on the earnings in hotel industry. Lack of training man power in the hotel industry. Fluctuations in international tourist arrivals. Increasing competition Porters Five Forces Model BARGAINING POWER Of SUPPLIERS The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services.

 The high class hotels are operating by few hotel chains like TAJ,EIH,ITC&THE LEELA PALACE so they have a control over the industry. There are no substitutes for spas and five star hotels. The hotels customers are fragmented, so they have to reduce their bargaining power to attract the customers. The Taj, ITC& Oberoi are having various rates and tariffs. Because they are having their own brand image. The hotel chains are operating different services like Spas, Boatels, Resorts, City Centers, Heritage HOTELS, etc.
BARGAINING POWER OF CUSTOMERS Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. The hotel industry is one of the most invested in its fixed assets. So they are trying to recover their amount quickly. The suppliers are providing better information about them to attract the customers . Here the buyers are highly informed. If the hotel price changes are moderate, the Customers have low margins and are price-sensitive. Some unseasoned timings the hotels are offering discounts and incentives to reduce the bargaining power of buyers. THREAT OF NEW ENTRANTS The competition in an industry will be the higher; the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The foreign hotel chains are tied up with Indian hotels to reduce the initial cost and using the latters brand name. Brand loyalty of customers like TAJ, ITC, and LEELA PALACE affects the new entrants. Access to raw materials and Distribution channels are controlled by Existing players like TAJ, ITC, and LEELA PALACE. The cost of land in India is high at 50% of total project cost as against 15% abroad. This acts as a major deterrent to the Indian hotel industry. In India the expenditure tax, luxury tax and sales tax inflate the hotel bill by over 30%. Effective tax in the South East Asian countries works out to only 4-5%.

THREAT OF SUBSTITUTES A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. Brand loyalty of customers (TAJ, ITC, LEELA PALACE, etc,) is dominating the substitutes. The hotel relationship with customer and costs also the reasons to switching to substitutes. The price variation of same class hotel services from various brands is one of the reasons to choose a substitute. The present demand and supply of hotel rooms is one of the reasons to choose a substitute. More fixed cost and switching costs affects the business. COMPETATIVE POWER OF RIVALRY PLAYERS This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. The top competitors in hotel industry are having the same services like five star, spas, boatels and motels, heritage hotels and palaces. The healthy competition among the all players is helping to increase the industry growth. Intense in metro cities, slowly picking up in secondary cities

Tangibility Spectrum

References1. Dissecting the India Hospitality Industry Lokesh Kumar 2. Reviewing The Influence Of IT Applications Such As Implementing Online Distribution Channels In Hotel Industry Farkhondeh HASSANDOUST and Mehdy FARZANEH 3. TOURISM AND HOTEL INDUSTRY IN INDIA

4. Competition in the international hotel industry - Vinitia E. Mathews