Why midscale hotel chains are snapping up standalone properties
Some are even slapping on a new name as hotel chains are busy snapping up standalone properties in nonmetros — from Puducherry and Jamshedpur to Bhopal and Tirupati.
Surendra Vilas, a 46-key hotel in Bhopal, has become a Lemon Tree property. Executive Enclave, a 56-key hotel in Mumbai, has become a Bloom Boutique hotel. A number of affordable, midscale hotels in tier-2 and -3 cities have been rechristened as hotel chains such as Royal Orchid, Fortune, Fern, Sarovar and Lemon Tree are going all out with this rebranding exercise.
Consumers are seeking a name, a brand they can trust. “The budget conscious consumer is becoming brand-conscious and are willing to pay for quality and consistency,” says Chander Baljee, CMD, Royal Orchid Hotels. “They are seeking affordable yet comfortable accommodation, and are allocating more money to travel.”
Travelers often prefer midscale hotels as they offer a balance between affordability and quality, added Baljee. Royal Orchid Hotels converted 11 standalone properties in 2022.
Branding is a win-win proposition for standalone hotels and chains in the mid-segment, which is seeing a major turnaround across the country, with occupancy and average daily room rates going up. A conversion doesn’t involve a sale. It could be a management contract where the hotel owner retains the property while the chain manages daily operations; or a franchisee model where the chain provides brand and marketing support; or a lease where the owner charges a rental from the chain. Last year, there were 76 conversions or rebranding of hotels across India, according to hotel advisory firm Noesis. This is set to go up by 15% in 2023, it says.
Standalone unbranded hotels are happy to latch on to big hotel chains as owners get support in terms of distribution channel, sales, marketing, centralized purchase, trained staff, loyalty members, prudent PNL management and improved guest profile.
For hotel chains, which have their eyes on expansion and growth, converting these properties means licenses, approvals and infrastructure are ready. They don’t have to make huge initial investments nor go through a painful development cycle of five to seven years. All that needs to be done is to improve the property according to the brand’s standards.
After the pandemic, there has been a rise in local and regional tourism, and midscale hotels are benefiting from this trend. The bounceback of domestic air travel has helped hotels make a quick recovery. According to data from the Directorate General of Civil Aviation, CY2022 saw 12.3 crore domestic flyers, up from 8.4 crore in CY2021.
Says Samir MC, MD of Fortune Park Hotels, a wholly owned subsidiary of ITC: “We have a strong pipeline and will be opening many hotels in pilgrim centers and offbeat leisure and tertiary locations across the length and breadth of India by FY 2025.”
Midscale hotels appeal to a large customer base and these clients are becoming picky. Says Samir: “Consumers are increasingly becoming aware of brand, experience and quality. Post-pandemic, we can clearly see a shift in consumer preferences and there is a demand for branded hotels because of the assurance they bring.”
Fortune Hotels has a portfolio of 57 alliances across 48 cities. About 60% of these properties are in secondary markets. “We have been one of the first entrants in emerging secondary markets like Haldwani, Hubballi, Durgapur, Vapi and Dahej, to name a few, and will be shortly launching in Hoshiarpur where there are no branded hotels,” says Samir.
Over 65% of Royal Orchid hotels, too, are in tier-2,-3 and -4 cities, says Baljee. Royal Orchid has more than 80 hotels in over 50 locations. About 70% of them are mid-scale establishments. It plans to reach 100 hotels by year-end.
“Our new openings and projects are a combination of greenfield, brownfield and conversion hotels,” says Samir. “When we talk about turnaround time, it is faster to increase footprint through conversions. Of the hotels opened over the last two three years, about 50% are conversion hotels.”
Conversions help in expanding faster, agrees Ajay Bakaya, CEO of Sarovar Hotels. “Until now, we were more into greenfield projects. Now, we see a bigger opportunity in conversions,” he says. In the last two years, Sarovar has taken over nine standalone hotels —from Tulip Inn in Bengaluru to Madhuban Sarovar in Mussoorie.
“Not only does occupancy go up but ADRs (average daily rate) also improve in the range of 15-30% in micro markets after conversion,” said Nandivardhan Jain, CEO of Noesis Capital Advisors. These unbranded standalone properties otherwise struggle to get good occupancy and ADRs, he adds.
Patu Keswani, CMD of Lemon Tree, says over the next three-five years there is scope to grow average rates and occupancy of hotels, specifically in the mid-segment. Of the 14 hotels they are adding in the next 12 months, 13 will be managed and only one will be owned.
At Fern, another midscale hotel company, out of its 1,500 rooms that opened last year, 70% were conversions. Fern signed 24 hotels last year, of which seven were conversions of unbranded hotels. Suhail Kannampilly, CEO of Fern Hotels & Resorts, says going forward, too, 30% of their new hotels will be converted properties.