In an exclusive to Today's Traveller on the future of standalone hotels in the COVID-19 situation, Nandivardhan Jain, CEO, Noesis Capital Advisors, Mumbai suggests that it is advisable to explore an option of a franchise/management with a branded hotel chain for most of the independent hotels until or unless their captive market is still intact.
Today's Traveller: What is the future of independent/standalone hotels in the COVID 19 situation? What are their options to survive?
Nandivardhan Jain: Due to the COVID-19, the hotel industry is witnessing demand contraction and it will take at least 24 months to recover fully subject to cure and vaccine. Slowly, hotels across the nation are opening up and within the next 90 days, the majority of the room inventory will be back in the market for business. Eventually, there will be momentum in domestic business but the travellers will be cautious about the hotel health & hygiene standards, its SOP's and social distancing norms to mention few. Considering these parameters travellers first choice will be to book a room with a branded hotel chain in an organised segment.
Currently, the organised room inventory in the country is 160,000 and which is less than 20% of the entire room inventory available in the market. With the contraction in demand and travellers preference towards branded hotel chains, independent hotels will struggle in getting sufficient business to survive. Under these scenarios, conversion from independent hotel to a branded hotel via entering into franchise/management contract is the most viable option.
Quite a few independent hotel owners have given our firm Noesis Capital Advisors exclusive mandates to assist them with a conversion transaction via management contract/franchise mode of transactions. In some cases, hotels which are over-leveraged with debt owners are exploring the option of debt reduction via equity dilution or sale of the asset.
Today's Traveller: Does Small is Beautiful translate into USPS like authenticity; being nimble in strategy and personalisation of service. Can they use these attributes to survive the times?
Nandivardhan Jain: There are a few standalone boutique hotels who have made a mark for themselves over time with their product, service, place, especially in leisure space. They may survive this storm, subject to the fact that they are not over-leveraged with external borrowings. There is a change in consumer behaviour where health and hygiene will be the first measure while making a room booking. It will be advisable to explore an option of a franchise/management with a branded hotel chain for most of the independent hotels until or unless their captive market is still intact.
Today's Traveller: What are the pros and cons of a hotel brand franchise?
Nandivardhan Jain: The pros under hotel brand franchise include: Hotels get immediate recognition; Regular staff training; The hiring of the right talent becomes easier as branded hotel chains have access to a wide talent pool; Nationwide extensive distribution network with multiple sales offices and cross-sales in different hotel units; Brand loyalty programme; In the case of underdevelopment, projects support in technical services which enhance product efficiency and planning; and lower commission structure with online travel agents or offline travel agents. These benefits lead to a rise in profitability which results in higher asset valuation.
The cons of a hotel brand franchise include: Compromise on your own brand name; To make a hotel franchise viable you need least room inventory size threshold limit, so for very small hotels franchise transaction could be counterproductive; During conversion exercise, the owner needs to upgrade the hotel as per brand specs; and the owner needs to check the quantum of upfront investment and needs to analyse return on investment.
Today's Traveller: How difficult is it for independent hotels to adopt best practices in areas like technology applications, safety and hygiene protocols in a touchless post COVID environment?
Nandivardhan Jain: It's not difficult or easy to adapt to best practices in areas like technology, safety and hygiene protocols. The real question is about the viability of hiring all these services on a standalone basis. Even if the hotel owner opts to do all this, in the end, the ultimate objective is to attract customers, for which you need a strong brand image and along with it, a national distribution system followed by a strong marketing campaign. To do all this at a standalone hotel unit level is just not viable.
Today's Traveller: What new revenue streams can help independent hotels to recover faster if they do not wish to align with a larger brand?
Nandivardhan Jain: In such a scenario independent hotel owners can explore the option of a change of use from a hotel to retail on lower floors, offices on upper floors, co-living, hospitals. These options are subject to technical changes in building design and planning. These options including technical and commercial viability need to be checked on a case to case basis depending on city, micro-market, demand drivers and local bye-laws.