In the United States, big hotel chains get to float above the fray. India brings them down to earth.
At home, and in some markets abroad, companies like Marriott International, which owns the Courtyard and Fairfield brands and Starwood Hotels & Resorts, owner of Sheraton and W, have virtually eliminated real estate risk.
They have sold all or most of their own hotels, and instead make money by franchising their well-known names. This business strategy of minimising in-house resources is known as ‘asset-light’.
But in India, hotel companies are finding it hard to grow without getting bogged down in bulky assets like land and, well, hotels. “All the brands, they still want to do the asset-light model, but they understand in some cases the price to pay for entry is to put some capital, some equity into it,” said Sri Sambamurthy, whose real estate firm West Point Partners is investing in India.
In India, foreign operators see providing affordable lodging for middle-class domestic tourists and business travellers as the best growth opportunity, as the country already has a longstanding luxury hotel tradition.
The key to developing mid-level product lies in quickly building enough properties that consumers become familiar with the brand and confident that they will find the hotels where they need them.
Hilton acknowledges that expansion in India requires more investment in staffing and support to owners. Hilton does not intend to invest in any of the properties that carry its brands. But doing business in India still implies an unusual degree of commitment from foreign brands.