Budget hotels seem to be the flavour of the season. After European hotel giant Accor's proposed plan of investing in the budget-hotel segment, the US-based Berggruen Holdings, managing and investing its proprietary capital in excess of $1.5 billion, has entered the emerging budget hotels segment in India. The fund is planning to invest $100 million (Rs 450 crore) in its Berggruen Hotels venture. Berggruen Holdings will launch a new brand of boutique budget hotels, called 'Keys', in India.
Berggruen Hotels is planning to set up 38 budget hotels with 4,200 rooms across Indian cities. "I am fascinated by the Indian economy's growth. We decided to invest in the Indian hospitality sector as there has been a lack of affordable accommodation for travellers," said Nicolas Berggruen, founder and president of Berggruen Holdings.
Industry sources said that budget hotels are catering to the growing needs of the middle class and frequent-travellers like sales executives. All these years, this segment was dependant on unbranded low-tariff hotel properties and even lodges across cities. Tata's Ginger Hotels, Europe's leading hotel chain Accor, Lemon Tree and Holiday Inn Express have either launched budget hotels or are in the process of developing projects.
The demand-supply gap for this segment is so much that it can accommodate many more players. At the moment, there is a shortage of 6,000 to 7,000 rooms even as unbranded hotels have a combined room capacity of 70,000 rooms.
"There are many players, including foreign investors, who have shown keen interest in budget hotels. But the main difference in this venture is that we are creating a brand from scratch in India with the help of Indian professionals and taking it global, while others, with the exception of Ginger, are implementing their already developed products done outside and investing here in land banks of people," said Partha Chatterjee, chief marketing officer, Berggruen Hotels.
The lower tariffs are the main source of attraction in budget hotels. The rate at Ginger is Rs 999 for a single room and Rs 1,199 for a double room. Though Berggruen Hotels is yet to announce it tariffs, it will range between Rs 1,400 and Rs 2,200 across the country for a double room.
Then how to bring down cost to provide hotel rooms for less than Rs 2,000? "We will acquire land at low cost, keep cost under control while constructing hotels and finally our operation cost will be pretty low as compared to others," said Sanjoy Sethi, CEO, and Berggruen Hotels.
The budget hotels will have less but efficient manpower to handle multiple responsibilities. Critics say that considering the skyrocketing land cost, the budget hotel model will be unsustainable in the long run. "Land cost is the same. So are construction costs. How can they manage? I don't think it will be viable to invest in budget hotels," said a leading hotelier.