BANGALORE, India—Indian hotel group Royal Orchid Hotels Limited is moving ahead with its expansion strategy.
Company president Keshav Baljee, who is deeply involved in driving the expansion process of the group, said the immediate focus is on opening hotels in such locations as Hyderabad and Jaipur in India. Royal Orchid is also looking at development in Tanzania in Dar Es Salaam and Powai in India.
Baljee was instrumental in turning the group into a hotel development company. His involvement in expansion extends to include evaluating and selecting from the funding sources in the market.
Royal Orchid Hotels
“We have funded our expansion with a mix of our IPO proceeds, internal accruals, and short- and long-term debt,” Baljee said. “Currently, all of our pipeline for the next 12 months have achieved financial closure. In the future, we expect to raise approximately Rs 150 crore (US$32.3 million) via debt and equity to fund future expansion and development.”
“Our expansion is now being underpinned by management contracts,” he added. “While a significant amount of investment has gone into hotels under construction, we expect a majority of our future development to come from the management contract route.”
Royal Orchid will expand using the following contracts:
- long-term leases of hotel properties, with revenue sharing options;
- management contracts;
- joint ventures; and
- fully-owned/outright purchases.
Targets for expansion
The group is opening the following 5-star business Hotel Royal Orchid properties: 266-room Hotel Royal Orchid, Hyderabad (2010); 139-room Hotel Royal Orchid, Jaipur (2010); 150-room Hotel Royal Orchid, Dar Es Salaam, Tanzania (2011); and in Shimla, India (2012).
For its lifestyle/business hotel brand, Royal Orchid Central, the group plans to open the following: 108-room Royal Orchid Central, Shimoga (December, 2010); 250-room Royal Orchid Central, Mumbai (2011); and New Delhi (2012). In addition to this, there are plans for Royal Orchid Suites, Hyderabad (2011) and the 60-room Royal Orchid Resort, Mussoorie (October, 2010).
Royal Orchid looks at several criteria when considering expansion.
“We are going ahead with important cities for business hotels in India,” Baljee said. “Preferably cities that have a synergy with our existing portfolio of hotels. Also, we typically do more than one brand of ours in a city, which leads to cost savings and better sales and marketing. Finally, the specific property value proposition determines if we go ahead with a transaction to set up a hotel in a particular location.”
The group’s tagline is “Expect More.”
“This is reflected in our product and service strategy, where we constantly try to exceed our guests’ expectations,” Baljee said. “Our products are comparable with international hotels as we source materials from all over the world. Our service is humble, efficient and pampering. In terms of communications, we engage with our guests in all touch-points, whether online or offline. We rely mostly on direct communications with our key clients, as we feel this is the most personalised way of communicating.”
“Our brands are faring well in terms of occupancies,” he said. “Currently, we are averaging over 60% across our 13 hotels in seven locations. We expect this to rise substantially once the high season of October-March comes around. Our pricing strategy is dynamic, and we have a team of revenue managers to oversee our response to market trends. We price ourselves quite moderately, as we neither would like to be the most expensive nor the cheapest in any market. We would like our products and service to attract our clientele, and not the price.”
Royal Orchid is seeing a rapid increase in supply across all major hotel markets in India, Baljee said.
The main challenge is to sustain momentum in such a scenario. Most importantly, one must not be tempted to go in for self-defeating rapid price cuts, he said.
“The increase in supply has actually helped us substantially—there is a huge amount of supply that is looking for a strong, stable, domestic brand to operate their hotels,” Baljee said. “As we have over 11 sales offices across the country, our ability to drive ... occupancies anywhere in the country is very strong. Therefore, we have benefitted by signing management contracts across the country in this period, and expect to continue to do so in the future.”
He added: “We expect the Indian market to grow this year, despite the increase in inventory. This is with the exception of a few markets which will see a de-growth this year due to the rapid influx of supply. As we are adding a significant amount of inventory by the end of this financial year, we expect the next financial year to be a very significant and strong one for our company.”