|Many hotel companies are turning to local partners to expand their brand presences throughout India, including markets such as Bangalore (pictured).
REPORT FROM INDIA—While the opportunities are many in India, the door to hotel development isn’t always easy to open. That’s why many major hotel chains are turning to experienced local partners to help navigate the complex financial and bureaucratic landscape.
InterContinental Hotels Group in April 2011 signed a joint venture with Duet India Hotels Group to develop 19 Holiday Inn Express hotels across 12 cities in India. IHG invested a 24% equity stake in the partnership, representing a multi-year investment of $30 million.
The first of those 19 properties opens in September.
And Wyndham Hotel Group in January 2011 entered into a master franchise agreement with Chatwal Hotels & Resorts LLC to develop the former’s Dream and Night boutique brands in India. Although Chatwal is based in New York, Sant Chatwal, who oversees the company, grew up in India and has maintained strong business ties to the country.
More recently last month, Vantage Hospitality Group announced it formed a joint venture with three experienced Indian players to launch VanMYT Hospitality. The new membership company will oversee development of the Value Inn Worldwide and Value Hotel Worldwide brands in India.
Roger Bloss, president and CEO of Vantage and chairman of VanMYT, said the expertise of his three partners is crucial to the success of the company.
“India is very difficult to maneuver,” he said. “The lending rules and banking laws are much different and unique. There are a lot of nuances to doing business in India.”
Roger Bloss, president and CEO of Vantage and chairman of VanMYT
Chris Moloney, VP of South West Asia for IHG, echoed Bloss’ remarks.
“It can take longer to open a hotel in India than in some other parts of the world. On average, it takes 43 months from signing a contract to opening a hotel here,” he said. “Some of the contributing factors are building technology, funding constraints and approvals. Hotel projects are especially complex in India because of the multitude of approvals and permissions that are required. This significantly adds to the timescales on a project.”
The IHG team learned from experience, having operated in India for 48 years. The group has 12 hotels open comprising more than 2,000 rooms in India. There are 45 hotels in the India pipeline, 75% of which are from the Holiday Inn family of brands.
“Finding the right business partner is also crucial, and partnering with the right developer is very critical to the success of a project,” Moloney said.
Vantage, a newcomer to the country, didn’t jump in head first. Bloss has been eyeing the market since 2007 when he visited the country with a delegation of members from the Asian American Hotel Owners Association. Two members from that delegation, Tarun Patel and Mukesh Mowji, now serve as VanMYT’s CFO and president and CEO, respectively.
The JV’s third partner—the “Y” in VanMYT—is entrepreneur Yogesh Patel, who co-founded Arzoo.com, an online travel agency for India’s hotel market that comprises a network of more than 50,000 domestic travel agents.
Yogesh Patel’s on-the-ground presence in India—Arzoo.com has nine offices throughout the country—provides an invaluable jump start to establishing a foothold in the country, Bloss said. It’s also one of the main reasons VanMYT came out of the gate with such lofty growth numbers.
Launched only a month ago, VanMYT expects to have 16 properties in eight cities during the first year of operation. The group expects to have a total of 133 properties by year No. 3.
“That number is going to be very real and somewhat conservative,” Bloss said. As a case in point, he highlighted his most recent trip to India before VanMYT officially launched. The team met with some 50 independent hoteliers. “If I had an agreement in hand,” he said, “I think I could have signed up half of them.”
Going it alone
Several major chains, including Choice Hotels International, have opted to tackle the challenges head on and operate directly in the market.
In 2010, Choice acquired the remaining 60% interest in Choice India and transitioned the business from a joint venture to a wholly-owned subsidiary Mark Pearce, the company’s senior VP of its international division, said. The group operates from its office in Gurgaon, headed by CEO Vilas Pawar.
Choice has not granted a master franchise agreement in the country—as it has with Atlantica Hotels International in Brazil, for example—although the chain is open to working with developers on multi-unit deal opportunities, he said.
“We are interested in working with local partners on multi-unit development deals to rapidly expand our presence in the market. Local partners can provide complimentary capabilities like offering management services as well as an infrastructure to work through the complex process for obtaining approvals, permits and licenses,” Pearce said. “Additionally, local partners may already have access to land, which becomes another advantage to partnering with local developers.”
As of 31 March, Choice had 27 hotels representing 1,545 rooms open in India. An additional seven properties with 549 rooms are under development.