Retail News Update

India’s hotel industry has attracted worldwide attention on account of the country’s sizzling economy fueled by a high-octane diet that includes BPO (Business process outsourcing), exports, FDI (foreign direct investment) with most economic observers predicting that the country is merely in the nascent stage of a takeoff.

The country’s hotel industry is the subject of conferences, articles and investment attention from virtually all the big players. At tourism fora such as ITB Berlin (where India was the main sponsor) and WTM London, the country has begun to play an increasingly prominent role with a variety of hospitality providers showcasing their wares including the MICE market where India barely figures.

The challenges for both providers and customers are far too many to enumerate but a representative sample surely will include infrastructure issues such as airports, roads and the paucity of hotels. The good news about hotels is that the sector is almost entirely out of the hands of governments (local and national) and, therefore, responsive to the tremendous opportunities that are there to be had for the less than faint-hearted willing to navigate the development process.

The bad news is that opacity and corruption (apart from “black” money demanded by sellers, officials at the state and central level are known to ask for “fees” to expedite processes) in the land acquisition process combined with stratospheric prices even by Western standards make it virtually impossible for outsiders to be principal developers. A fast diminishing supply of trained labor makes operations forbidding as well.

The situation at the retail level is unfortunately not much better and arguably worse. Groups arriving with guaranteed contracts for hotels in major metropolitan areas are being denied rooms and find themselves stranded. Hotels quoting rates in US$ are known to then change it on account of the dollar’s drop subsequent to the booking!

That from cities that already rank in the top ten for average rates worldwide (the 2006 average room rate for Bangalore was a whopping $330). Corporate travelers are reacting by embracing service apartments and guest houses. For the near term though, visitors, both corporate and tourists, have to put up with the renegade behavior of some of the hotels and hope that the infusion of investment in the industry will ease the uncertainty as more inventory comes into the market.

But with some predicting GDP growth of nearly 10% per year, it is going to require a lot of inventory to reduce prices and minimize the extortionate practices of some of the rogue operators.

Vijay is Chief Operating Officer and part-founder of Apple Core Hotels- a chain of 5 midtown Manhattan hotels offering value and comfort in the heart of the city.Member of the board of Directors – Hotel Association of New York.