Whither Budget Business Hotels in India?

A few years ago, in one of those ritual paroxysms that grip the Indian business community every so often, everyone decided to set up budget hotels across India. As is wont in such circumstances, serial announcements  were made, each one rivaling the previous about the number of rooms that would be set up across India in just 3 to 4 years. And as is wont again, nothing much has happened since.

Let me tell you why.

The basic premise went thus. With India’s economy booming at almost 10% growth every year there was a lot of new business activity expected. Most of this activity would require people to travel resulting in a huge  increase in the demand for mid-range and economy hotels for these itinerant business men. Given that the current capacity was all in low-end, dirty (nay, mostly filthy) ‘lodges’ that sprout next to bus stands and railway stations, there was clearly an opportunity to provide clean, hygienic, smart hotels that would provide great accommodation at a compelling price point.

Unfortunately, the script has not quite worked out the way it was intended to. Uptake has been sluggish for the few hotels that managed to get launched. And it has left a number of highly-paid heads being scratched vigorously (mostly of people who have never ever done low-end business travel in India themselves).

To understand why the whole things has been a damp squib, a good starting place would be to deconstruct the basic premise I outlined earlier. The hypothesis had the following elements:

1. Indian economy will grow

2. That will lead to massive growth in business travel

3. Most of this additional travel will be in the mid to lower end of the market

4. Evolving consumers will demand a new product in business travel accommodation

5. This ‘new’ product will be ‘hygienic, smart, functional’ rooms at around Rs 1000/- per night cost

My guess is that the first four elements of the hypothesis turned out to be broadly correct although probably much lesser in extent or speed than envisaged in business plans. Extensive reading of hotel reviews on HolidayIQ, lots of conversations with actual consumers and my own personal experience of low-end business travel back in my CA student days suggests to me that the problem is primarily in point 5 above.

We all agree that the average Indian budget business hotel (the ‘lodges’ we talked about) is extremely unhygienic and generally unkempt. But that is to miss the primary value they provide. In addition to providing a room with a bed to sleep on, these lodges provide travellers with a perception of being important. In classic Indian ‘high touch’ style, there are multiple minions (the quintessential ‘chhotus’) who hover around the traveller and cling on to every word and take barked orders with meek accetance and generally scurry about. This sense of finally being a VIP is the biggest value provided by small business hotels to small businessmen. And it is precisely this value that has been lost in the new breed of hotels. With their policy of no room service and general parsimony towards having employees, this new breed of ‘hygienic and smart’ hotels are exactly what their target customer wants to avoid. After all, who wants to walk into a people-less hotel and realise that one is truly unimportant.

And in this lies their failure.

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6 thoughts on “Whither Budget Business Hotels in India?

  1. Hari your insight is something that has never occurred to me on the psyche of the small business traveler and sense of importance he wants when traveling. The first four have been broadly right as you said. Now you have something there, i dont know this for a fact and it something we must research about in our upcoming India survey. I like this hypothesis of yours

    So what you are saying is that an Indian Rs 2000 – Rs 3000 offering with high touch service is critical in India. But these products no-frills would be great for leisure customer who is out most of the day.

    And we have not seen enough of the quality budget properties ( RedFox etc has two and Ginger isnt done too badly either) to really assess the failure of no-frills hotel offering.

  2. The current trends the customers are looking is value of money, for Ex Rs.2000 for Low Frills Hotel and Rs.2500 for full services hotel, the customer prefers full services hotel. But the prices needs to be corrected as maximum dilution still happens on OTA,OTA is using the profits for their marketing and hotel is missing out the real revenue on their own site due to lack of marketing. Compared to city hotel like Bangalore / Mumbai / Delhi – Goa, Kerala and Himachal is 10 years behind. In Goa Charters sell at half the price, compared to domestic market. Most of the hotels do not use revenue management, our hotels are very highly priced compared to US, South East Asia etc and quality of hotels have improved very recently.

  3. i completely agree with your insights into the mental makeup of the small business traveler who is the focus of the ‘budget hotel’ bracket
    this is a guy who at his enterprise confirms himself to a ‘Lord’, he has built a system around him where he is served by ‘specialized’ footmen
    his importance is established by how well and by how many he is served, and the count here is not just his footmen; his success is consolidated by how quickly he can get people to do his bidding without a question of reason
    it is but this intrinsic nature that will keep him out of a self serviced, sanitised hotel.
    the make-up of the product appeals to him but not the shopping experience : so if this gentleman of the ‘SBBT’ is to be enticed into spending more than what he usually does then he needs to ‘feel greater’ than what he did in the ‘lodge’ that he would otherwise have stayed at.
    i think the hospitality industry should take a few pointers from the way Indian Banks are making themselves appealing to us Indians!

  4. Hari you are right .. indians want personlized service as they are used to it; not only during hotel stay but also elsewhere in their life. The problem is that by not giving these Hotel owners save very little as labour costs are already low. On the other hand they spend more in getting good location and thus try and covert Hospitality business into a real estate business.. Which is not likely to work. What we need is upgraded budget hotels where people are willing to pay a bit more for better maintenance. There is big class of customer willing to go for this .. and i have experienced the same with popularity of serviced apartments. We need to find a golden mean of service and price ……

  5. i agree with the first four points which will lead to growth of budget travellers looking for affordable accomodations at leisure destinations. My view is that travellers would like to take multiple breaks a year and that will also fuel the growth of affordable stays. I think as tourism business has seasonality factor which is leading to growth of smart hotels but as rightly pointed by you the travellers are not staying in numbers to encourage other players to come up with new hotels. The critical factor to the growth of this segment is increase in the supply of homestays, farmstays, guest houses which works on surplus labour available at household level, incremental cost of building new infrastructure is low and is profitable at lower occupancies.

  6. A bit off-topic of biz hotels but kinda related…I have been lunching at Au Bon Pain of late and I noticed a strange phenomenon. Kinda similar to your hypothesis, Hari about the high touch VIP-like expectations of Indians. ABP is designed to be a ‘self-serve’ place. You pick a tray, order your grub, pick it up from the counter, head over to the payment counter and then find a table and sit. For second helpings of soup, you haul your ass to the pot.

    None of this happens. Folks walk in, plonk themselves on sofas, wave frantically at waiters – who are standing around to guide you and answer questions, not wait on you. But they land up doing just that. At the end of the meal, you are expected to pick your tray and empty the trash in the bins located in the premises. Most folks leave them on the table and walk out belching out loud…

    Incredible India and the incredible Indian Psyche. 🙂

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