ITC Welcomgroup's Chola-era inspired hotel in Chennai, the Grand Chola, has a 100,000-square-feet banquet hall ready for weddings and red-carpet events. The recently opened Kempinski hotel in New Delhi has a ballroom large enough for 6,000 guests. Grand pavilions are also central to other new hotels like the Taj Vivanta in Gurgaon and the JW Marriott in Delhi's Aerocity.
These hotels boast of many other attractions - rooms with large windows, adjustable lighting and spa treatment - but the banquet halls are the most noteworthy. It's not difficult to see why. In Delhi alone, about 5,000 five-star weddings take place in a year. Each wedding can result in a business of at least Rs 20 lakh - rooms, banquets and food. That makes it a market of Rs 1,000 crore in a year. A large chunk of weddings takes place in the farmhouses on the outskirts of the city or in nearby cities like Jaipur and Agra.
In a market that is getting more and more competitive, this is the newest gambit that hotels are using to survive. There was an increase of 15 per cent in the hotel room inventory in the country in 2011-12, taking the total supply to over 96,000. As a result, the occupancy level has remained almost static. Nationally, occupancy levels rose 1.9 per cent, while the average room rates increased 2.2 per cent. But in most large cities, including Delhi, Mumbai and Chennai, there has been a drop in occupancy by around 10 per cent and the average room rates (ARRs) have seen a decrease of around 5 per cent, according to industry experts.
Growing mismatch
And the competition will become more intense in the days to come. By 2017-18, the total room supply in the country is expected to grow to 175,980. Nearly 36 per cent of these rooms are expected to be in the mid-budget segment and 18 per cent in the luxury segment. Delhi, which has a branded room inventory of 11,000, is set to see an addition of over 5,000 rooms after the Aerocity project is ready. The markets where inventory is expected to rise significantly are Bangalore, Chennai, Kolkata, Goa, among others. This would keep ARRs under check for some time till the supply balances out against demand. In the short run, industry experts say that the demand and supply gap in the sector could widen with more supply coming in the market. "It is a cyclical business. The supply will take a couple of years to absorb," says P R Srinivas, senior advisor, HTL Capital Advisors, an consultancy firm.
That's worrisome for the hospitality sector, especially as traffic is slowing. In 2012, foreign tourist arrivals grew just 5 per cent. By comparison, 2011 saw a 13 per cent rise in tourist arrivals. Travel for work, too, has slowed with companies going on a cost-cutting mode. They are increasingly making do with tele- and video-conferencing, instead of face to face meetings. Some have even set up their own guest houses or taken studio apartments on rent.
But, while business may be down, it has not stopped hospitality chains from opening up new hotels. Almost 60 per cent of the new hotels have opened up in the last five years -in the thick of the slowdown. The saving grace for new and old hotels alike has been the restaurants and banquet halls. Hotels are, therefore, rushing to tap this market. As a result, the share of banquets and food & beverage in the total revenue of hotels is steadily rising. From 33 per cent in 2007-08, it went up to 38 per cent in 2011-12. At the same time, the share of revenue from rooms has fallen from 61 per cent in 2007-08 to 55 per cent in 2011-12. "There is a dearth of good convention centres and banqueting space for both marriages and business events. In a local market such facilities stand out," says Srinivas.
Amit kumar singh
PGDM 2nd sem.
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