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Industry Analysis - Business Information Services 1

DisclaimerThis note entitled Snapshot: Hospitality Sector in India has been prepared by e-Research and Publications India Private Limited (eRPl) .This snapshot is intended to provide the reader a flavour of the hospitality sector in India and has been prepared based on secondaryresearch supported by an analysis at eRPl. Prior to undertaking any business or investment decisions, further detailed investigations /studies are recommended. eRPI does not accept any direct or indirect legal liability of any kind. This note remains eRPIs intellectualproperty and no part may be reproduced or circulated without the prior permission of e-Research and Publications India Pvt. Ltd., 2nd Floor,MN Plaza, 15/16, 3rd Cross Street, Kasturibai Nagar, Adyar, Chennai 600020, India. For queries or comments, please email [email protected]

Snapshot: Hospitality Sector in India

Introduction

India is ranked 11th

among attractive destinations in the

Asia Pacific region according to World Economic Forum.

The country is witnessing buoyant domestic as well as

foreign tourist arrivals. Foreign tourist arrivals increased

from 2.4 million to 5.1 million during 2002 to 2009

despite a minor dip of 3.3% during 2008-09. The

domestic hospitality sector accounts for about 2% of the

countrys GDP.

The countrys rich heritage, traditions and diverse

cultures together with varied landscapes and delectable

cuisines are major tourist attractions. Over the recent

years, a range of niche tourism products such as

heliport tourism, wellness tourism, adventure tourism

and cruise tourism have been introduced and well-

received.

Apart from leisure tourism, business travel to India is

also on the rise owing to the robust economic growth.

The rise of IT/ITES sector is seen as the key driver for

increase in business travelers. Large number of

conferences, seminars and trade events being

organised in the country have helped to bring in

business delegates from across the world.

India is now an established hub for medical tourism

owing to world-class service at affordable costs. In order

to encourage medical tourism, the Government has

introduced a new category of Medical Visa for patients

and their attendants coming to India for medical

treatment.

Foreign exchange earnings from the tourism sector

reached INR 55 billion in 2009 registering a CAGR of

around 20% since 2002. Publicity campaigns such as

Incredible India launched by the Ministry of Tourism

along with the Governments thrust on the aviation

sector and implementation of green-field and brown-field

airports across the country have had a positive impact

on the tourist arrivals.

Several International hospitality majors have entered

into the Indian market through alliances with existing

players or through acquisitions. Going forward, the

hospitality industry is set to expand in tier II & III cities

with suitable project mix to leverage opportunities.


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Sector Classification

Based on the facilities and services offered, the hospitality sector can be classified as:

Source: eRPI

Overview

The hospitality industry is broadly classified as hotels and restaurants and overall industry was valued

at INR1,255 billion (2009-10)Hospitality Sector: Market break-up, 2009-10

*Others

2.2%

Restaurants

33.3%

Hotels

64.5%

*Others include serviced apartment, time share& beach resort, etc.Source: eRPI estimate

Total INR 1,255 billion

Hospitality Sector

RestaurantsHotels Service apartments/ timeshare & beach resort

Star

CategoryHotels

Heritage

Hotels

FullService

QuickserviceBoutique

hotels

Dhabas/street

kiosks

Cafes/bars


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Hotels and restaurants together have a significant presence in the hospitality sector

The domestic restaurant sector is growing steadily and multi-cuisine restaurants, kiosks and food joints

and sprawling food courts are popular formats in urban areas Serviced apartments, time share and beach resorts are the emerging hospitality formats and currently

has a small market share

Segment details

Hotels

Hotels offer rooms and food & beverage facil ities and the domestic hotel sector was valued at around

INR 810 billion in 2009-10

The sector is fragmented and has a large presence of unorganized sector

o The unorganized sector is prevalent in a variety of formats such as low-priced motels,

guesthouses, lodges, etc., and offer services comparable to 1,2 & 3 star category hotels

o The organised sector accounts for about 30% of the total hotel market (INR 810 billion) and

comprise of star category hotels along with heritage and boutique hotels

Organised hotels market: Breakup by value, 2009-10

2&1 Star

23%

Heritage &

Boutique

1%

4 Star

8%

3 Star

13%

5 Star

55%

Source: eRPI

Total INR 243 billion


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Upscale hotels including 5-star hotels, heritage hotels and boutique hotels account for over 55% of the

total market for hotels

Budget hotels, usually the 1 & 2 star category hotels, are popular among businessmen and domestictravelers for their quality service at affordable price and seasonal offers

o Budget hotels are also popular among domestic pilgrims and are widely present across pilgrimage

locations in India

Hotel room occupancy rates vary on a seasonal basis and the May- August period usually has lower

occupancy; the average annual occupancy rate across the country was estimated at around 63.1% in

2008-09

Delhi-National Capital Region (Delhi-NCR), Mumbai, Bangalore, Pune, Goa, Ahmedabad, Kolkata,

Hyderabad, Chennai and Jaipur are the traditional hubs for the hotel sector in India

With the opening of the economy, emergence of the service sector and improvements in the

infrastructure, the hotel industry has expanded into secondary locations including Ahmedabad,

Chandigarh, Coimbatore, Kochi, Shimla, Thiruvananthapuram, Vadodara and Vishakapatnam

There are over 160,000 hotel rooms and guesthouses spread across the country and the room supply

is expected to grow at over 15% during 2011-13

Hotels : List of approved hotel rooms across India, 2010

Category No of Hotels No of Rooms

5 Star Deluxe 71 16,105

5 Star 76 9,261

4 Star 73 6,176

3 Star 304 13,955

2 & 1 Star 128 1,833

Heritage 48 1,454

Others* 8 577

Total 708 49,361

* Others include guest houses and apartment hotelsSource: Ministry of Tourism


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India is currently facing a short fall of over 100,000 rooms across all hotel segments leading to a steep

rise in the average room rent

Delhi-NCR and Mumbai together account for close to 50% of the total demand for hotel rooms acrossthe country

Hotels: Average Room Rent across top 7 cities, 2007 - 09 (INR / room)

Occupancy (%)Average Room Rent

(INR)

2008-09 2009-10 2008-09 2009-10

Bangalore 56.5 52.6 9757 6766

Chennai 64.6 65.6 4678 4083

Goa 61.7 63.1 5378 4757

Kolkata 69.6 64.5 5342 4880

Mumbai 71.2 67.2 6822 5833

NCR 64.8 64.6 6087 6985

Pune 65.5 53.2 4951 3921

Source: FHRAI

Hotels sector: Projects planned

Name of the Company DetailsInvestment(INR billion)

Lemon Tree HotelsTo open seven hotels across India by2013

51.6

Hyatt Hotels CorporationTo open about 30 hotels across India intier II and III cities by 2015

n.a.

Royal Orchid HotelsTo add seven hotels in India to its present15 properties by 2011

2

Indian Hotels Company To set up 50 Ginger brand hotels by 2014 n.a.

Indian Tobacco CompanyTo invest in hotel sector in India during

2010-20

90

n.a. not availablesource: secondary sources


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Key Players

The Indian hotels market has a significant presence of large domestic players such as TheIndian Hotels

Company Ltd., ITC Welcome Group, The Leela, Oberoi Group, Lemon Tree Hotel Chain and Ashok Group

of Hotels

Hotels sector: Key players, 2008-10

Company BrandsNo ofHotels

The Indian Hotels Company Ltd.Taj Hotels, The Gateway Hotels, Ginger Hotels,Vivanta

100

East India Hotels (Oberoi Group) The Oberoi Hotels 11

ITC Ltd.Welcome Hotels, Sheraton Hotels, FortuneHotels

100

Hotel Leela Venture Ltd. The Leela 6

Indian Tourism DevelopmentCorporation Ltd.

The Ashok Group of Hotels 16

Source: company websites, annual reports

Multinational hotels with a strong presence in India are Hyatt, Carlson group, Hilton Hotels, Mariott

International Inc, Wyndham Hotels & Resorts and Intercontinental Hotel Groups. Around 20 new

international hotel brands are expected to venture into India during 2009-11.


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Restaurants

Restaurants - Overview

The restaurant market in India is estimated at around INR 418 billion and accounts for around 33% of

the hospitality industry in the country; the sector is witnessing a growth of around 12-13% per annum

The restaurant sector is labour-intensive and provides direct employment to around 5 million people

The sector is fragmented and organised sector accounts for less than 20% of the overall restaurant

market in value terms and is witnessing a high growth of around 20-25%

The restaurant sector operates in a number of formats ranging from fine dining and gourmet food

restaurants, food courts, cafes, lounges and bars to fast food restaurants, take-away kiosks and road-

side joints called dhabas

The domestic restaurant sector largely comprises of stand-alone/ independant restaurants offering fullrange of services with dine in format

Restaurant chains are entirely in the organized sector and are slowly gaining popularity

Restaurant chains maintain similar ambience, menu and quality and standard of service across all

their outlets

Popular domestic restaurant chains across formats include Barista, Mocha, Rajdhani Group,

Speciality Restaurants Pvt. Ltd. and BJN Group

Caf Coffee Day, a caf chain established by the Amalgamated Bean Company, has the highest

number of outlets in the restaurant sector in India


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Restaurant Market: Break up by format type, 2009-10Total: INR 418 Billion

Quick Service

Restaurants*

14%

Full Service

Restaurant

56%

Others**

19%

Cafes/ Bars

11%

Source: eRPI*includes fast food and pizza**includes dhabas, street stalls and kiosks, retail, home delivery and, take aways

With integration into global markets, the Quick Service Restaurant (QSR) format has witnessed the

entry of many multinational players; these include McDonalds, KFC, Subway, Dominos Pizza and

Pizza Hut

Services offering take away/ home delivery options are expected to witness growth of around 15% per

annum over the next two years


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Given below are some of the organised players across formats and their number of outlets:

Organised Restaurant sector: No. of outlets/ Players, 2010

Player Format No. of Outlets

Caf Coffee Day Caf 845

Baskin Robbins Ice Cream Parlours 350

Dominos Pizza QSR 296

Barista Caf 232

McDonalds QSR 169

Subway QSR 151

Pizza Hut QSR 147

Kentucky Fried Chicken QSR 72

Speciality Restaurants Pvt Ltd Full Service Restaurants 48

BJN Group Full Service Restaurants 40

Encore Hospitality Full Service Restaurants 32

Source: NRAI

Restaurants - Recent Developments

Name of the Company Details

Yum RestaurantsTo open 100 Taco Bell restaurants in metros, tier II

and tier III cities by 2015

Specialty Restaurants Pvt. Ltd.

Plans to expand of its flagship brand Mainland China

to 100 outlets in the next two years from the present

32

Cocoberry, New DelhiTo expand into metro and tier-1 cities by 2012 at an

investment of around INR 1.2 million

Kentucky Fried ChickenTo expand to 500 outlets by 2015 at an investment of

around INR 142.23 million

McDonalds To open around 180-190 restaurants by 2015 at aninvestment of around 7.5 - 8 billionSource: secondary sources


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Other segments - Serviced apartments and Timeshare resorts

Serviced apartmentsare furnished apartments that provide temporary accommodation with full-rangeof amenities and are popular among the business travelers and medical tourists who stay over

prolonged periods of time

Serviced apartments are relatively cheaper by around 20% compared to hotels for longer stay periods

Premium brands like Marriott, Oberoi, Oakwood and Leela are entering the luxurious serviced

apartments market in major metropolitan cities

o Taj Wellington Mews, Lakeside Chalet Marriott Executive, Apartments, Star City, Blossoms

and Seasons Apartments are some of the noted players in the serviced apartment sector

Time share resortsare gaining in popularity with rise in domestic tourism; the market is currently

estimated at around INR 5 billion

The domestic time share sector is organised with the presence of around 45 players;

RCI India is the leading player in the segment with 90 hotels and resorts across the country; Club

Mahindra is the other noted player

Key Trends and Drivers

Integration with global markets and rising disposable income are the key drivers of the hospitality industry.

Some other drivers and trends include:

Increase in per capita disposable income

Robust economy stimulating business related travel across the country

Growth in media leading to increasing awareness about diverse tourist locations

Availability of well-connected travel & tour service providers offering a wide range of services

Improved infrastructure and accessibility to tourist destinations and pilgrimage centres

Easy holiday financing and attractive tour packages

Improved aviation infrastructure and attractive air fares

Large population in the 18-24 age groups leading to rising trends in socializing and eating out

Large scale events like the recent common wealth games held in New Delhi


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Future Outlook

Despite a slowdown due to economic recession in 2008-09, the hospitality sector is set to witness an

upward trend in growth in the coming years.

Meeting, incentives, conferences and events (MICE), a concept of combining work with pleasure, is a

trend that can be seen more in the hotel industry in the coming years

Star hotels accommodating external brands of restaurants, spas, lounges are some of the innovative

methods that can be seen common in the future to boost the occupancy rate

The economically feasible mixed-use hotel development and green hotels are going to prevail more in

the hotel industry in the future

Governments initiatives like allowing 100% foreign direct investment in the real estate and

infrastructure is expected to drive the hospitality industry

Budget hotels and serviced apartments are expected to witness a robust growth in the future More unorganised restaurant players are expected to move into the organised segment in the coming

years

Traditional Indian concepts of Yoga, Arurveda, Siddha and Homeopathy are being promoted and

health tourism is expected to witness high growth

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