Sector AnalysisHospitality

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Aditya Goyal, BITS Pilani

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Hospitality

Hotels

Hotels

Star Rated

Heritage/Others

Budget

Restaurants

Fast food Chains

Fine Dining

Contract Caterers

Event Planning

Transportation

Travel and Tourism

Travel

Tourism

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Global Outlook Heavily dependent on economic sentiment because

sector relies on non essential spending.Highly volatile sector, due to high sentimental value and

perception which depends upon calamities, governmental policies and current affairs.

Significant source of foreign exchange earnings for economies.

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Value Chain Analysis

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HotelSector In India

Contribution to GDP was $132.5 billion in 2015

Third Largest Foreign Exchange Earner for India

Contributed 6.23% of National GDP

Contributed to 8.78% on Total Employment

Annual Growth Rate of 14%

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Strengths Weaknesses • Rich diversity offers an ever

increasing domestic and international demand.

• India provides cheap labor, the industry being labor intensive.

• Demand to increase throughout the decade due to rapid increase in urban middle class and business class.

• Poor existing infrastructure and connectivity

• Very high taxation, with inclusion of Service Tax, VAT and Luxury Tax (around 23%)

• Negative public image, concerns of safety and hygiene

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Porter’s 5Bargaining power of SuppliersProperty owners, developers, interior designers, availability of skilled employees and managers, food and beverages suppliers, aviation industry.Low due to availability of multiple options which ensures competitive pricing and service, both in hotel and tourism industry.Bargaining Power of ConsumersHigh due to multiple options available with low switching costs. Consumers exercise low brand loyalty, as product differentiation also remains largely low.

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Threat of SubstitutesNegligible. No prominent or visible substitute.

Threat of new entrantsModerate due to high initial investment and capital (land, furnishing, labor). 100% FDI in the sector has prompted new international players to expand business in country bringing large investment. Moreover, budding startup culture and internet sensitivity has led to emergence of new innovative players like Oyo rooms.

CompetitorsHigh competition in most segments, with some segments reaming untapped. Extensive marketing required, with constant innovation and renewed user experience, to remain in fray. Online bookings has further increased competitiveness.

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Current ScenarioThe government has been playing a proactive role in promotion of hospitality sector in recent times. Some of the government initiatives worth mentioning are- Rapid extension of E- Tourist Visa to many high tourist supply states(43 countries) 100% FDI in the sector. The launch of several branding and marketing initiatives by the Government of

India such as Incredible India! and Athiti Devo Bhava have provided a focused impetus to refurbish image.

A five-year tax holiday has been offered for 2, 3 and 4 star category hotels located around UNESCO World Heritage sites (except Delhi and Mumbai).

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Another important feature is the emergence of India as a hub for Medical Tourism, especially in poor African and Asian markets.  

The budget this year was mute on the needs of the sector. The long impending demand of this sector to trim the service tax and the luxury tax hasn’t been addressed with no such indications in the future. It is notable that taxes in India account to 20-30% in this industry compared to 2-5% in comparative Asian markets

 

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Effect of Macroeconomic Factors• Low dependence on GDP and Interest Rates• High Dependence on Inflation and Governmental Policies.

The sector has been grealtly underperforming in last few years and has remained under stress. Higher Taxes and Tarnishing Global image has led to dramatic fall in Tourist inflow which has caused a high reduction in Room Occupancy Rate and led to a Surplus Supply with the balance still unrestored.

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Major CompetitorsLuxury Segment

Oberoi and Trident Hotels – Wadia Group

Taj Hotels – Tata Group

ITDC – Indian Tourist Development Corporation

Others- The Lalit, Leela, Marriott, Radisson

Thank You!!