Mumbai: Mumbai-based construction firm Gammon India Ltd is entering the hospitality sector by forming an alliance with the US-based Wyndham Hotel Group International, Inc., to develop affordable or budget hotels, in an attempt to cater to growing demand for hotel rooms that has resulted in a shortage of the same in one of the world’s fastest growing large economies.
The Wyndham Group, which runs more than 6,500 hotels under 10 brands in six continents, is one of the largest hospitality companies in the world.
The agreement between Gammon and Wyndham envisages the development of budget hotel brands Super 8 and Days Inn. Wyndham will provide the brands and offer management services to Gammon India. The alliance will also help Gammon India get customers through the US firm.
“Budget hotels is nothing but a volume game,” said an executive at Gammon India who did not want to be named, because the alliance is in early stage.
“The market for budget hotels is huge in India... and, today this industry (budget hotels) is unorganized without any branded players.”
He said it was logical for Gammon India to enter this business.
“Through the construction of roads and highways, we are reaching places which are yet to be connected. So, we know the areas that are getting developed and have the potential (to support budget hotels),” the official said.
Gammon India said it has land banks and offices across the country which would be used to build budget hotels.
“It will cater to people who are looking for a clean place to stay and are always on the move,” the company official added. He declined to give investment details.
A large gap in supply and demand for branded hotel rooms in the country has led to high occupancy and room rates, even in non-luxury categories. Hospitality consultant HVS International reports that average room rates among three-star hotels grew 22.4% from 2003-04 to fiscal 2005-06, to Rs2,044 per night.
The opportunity in budget hotels has attracted large players such as Indian Hotels Co. Ltd and international majors such as Accor SA. However, land prices at suitable locations have been an obstacle to budget hotel development.
Last year, Emaar-MGF Land Pvt. Ltd paid Rs388 crore for around five acres on the outskirts of South Delhi. At such rates, budget hotels would be financially unviable, according to industry analysts.
Saurav Sarkar contributed to this story.