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Business News/ Companies / Ginger to add family-owned hotels to its network
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Ginger to add family-owned hotels to its network

Tata group chain is seeking to accelerate its expansion in key markets while keeping a close watch on profitability

Ginger is looking for 10-12 family-run hotels in Delhi and 20-25 in Mumbai. Last week, Ginger tied up with its first partner under the franchise programme, a hotel in Thane near Mumbai. Photo: MintPremium
Ginger is looking for 10-12 family-run hotels in Delhi and 20-25 in Mumbai. Last week, Ginger tied up with its first partner under the franchise programme, a hotel in Thane near Mumbai. Photo: Mint

Mumbai: The Tata group’s no-frills budget hotel chain Ginger is looking to add 30-35 small family-run hotels to its network via franchise agreements or management contracts, as it seeks to accelerate its expansion in key markets such as Mumbai and Delhi while keeping a close watch on profitability.

The company made profits on a pre-tax basis for the first time in 2013-14.

Ginger, a unit of Tata group-controlled Indian Hotels Co. Ltd, runs 30 properties across India and has plans to expand to 80 -90 properties by 2018, said P. K. Mohankumar, managing director and chief executive officer of Ginger’s parent Roots Corp. Ltd, in an interview on Tuesday.

“We are looking at family-run hotels under the franchise agreement. Our plan is to acquire 30-35 properties in business clusters in Mumbai and Delhi through this programme," said Mohankumar.

Family-run hotels are finding it hard to market themselves in the current scenario and the next generation of such families is often not keen on the hospitality sector, explained Mohankumar.

Ginger is looking for 10-12 such hotels in Delhi and 20-25 in Mumbai. Last week, Ginger tied up with its first partner under the franchise programme, a hotel in Thane near Mumbai.

This is in addition to the nine properties the company plans to open this year, adding 900 rooms to its existing inventory of 2,700 rooms. Another 15-16 hotels will be added next fiscal.

Ginger plans to raise funds for this expansion from its private equity (PE) partner Tata Capital Ltd.

“It’s not just Ginger, but several hotel chains—budget to upscale—globally are shifting to an “asset light" model through franchisee and management contracts. This shields them from higher capital expenditure," said Chetan Kapoor, research analyst (Asia Pacific) at travel consultancy firm PhoCusWright Inc. Kapoor added that in the case of a management contract, a brand’s liability is limited to running day-to-day operations, sales and distribution of the hotel. “It also allows them to have a nimble expansion—brands like Best Western International Inc. can be considered as prime examples in this category," Kapoor said.

Ginger’s plans come at a time when the World Travel and Tourism Council has projected that the Indian domestic market will see strong growth in 2014 with more Indians travelling. The Ginger brand is largely focused on domestic travellers. The domestic tourism market has become more important against the backdrop of sluggish growth in foreign tourists over the last few years. According to the ministry of tourism, foreign tourist arrivals to India grew by 5% in 2013-14 to 6.95 million arrivals, compared with 6.62 million last year.

A presentation in May by Indian Hotels, the parent company of Roots, said that the revenue per average room in the Indian subcontinent declined by 9.7% in fiscal year 2014 and hotel room rates fell by 11.3%, even though occupancies saw a marginal rise of 1.8%. Over the year, losses for Indian Hotels widened to 553.85 crore.

Ginger turned in a profit before tax in fiscal year 2014, as it moved towards a model of leasing its properties instead of owning them.

To reduce costs, the company began leasing properties where at least the shell was ready, instead of developing properties from scratch. “In India it takes at least 30 months to develop even a budget property. Through this move we didn’t have to worry about the approvals, which take almost a year," said Mohankumar.

The move also ensured that Ginger had to pay only for fitments rather than the cost of developing an entire property, thus reducing the company’s capital expenditure and the time to launch a new property, he added.

Ginger also reduced the average room size to between 250 and 300 sq. ft, compared with the industry average of 400 sq. ft for a budget hotel. Excess space was rented out to ATMs and retail stores.

Ginger also reduced payroll costs by automating and outsourcing services. All Ginger hotels have just four executive level employees and outsource housekeeping, security and even catering.

“Through these initiatives the company has been able to make 85-90% of properties deliver gross operating profits", said Mohankumar.

A senior analyst with a domestic brokerage who tracks hotel stocks, on condition of anonymity, agreed that Ginger’s strategy could hasten expansion, but cautioned that there could be other costs associated with converting an existing property to Ginger’s specifications.

Kapoor added that the company should be watchful about the quality of the properties and services, considering the brand is being represented by a third party, a problem inherent to any franchise agreement.

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ABOUT THE AUTHOR
Swaraj Singh Dhanjal
" Based in Mumbai, Swaraj Singh Dhanjal is responsible for Mint’s corporate news coverage. For the past eight years he has been writing on the biggest deals in private equity, venture capital, IPO market and corporate mergers and acquisitions. An engineer and an MBA, he started his journalism career in 2014 with Mint. "
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Published: 25 Jun 2014, 11:35 PM IST
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