Home >companies >people >Slow economic growth delays Marriott’s India expansion plan: Simon Cooper

New Delhi: Simon Cooper, president and managing director of Asia Pacific at Marriott International Inc., said the company’s plan to run 100 hotels in India by 2015 has been delayed because of slowing economic growth in the country. The hotel operator now expects to reach the target by 2017-18, Cooper said in an interview. Edited excerpts:

Are you on target to operate 100 hotels in India?

About two years ago, our chief executive officer did say that we would have 100 hotels by 2015, when India’s GDP (gross domestic product) was growing at 8% and the economic climate was a lot better. That time we had just announced our investment in the joint venture to grow the Fairfield brand. That joint venture is still going on, we have one Fairfield open and 12 signed, but we are probably behind pace on that 100. We have rejigged it and think it will be 2017-18 by the time we will get there and that is more of the reflection of the slowdown.

How is India faring when you compare it to other countries in Asia Pacific?

The challenge in India is the cost of money. India has extremely high interest rates, and the higher the interest rates, the slower the development would be. From that point of view, India is one of the most challenged economies in terms of hotel development. Land cost is very high. After Japan, India is the second in terms of ratio of land to total deal cost. Land could be 50-60% of the cost in India. You get high cost (of land) in Tokyo, but then it has higher average (room) rates of $700-$800. Land prices and interest rates, these two things remain probably the main reasons for slowing down hotel development in India.

What is the biggest opportunity in India?

For the opportunity in India, you only have to look at demographics and wealth creation that is occurring even at 5-6% GDP growth. It is not only about shifting in the middle class, but also about shifting into a situation where people have disposable income. Travel kicks in as the most desirable thing to use the disposable income on, once you have got other basic stuff. Even as there was a melt down of one major airline, there has been a dramatic increase in air travel over last few years, which makes India overall very attractive. The biggest asset that India has is 8-10 million people coming in the workforce every year, which is probably also the biggest liability. No other country has a literate, relatively well-educated, 8-10 million people entering the workforce. You put those hands to work, it will be the huge long-term opportunity for India. If you don’t, you have got a big problem.

What are your short-term goals for India?

We would be opening seven hotels by the end of this year. We have a consistent pipeline of 6-8 hotels across our brands opening every year. We have already invested $30 million in the partnership with Samhi (Samhi Hotels Pvt. Ltd) to develop Fairfield. We don’t invest in real estate but we would always invest in some form in a market segment we think needs a stimulus to get ahead or get a management contract. For example, for our global brand Edition in London, Miami and New York, we nearly used $1 billion of Marriott’s balance sheet. They are under contract at present, but the plan is to sell those, because we don’t like to hold assets. We clearly have an asset-light strategy. We would enter in the market (invest) for a period of time, but our strategy is to always get out of real estate.

Some projects have slowed down a little bit and new deals coming in—in the last two years—was also slower than we had anticipated. At present, we have 50 new deals in India. These 50 range from hotels that might be ready to open to the deals which might have been signed.

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