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The decimation of India’s small hotels

Preliminary data from the Hotel Association of India suggests that more than 40% of hotels have shut since the outbreak of the pandemic. (Photo: Hindustan Times)Premium
Preliminary data from the Hotel Association of India suggests that more than 40% of hotels have shut since the outbreak of the pandemic. (Photo: Hindustan Times)

  • The tried-and-tested business model of small hotels has been undone in a matter of months. What lies ahead?
  • Some of the hotels have, however, adopted measures such as starting home delivery services or renting out space to restaurant chains to help them survive these tough times

NEW DELHI : Sanat Relia, owner of the three-star Budget Inn chain of hotels in Surat, has had his share of business setbacks. After all, he has lived through the fallout from the 2001 Gujarat earthquake as well as the communal violence that rocked the state the following year.

Earlier this year Relia, who is the vice-president of the Surat Hotels and Restaurant Association (SHARA), thought that he had weathered the covid-19 pandemic too. His 35-year-old family-run business had so far thrived because of the frequent business trips by small business owners, diamond merchants and traders to Surat, but in recent months, things had changed. Business had crippled, but somehow Relia was able to tide over the harsh conditions.

Then, the second wave of the pandemic arrived in the spring of 2021. Relia isn’t sure if history is a reliable guide anymore. He has been on the lookout to sell one of his properties, which has been badly hit due to repeated lockdowns. “In the first wave, we exhausted our savings and did not have the cash reserves to absorb the shock that came with the second wave of covid. Second wave ne hamari kamar tod di (the second wave has broken our back)," said Relia.

Surat, known for its diamond-cutting and polishing industry, attracts thousands of traders from cities such as Ahmedabad, Baroda, Mumbai and Delhi. Companies such as Essar Group, Larsen and Toubro Ltd and Reliance Industries Ltd have also set up factories here, which means that it acts a corporate hub for those who travel frequently for work. “Around 80% of our occupancy came from these cities (in Gujarat and Delhi/Mumbai) and the rest was from Pune, Bengaluru and Chennai. With work-from-home becoming the new norm, business travel has taken a massive hit," said Relia. Budget Inn is a modest hotel that provides out-of-town business travellers the ‘no-frills’ kind of environment that they prefer.

In fact, it is like any other hotel one would find in industrial cities across the country. With an availability of 30 to 50 rooms, such establishments are heavily dependent on corporate executives and small business owners who are used to making multiple visits to industrial cities. The clientele is constituted by a niche group that has specific requirements. Usually, all they are looking for is a place that is clean and well-kept, serves a standard breakfast and is close to the city centre. The location is often a key selling point. These hotels offer no scenic views, swimming pools, banquet halls or sports facilities for children. Naturally, they couldn’t pivot towards a ‘staycation’ or ‘workcation’ model, which has become rather popular in the post-covid era.

With travel picking up following the easing of restrictions in many states, the prospects of these hotels should ideally be getting a boost. However, a majority of the new bookings are expected to benefit bigger branded hotels and private stays, as consumer preference has dramatically shifted. The “revenge travellers" who are fuelling a renewed surge in enquiries on MakeMyTrip, Goibibo or Booking.com are an altogether different breed compared to the average business traveller.

Essentially, the tried-and-tested business model of small, family-run hotels has been undone in a matter of months. With so many properties on the block for sale at a distress valuation, it is the best time to buy, acquire or merge, say hotel owners who still have the luxury of an adequate cash balance.

Cost cutting

Mid-market hotels are meant for the budget-conscious travellers with an average price of 1,500-3,000 per night. They work on a wafer-thin margin to remain relevant in a discount-driven, highly competitive market, leaving little margin for error. Big hotels that charge up to 15,000 per room per night have a fallback option, budget hotels don’t.

Preliminary data from the Hotel Association of India (HAI) suggests that more than 40% of hotels have shut since the outbreak of the pandemic. About 70% of businesses, mostly small hotels, will face closure in the coming months as pandemic-related disruptions continue to wreak havoc on the industry. HAI estimates that about 40 million people, who are directly employed in the tourism and hospitality sector, are at the risk of losing their jobs. Millions more indirectly depend on the sector for a livelihood. As covid wreaked havoc across India, business travel was the first casualty. Companies shifted to an online and work-from-home (WFH) model and put the brakes on all new investments. Small business owners, too, switched to online communications to save on business travel. “Business owners have invested in high-quality smart phones, laptops and software. Order requests and sampling of products and materials are all being done online now. Our only hope is the new and upcoming businessman, who will (still) have to physically research the market," said Relia.

Under the current circumstances, keeping their property open isn’t financially viable for small hoteliers like Relia, who have to pay statutory fees like property taxes, electricity and water bills at commercial rates every month. Keeping a hotel running means paying lakhs every month, even when room reservations are modest. That’s causing many hotels to shut down or send staff on leave without pay, especially in the absence of any help from governments. The immediate challenges range from managing operational costs to keeping the team together.

With barely 10% occupancy in June 2020, when the phased manner of easing restrictions had just begun following a nationwide lockdown that stretched for months, Relia had to devise a cost-cutting plan. Around 30-40% of staff had to be shifted to contractual employment. Housekeeping staff was paid on a per-room basis. Room service was halted and the food and beverage operation was outsourced. Pre-ordering of meals would be on request and guests were also allowed to order food online from apps such as Swiggy and Zomato.

Leisure destinations haven’t been spared either. Grand Resort Mahabaleshwar, a 50-year-old property spread across six acres of land, has suffered for being located in an area that was demarcated a ‘red zone’. The resort, located in Maharashtra’s Satara district, was allowed to re-open only in mid-September last year. Now, it is finding it difficult to retain staff, having lost its peak summer business (between April and June) for the second year in a row due to the second wave of covid-19 infections. Many of its staff members who had gone back home haven’t returned yet. “Around 40% of my staff has not returned from their hometowns," said Amit Kumar, co-owner and managing director of Grand Resort Mahabaleshwar.

Changing preferences

In the post-covid era, travellers are valuing privacy above all and doing everything that they can to avoid crowds. They are switching to full-service, independent flats or cottages and shunning hotels. For those in the mood of a holiday, branded properties that offer discounts on ‘staycations’ and ‘workcations’ and have high standards of sanitation and cleanliness have become the ‘go-to’ option.

“The branded hotels category has definitely benefited from the shift," said Vipul Prakash, chief operating officer of MakeMyTrip.

“Another key reason is that as lockdowns eased across the country, the branded category hotels were the first to become operational with (all) the required safety infrastructure and support. On MakeMyTrip, we witnessed a significant increase in bookings for branded hotels by both leisure and corporate travellers."

Ravinder Thakur, owner of the two-star Hotel Himalaya located near Mall Road in Manali, once managed to attract tourists even in the off season because of the property’s central location, which has ceased to be an advantage now. “Tourists don’t wish to stay in a central location anymore. We get enquiries about whether the market is fully open, how crowded it gets and how many people are we allowing on a particular floor," he said.

Like Thakur, many small hotel owners, who used to leverage word-of-mouth and well-networked offline tour operators for bookings, are being forced to look at online listings. MakeMyTrip said that it has seen an uptick in listings by new, independent hotels and alternative accommodation on its platform.

“Small players like us operate on thin margins and we don’t have high brand equity among travellers," Thakur said. “Therefore, we have to offer steep discounts online, which brings the average room rate and net revenue down."


With cash flows shrinking in the wake of frequent restrictions and limited bookings, many hotel owners are being compelled to consider selling their properties, especially in cities where a full recovery seems like a distant prospect. However, finding buyers is also not easy and comes with its own set of challenges.

“The number of queries coming to us in the last six to nine months from private, individual owners who’ve been calling us to help sell their hotels is the biggest indicator that all’s not well," said Jaideep Dang, managing director of hotels and hospitality group, South Asia, JLL, a real estate consulting firm.

“We haven’t been able to service them because the pool of buyers or investors we have (private equity firms/debt/pension funds/high net-worth individuals) are all only looking at markets which are well-documented and have data and scalability. Most of the trade will happen in this segment in their local markets as they (small hotels) don’t have enough demand pool or scalability to offer," Dang said.

For the 49-year-old Mumbai-based hospitality chain—the Suba Group—this is a golden opportunity. The family-run hospitality chain operates three-star and four-star hotels in metro cities, which are aimed at business travellers. The Group also runs the Click Hotels, targeted at tier-II and tier-III cities.

Mansur Mehta, a fourth-generation entrepreneur and managing director of the Suba Group, says that in India, only 28 hotels chains are currently operational. Most room bookings (roughly 55%) will still inevitably go to standalone hotels once things go back to normal.

“It is the best time to buy, acquire or merge with independent hotel/resort properties," Mehta said. “It is also a way out for hotels with limited capital and resources, which are facing closure, to align with a hospitality chain. We are looking at expanding our presence in the leisure segment by acquiring resorts so that we can build our loyalty programs. It is an opportunity in this time of crisis."

According to Lords Hotels & Resorts, many independent hotels that are operating through lease agreement are facing issues because their partners have exited the business. “We have signed 8-9 hotels in different parts of the country during the lockdown. Standalone owners have also realized that growing with a brand is always important as they get a clear-cut direction, support to manage staff payroll and operational cost assistance," said Rishi Puri, senior vice president, Lords Hotels and Resorts.

“We also bring in (the) best practices and standard operating procedures of the industry. They prefer local partners like us because we understand their way of functioning better than an international chain," he said further.

For those who do not wish to sell their hotels yet, the food and beverage segment has emerged as a refuge. Dehradun’s family-run President Hotel, established in 1976, has expanded its online food delivery service, tapping into its three in-house restaurants that serve cuisines ranging from Italian and Thai to Lebanese.

The 22-room boutique property started home food delivery in the first week of April 2020, managing to deliver an average of 100 orders a day. “The second wave was more serious. We continued the delivery service, but we haven’t made money...(but) we managed to support our staff," said Rakesh Inder Singh Chauhan, owner and director of the hotel.

Most three-star hotels located on main roads and commercial areas are also leasing out their ground floor, which often has a functional kitchen, to restaurant chains. The 40-year-old family-owned Hotel Diplomat, which has lived in the shadow of the iconic Taj Mahal Palace Hotel in Colaba, South Mumbai, has leased out space to two popular restaurant chains—Papaya and Social.

As each hotel chalks out a way to deal with the disruptions arising out of the pandemic, there is one thing that is certain: what emerges on the other side may be altogether different.

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