A dilemma for The Oberoi, New Delhi

EIH has decided to close down, The Oberoi, New Delhi, for a two-year period beginning April 1, 2016, for renovation

Don't want to miss the best from Business Standard?

BSE-listed hotel company EIH has decided to close down its 51-year-old iconic property, The Oberoi, New Delhi, for a two-year period beginning April 1, 2016, for renovation. For the Oberoi group, this property is its only top-class revenue earner and closing it down for two years is a big gamble: In two years, it runs the risk of losing many of its die-hard customers to rivals. Are there any precedents? What should the management be wary about while taking this risk? Can it woo customers back when it is ready to open again? Our panel of experts discusses the pitfalls of the move and offers some tips to manage the transition.

An iconic brand can afford to take a break: Tista Sen

The Oberoi chain of hotels is loved the world over for what they provide their clients - status, style and a discerning wealth. To refer to it as a hotel chain is a disservice. The Oberoi stands for the epitome of the very best in hospitality in the luxury business. The beauty of an iconic brand is that it is iconic. The Oberoi group across its properties has carved a niche in the hospitality sector. The Delhi property is a symbol of luxury and grandeur.

An iconic brand like The Oberoi can afford to take a break and take the knock. Like other iconic brands such as The Taj and Nike, The Oberoi is a brand that people will not forget in a hurry. As it takes a two-year break it needs to communicate smartly with loyalists. From advertising and branding perspective, it needs to give the news a positive flip. It has to be loud and clear and tell people that they are sorry for not being available but will be back with a bang. They have to impress upon customers that the brand that they patronise so lovingly will reward them handsomely for their patience.

In any business, two years of hiatus is a long time. Having said that, the loyalists would surely come back to The Oberoi. However, they may lose a few customers in the process - those who, having experienced other hotels, may like the experience and decide not to come back.

The Oberoi will have to take this gamble. It will be worthwhile for The Oberoi to tell people that work is in progress and the brand will be back with an improved version. The Raffles in Singapore is a good example. A truly iconic residence, they shut down for two years while they went through extensive renovation. Their patrons were not disappointed. They opened their doors to their loyal clientele and gained many more followers. Luxury brands do not need to keep re-inventing. They create imagery and an equity that is impossible to erase.

For The Oberoi, New Delhi, to take a hiatus for two years only to come back after the refurbishment adds to its mystique and allure. Loyal patrons are brand loyal and while you may flirt with a similar brand, eventually your heart beats for just one.

Tista Sen
National creative director, J Walter Thompson India

A bold move with eye on future growth: Sudeep Jain

Renovations, re-building, re-designing are a natural part of the life cycle of a hotel. Hotel brands, like any other, need to refurbish to cater to the changing demands and tastes of travellers. The Oberoi group's decision to renovate their iconic property in Delhi is a bold one and shows their commitment to excellence. The Oberoi, New Delhi, is an iconic landmark of the city. Refurbishment will allow them to celebrate its long-lived history and culture while demonstrating that they are sensitive to contemporary trends and tastes. These changes are vital for ensuring future growth. A well thought out decision like this perfectly suits the challenge of catering to the needs of newer generation guests, which every hotel faces today. I am sure the industry is looking forward to the new The Oberoi in the next couple of years.

Many iconic properties around the world have embarked upon renovations and have come back as modern icons - from The Plaza Hotel in New York, which renovated in 2005 and took about three years, to The Palace Hotel, a Luxury Collection hotel in San Francisco which opened last year after extensive refurbishment. Hotels have to and should re-invent themselves, just as brands do, to make themselves relevant and contemporary, meeting the changing needs of modern travellers.

Sudeep Jain
VP, acquisitions and development, South Asia, Starwood Hotels and Resorts

Take the customer along as you change: V Narayanan

There is reasonable risk given the shutting down, while a examination of the upside perhaps opens a larger opportunity. The Oberoi, New Delhi, has its own unique heritage, being the first luxury hotel in Delhi. It is the Taj Mahal Palace for Mumbai and The Oberoi for Delhi.

Being in existence for a long period, the property needs to be refurbished to provide a contemporary feel while maintaining the old charm and heritage values. In any case, The Oberoi has some distinct qualities that gives it an advantage.

The location is its biggest advantage. Central Delhi does not have many refined luxury hotels... you can count them: The Leela Palace, The Imperial while the Taj Palace and some others are quite early in the city. The proximity to Lutyens Delhi and its history is a definite advantage. There is a lack of such international standard luxury hotels in and around central Delhi, which makes it an eminent choice. Besides, refined F&B is another opportunity, which can help build monetisable occasions including Delhi elite's appetite for marriages.

The immediate relaunch task would be to regain the old and current loyal customers, while communicating its luxury quotient. We would recommend to apply a learning, which many modern service brands have successfully implemented: consumer participation in modernisation and revival of a brand. This would instill pride and inspire the current customers to get involved in recreating the brand with a modern luxury touch. Ideally, social listening and identifying the culture and luxury influencers would help it identify the gaps and opportunities to re-engineer the appraisal of this "regal" luxury hotel.

The Oberoi should significantly invest on a market-specific loyalty programme and embrace exclusive customer relationship management.

V Narayanan
Chief growth officer, Motivator

Managing employees and vendors are key challenges: Vrushank Shah

Hospitality is a highly competitive and volatile industry. The industry has witnessed drastic changes over the last couple of years. With the changing industry trends and consumer preferences, a number of players including The Oberoi need to change.

The Oberoi's move to close its property for two years is a bold move and speaks of its unflinching commitment to offering superior customer experience. The move signifies the hotel's focus on improving its business as well as clientele in one of the most important business hubs, Delhi, in the face of growing competition.

Even though the firm stands to lose significant revenue, the move will give it an opportunity to realign itself to changing market realities. The management must have drawn a contingency plan to deal with the loss of revenue possibly by boosting business from other cities. Besides dealing with revenue loss, the organisation runs several other risks as it prepares for renovation. The first risk is associated with employee management. For two long years, the management has to engage and compensate employees suitably. The second challenge is to do with logistics. In hospitality, strong logistics supply and strong vendor relationships are crucial to business operations. Once The Oberoi closes down for two years, it will be difficult for the management to hold on to these two sets of stakeholders.

From a brand perspective, it will be challenging for The Oberoi to come back to the market because two years is a long time in any brand's history. The management will have to treat its comeback on the lines of a product launch. Post-renovation, it will be a fresh start for the brand. For a brand to be successful in a customer-service-led industry like hospitality, it has to satisfy the psychological needs of customers. For that, the hotel will have to stay alive to local competition as well as to the changing economic and social environment.

Vrushank Shah
Senior lecturer for strategic management, ITM IHM