Striking a balance
IHHR Hospitality has carefully differentiated its brands Ananda and Ista for faster growth
Ten years ago, IHHR Hospitality set up Ananda in the Himalayas near Rishikesh in Uttarakhand. It was India’s first destination spa. Three years ago, in 2007, it came out with its Ista five-star hotel in Bangalore. (The name derives from ishta and sthan, which means sacred place in Sanskrit.) Later that year came Ista in Hyderabad. Before these two hotels could stabilise, corporate travel was hit by the financial meltdown that began in mid-2008. Tariffs began to fall. Then tourism was dealt a severe blow by the terrorist attacks on Mumbai on November 26.
Two years later, things have begun to improve. Travel is up, more so domestic travel, and tariffs have begun to inch up, though these are still 10 to 15 per cent short of the early-2008 peaks. Some hoteliers doubt if the exuberance of 2008 will ever be reached; but the undercurrents are strong enough for IHHR Hospitality to draw up a roadmap for growth one more time. The third Ista opened in Amritsar last year, the fourth is all set to open in Pune, and the fifth will come up in Ahmedabad sometime in the first half of 2011. Work has started on an Ananda resort in Jaipur — 36 acres of land near the iconic Jaigarh fort.
Differentiating Ista
Thus, Ista will compete with global brands like Grand Hyatt and Sheraton as well as domestic rivals like Vivanta by Taj. Analysts say this is the segment of the market that is growing the fastest. What this means is that Khanna and his men will have to create a significant differentiator for Ista; just another hotel will not do. “We have looked out of the box to create a fresh outlook. We have carried the Ananda philosophy forward in Ista and brought in a lot of nature inside the building so that a person can relax after a hard day’s work,” says Khanna. “It’s a clean and understated look, not complicated and heavy. After a long day, people don’t like dark and heavy environment which the climate in our country does not deserve. We have tried to move away from the traditional British India look.”
Thus, every room as well as bathroom has a view. The rooms have been designed in such a way, says Khanna, that they don’t look boxy. Each Ista has two or three restaurants. (Luxury hotels have five or six.) Frills that are not required have been left out. “Ista as a brand offers a trendier and contemporary feel, and offers a much more refreshing stay experience. We capture the younger corporate travellers. We have the youngest service staff in the industry. As a result, our service is warmer, friendlier and more youthful. The average age of our customer-facing staff is just 24 or 25; the industry average is significantly higher,” adds IHHR Hospitality Vice-president (marketing) Mahesh Natarajan.
With Ista, the company is targeting young corporate travellers in Tier II cities to begin with and Tier III cities later. At the moment, corporate travellers make up 70-80 per cent of the guests at Ista Bangalore and Hdyerabad. (Amritsar, in contrast, is a leisure destination targeted at non-resident Indians and foreign tourists.) “We need to expand the segments we work with, like small and medium enterprises, because that is on the rise. Traditionally, people have not caught on to that business. About half of our corporate business comes from small companies. We work with associates like credit-card companies and banks to reach such clients,” says Natarajan.
The issue here is that such hotels need to be located in the central business district of every city; and this could push up the cost because real estate in such locations is expensive. IIHR Hospitality Chief Financial Officer Sunil Vohra says that the company has so far been able to keep real estate below 20 per cent of all costs by buying land in emerging markets early. (For some recent hotel properties, this is as high as 50 per cent.) Thus, the land for the Bangalore Ista was bought in 2002 — five years before the hotel opened. The land in Pune was acquired four years ago in 2006. In Hyderabad, the land was provided by the state government which got a 26 per cent stake in the hotel. Khanna discloses that IHHR Hospitality had signed a buyback agreement with the state for that stake, which it now wants to exercise. According to Vohra, IHHR Hospitality also owns land in Navi Mumbai, Nagpur and Coimbatore for Ista. “We are looking at a few other emerging cities and emerging areas within large cities,” says he. The cost per room for Ista, according to Vohra, is between Rs 85 lakh and Rs 1 crore per room, excluding real estate.
The company is also ready to get into management contracts. The upcoming Ahmedabad Ista is thus not owned by IHHR Hospitality; it will only run the hotel for a fee and cut on sales. Khanna says that his company did not go for contracts earlier because Ista’s brand equity was not established; he thinks with a strong brand he can get better terms in such contracts, especially with regards to the partner’s commitment to the venture. What about joint development of projects with people who own prime real estate? “We have to know the person; he has to give an assurance that he will keep pace with us. Otherwise the image of the brand suffers,” says he.
But is the Ista brand well-established in the market place? The proof, says Khanna, lies in the repeat business all the Ista hotels get — upwards of 30 per cent. But are the hotels making money? According to Natarajan, all the hotels have broken even operationally. While Bangalore and Hyderabad are 65 to 70 per cent occupied, Amritsar is 30-35 per cent. “One big segment there is NRIs and international travellers. To get such travellers, it takes a year because the calendar of most tour operators is planned a year in advance,” says he. Ista’s business is skewed towards room revenue than food and beverages; Vohra admits that the gross profit margin on rooms can be as high as 80 per cent, while that on food and beverage is not more than 35 per cent. He expects the company to close 2010-11 with a turnover of Rs 140 crore, though he refuses to disclose the projected profit for the year.
The Ananda experience
The approach towards Ananda is a little more cautious. All Ananda spas and resorts will be owned by IHHR Hospitality, Khanna says. Adds Natarajan: “We are very engaged with all our Ananda guests. Based on their feedback, we know where we want to go with Ananda. For them, Ananda as a brand is an extremely intuitive, personalised and care-giving experience. The brand attributes are high level of service and authenticity in whatever we do.” The service at Ananda, according to Khanna, is the differentiator. “We do Namaskar with folded hands and bend down, and we take orders on our knees.”
Almost a quarter of the Ananda business comes from repeat guests. To inculcate loyalty, an innovative programme has been put in place. “We have identified a certain profile of guests as people who really identify with the Ananda way of life. We call them Ananda Yogis. We stay in touch with them at a more enhanced level. Our doctors, therapists and specialists communicate with them regularly,” says Natarajan. When a guest becomes an Ananda Yogi, the hotel performs a religious ceremony. And when he comes back to the resort, there are special processes and recognition. “We have about 600 Ananda Yogis currently. There is an indirect monetisation that comes from connecting with a group of privileged customers,” adds he.
Sometime in early 2013, Khanna hopes, the Ananda at Jaipur will be ready. He is next eyeing an Ananda resort near Puri in Orissa. “It is an unspoilt property,” says he. IHHR Hospitality has tendered for the plot of about 40 acres, but the environment-related issues faced by the state have put the project on the backburner. Khanna says that IHHR Hospitality has been invited to put up an Ananda at Lavassa, the new hill station coming up near Pune, but he has not taken a final decision. Actually, Khanna has done a course correction here. Till some time back, he had given interviews that he would take Ananda abroad to places like Maldives and South Africa. “We had almost signed a deal in Maldives but we found that the costs were too high; that would have eroded our profit margins. The same thing happened in South Africa,” says he. “I find that return on investment is much better in India; so why not utilise your resources here first and then go overseas?”
Rivals say there are two challenges in building and running Ananda-like properties: Trained manpower and large capital outlays. To solve the manpower problem, IHHR Hospitality has set up adjacent to the Hyderabad Ista the Ananda Spa Institute to train people in Ayurveda, Yoga and other international therapies. Khanna admits that it can take up to one year to train a therapist, and then he can leave in a jiffy. And an Ananda room, he adds, can cost up to Rs 2 crore (including real estate). The 70-room Jaipur Ananda will thus cost Rs 140 crore. At the moment, IHHR Hospitality seems to be adequately funded. Morgan Stanley had bought 17 per cent in the company two years ago when it was valued at around Rs 1,500 crore. There has been talk of a primary issue from the company but Khanna says that it can wait for a couple of years because valuations are yet to rebound to their peaks. Also, adds Vohra, the investment pipeline only includes the Ananda resort at Jaipur; so there is no pressing need for funds.
Most hoteliers want to have hotels in Delhi, Agra and Jaipur — the “golden triangle” of Indian tourism. Doesn’t IHHR Hospitality want to complete the circuit? Khanna discloses that he has had to drop his plans for Noida and Gurgaon, the fast-growing suburbs of Delhi, but is in talks to acquire some small hotels in the city. “We will gut it and build it up from ground. There are a lot of opportunities. We are talking to people. Most of them are still waiting for real estate prices to move up; nobody is in a hurry to sell,” says he. Agra, says Vohra, is not on the company’s radar at the moment.