In a market where international hotel chains like Marriott, Starwood, Four Seasons and Oberoi are operating luxury hotels, the entry of Steigenberger Hotels and Resorts, a Germany luxury hotel chain, may be fraught with challenges. In India, the demand for luxury hotels is limited compared to budget and mid-market segments. Then, for a brand-conscious domestic luxury traveler, Steigenberger Hotels and Resorts is fairly unknown brand.
But, Sonica Malhotra, joint MD of MBD Group, a hospitality and publishing firm that has recently tied up with Steigenberger to open 20 hotels in 15 years, dismisses the notion. "Prime minister Narendra Modi has stayed in Hotel Frankfurter Hof (a Steigenberger property) during his visit of Germany," she brags. "It is a well known brand in Europe. For luxury travelers, if they go to Germany, they would like to stay in Steigenberger."
Before finalising the deal with Steigenberger, Malhotra was talking to two more brands. "One of them is already operating in India but they have goofed up big time. Then, Steigenberger approached us. In terms of branding and positioning, they gel well with our expansion plans," she adds.
Currently, MBD Group has two hotels - Radisson Blu MBD in Noida and Radisson Blu MBD in Ludhiana, which are operating under franchise model with Carlson Rezidor Group. In the franchise model, the entire hotel is run by the developer/owner while the brand lends its name to the property. So, MBD has expertise in running hotels. Another property (owned by MBD) in Bangalore is under construction - the first Steigenberger hotel in India - and will be opened in three years.
As far as JV is concerned, MBD owns 51 per cent and Steigenberger owns the remaining stake. Even on the board, MBD will have four directors and CMD as compared to three directors from Steigenberger.
The JV would predominantly do management contracts where MBD will handle entire management, training, sales and marketing for the Indian region, and the entire pre-opening assistance such as design and construction and hiring. Steigenberger will handle international sales and marketing, online marketing and global distribution system. Initially, Steigenberger will be involved in entire brand standard formulation, and brand standards will be customised to suit the needs of domestic market. In addition, the global chain will be doing audits. "The intent is to go asset-light. In terms of top line, we will be able to garner over Rs 2,000 crore of revenues from assets under management," she adds.
The JV is unique in many ways. Most international hotel chains have directly entered into India but in this case, Steigenberger chose to partner with an Indian entity. The JV primarily aims to tie up with developers to manage their properties. Out of 20 hotels, just 5-6 hotels will be owned by MBD.
The dynamics of luxury hotels segment are entirely different from the overall market. In the past, almost all hotel chains - domestic and international - have missed their targets to open properties. MBD will have to go aggressive in striking deals with developers in order to build a strong pipeline of hotels. Finding the right partner is crucial in scaling up. The success of chains like Marriott and Starwood can be attributed to stable developer-partners, and brand portfolio that caters to different customer segments. The JV seems to opening hotels under just one brand as of now which could be a drawback.
In terms of demand side, the things are looking up after a long time. The hospitality market in India is picking up slowly with occupancy rates crossing 60 per cent in 2014/15, and even RevPAR (revenue per available room, a performance metric in the hospitality industry) has registered growth in the past four years. The timing of Steigenberger's entry may be apt but there are various gaps that it has to plug to become a serious competition to the existing players.