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Oberoi hotels seek expansion avenues abroad

Oberoi hotels seek expansion avenues abroad

Oberoi wants to be in London and New York, possibly Paris, and would also like to have a presence in Thailand, Singapore and Hong Kong.

PRS Oberoi, chairman, East India Hotels (EIH) (Photo: Vivan Mehra) PRS Oberoi, chairman, East India Hotels (EIH) (Photo: Vivan Mehra)

At The Oberoi in central Delhi, guests can order eggs any way they want: from the standard masala omelette to Eggs Benedict, or even the Latin American Huevos Rancheros. That's par for the course for any big hotel. But what makes the Oberoi cooks sweat is PRS Oberoi's habit of checking eggs. The 85-year-old Chairman of East India Hotels (EIH), which runs the Oberoi group of hotels, randomly picks an egg, breaks it, and stares at the yolk. It had better be a deep shade of yellow - called 'sunrise yellow'. Anything even marginally off from his approved colour, and he is likely to reject the entire batch.

PRS Oberoi - his name on his passport reads Prithvi Raj Singh - gets impatient if asked about this obsession for detail. "That's part of my job," he says, describing how he goes through all drawings of the group's new projects. A case in point is the restoration of The Oberoi Trident, the group's property on South Mumbai's Nariman Point seafront-a Rs 178-crore project. The hotel had to be closed down after machine-gun wielding terrorists stormed the hotel during the 26/11 attacks of 2008. Overnight, almost half the group's revenues vanished. To make things worse, 2008/09 saw the whole world in the jaws of a financial crisis with luxury and upmarket business travel thinning down to a trickle. The group was staring into an abyss but Chairman Oberoi - popularly known as Biki - would not cut corners in the restoration lest it took away from the customer experience.

The Oberoi, Gurgaon
The Oberoi, Gurgaon

Putting guests first is a lesson PRS Oberoi learnt from his father Rai Bahadur Mohan Singh Oberoi, who began as a desk clerk at the Cecil Hotel in Shimla and eventually went on to acquire the Clarkes Hotel from his mentor Ernest Clarke. M.S. Oberoi relentlessly expanded his empire after acquiring the 500-room Grand Hotel in imperial Calcutta and a controlling interest in the Associated Hotels of India that owned the Cecil, and hotels in Lahore, Rawalpindi, Peshawar and Murree. The group operated the hotels in Pakistan until 1965 but lost all four after the Indo-Pak war.

Today, the Oberoi group has grown into a chain of 30 business and luxury hotels in India and abroad. These hotels, in five stars and the "de-luxe" category, include two brands - the Oberoi and the Trident. That number may not seem a lot given that competitors like the Taj group (over 100 properties) and ITC Hotels (98 properties) have their flags in more locations. But the Oberoi group has always preferred to play in the top two segments of the hotel business, and stayed away from the middle-of-the-road segments that have shown the highest growth in recent years. More importantly, it has preferred to grow slowly but keep standards intact and own all its properties, instead of managing them.

EIH's troubles
EIH's troubles
Of late though, the Oberoi group has been facing unprecedented competition. Not only are its Indian competitors - Taj and ITC - expanding rapidly, it also has to contend with a host of global companies that have entered India in the past few years. And while it may still have more hotels in India than the global players, the latter have a certain advantage when it comes to business traffic. The Marriott (25 hotels in India), for example, can leverage its global properties and multiple brands to offer better discounts and packages to globetrotters - a corporation can sign a deal with the Marriott where mid-level executives can stay at a Courtyard or Fairfield, while C-suite executives stay at JW Marriott or Ritz Carlton.

Despite these handicaps, the Oberoi group is clear it will stick to its knitting, and make its brand strength the differentiator in the luxe and upscale categories. While the Oberoi and the Trident compete with different hotels in different cities, they are among the top three in most regions, says Manav Thadani, Chairman, Asia-Pacific for hospitality consultancy HVS. The Oberoi Delhi competes with the Taj Mansingh for business guests; in Bangalore, its rival is the Leela Palace in the five-star deluxe category. In Mumbai, it would be competing for conventions with the JW Marriott. In some markets, it competes with ITC Hotels. "In the three big cities - Delhi, Mumbai and Bangalore - it will certainly be in the top two, if not at the top," says Thadani.

The group, however, was hit hard by the global financial crash of 2007/08 and the 26/11 attacks in Mumbai. EIH's revenues have struggled to grow and profits are today still at half those levels. In 2007/08, the company made a net profit of Rs 223.63 crore on revenue of Rs 1,315.73 crore, numbers from the CMIE Prowess database show. Net profit in 2013/14 recovered from preceding years but still stood at Rs 111 crore. But these were brutal years for hoteliers when the addition of more than 30,000 branded rooms led to a glut. Almost all the players have suffered.

Gaining ground
EIH is better off than its competitors

Indian Hotels Company, the Tata group arm that runs Taj hotels posted a net loss in 2013/14 to some extent because it had expanded too aggressively. Debt-laden Hotel Leelaventure is worse off. ITC Hotels' revenue grew 5.5 per cent from a year earlier to Rs 1,133 crore in 2013/14 with profit before tax rising only 1.4 per cent to Rs 140 crore.

Oversupply in rooms coupled with slower demand led to weaker pricing. This affected RevPAR, short for revenue per available room, a performance metric that blends occupancy and rent yields. (If the per room rent yield is Rs 10,000 and occupancy 65 per cent, RevPAR works out to 6,500.) Shib Sanker Mukherji, Vice Chairman and CEO, claims that on a RevPAR basis the group is doing Rs 200-250 better than its competitors in most markets (it is about four per cent more than last year group-wide). At The Oberoi Udaivilas, the uber-luxury hotel in Udaipur, RevPAR has grown by Rs 2,200, or 22 to 23 per cent, from last year, Mukherji adds.

Vacant rooms
After 2010/11, average occupancy at hotels in India has faltered

To crank up RevPAR the Oberoi group has had to step away from its traditional way of doing business, and try and induce demand. "We looked at our guests, we looked at data and said, what appeals to people," says President Kapil Chopra of a marketing drive that started two years ago.

For example, ahead of an upcoming long weekend, someone who has stayed at an Oberoi hotel in the past will get a campaign mailer for a quick, impulsive holiday. Behind these incentives thrown into the mailer will be analytics of the guest's past spending patterns, whether on food and beverages or spa. F&B, for perspective, made just short of Rs 500 crore for the group in 2013/14.

"We became slightly unconventional, and yet, completely conventional 1970s MBAs in our approach that every single effort in our organisation should be focused in one single direction," says Chopra of the companys integrated marketing effort. "The monthly accountability shifted to weekly before finally becoming a daily service," he points out. With some 110 people in sales and 12 people in marketing, the numbers present a big change at the Oberoi. In 2012, the group ran six 'campaigns' targeting customers. In 2013, it ran 54 campaigns and is going to end 2014 with 60.

The aggressive marketing helped it sell 31,000 room nights more on the same inventory of 3,900 rooms in India and some 1,000 overseas in 2013. The spring in the group's fortunes finds its lead in its biggest market, Mumbai, where it added a new Trident in the Bandra Kurla area in 2009 to retain its hold.

"Bombay is a big, big recovery today," says Mukherji. "The occupancy rates for South Bombay is about 64 per cent, and overall for the group is close to 69 per cent. We are about three [percentage points] better than the industry."


At the core of the Oberoi USP is guest service and that's what brings in regulars such as Sanjay Rishi, President, American Express South Asia. He loves the "anticipatory service," and cites how he once asked for a brand of Oolong green tea at an Oberoi hotel he'd checked into. Today, no matter which Oberoi hotel he stays at, his room is stocked with tea leaves for his favourite brew. "It is that feeling of caring, warmth that separates memorable experiences and the desire to return," he says.

Behind Rishi's experience and those of others is science. Each time a guest stays at any Oberoi hotel, as many details as possible are fed into a finely honed guest management system - photo identification, his preferred airline or car, dietary choices, favourite flower or welcome drink, sleep patterns, pillow options, to name a few. The details are disseminated to the staff daily. The system transfers the stress of guest service away from individuals to the computer to a large extent, says Mukherji. "No humans obsession can be passed on to any other human. Obsession in business gets formed into a system. In Oberoi, that system is what everyone is tuned into," he says.

Still, the catchment for luxury hotels has become intensely competitive with the economy still growing slowly and luxury travellers holding their purse-strings tight. One way to combat this is choosing to strategically expand in other countries. EIH has no choice really. As Rattan Keswani, Deputy MD at Lemon Tree Hotels, who spent 31 years in the Oberoi group, says, "In India, the next phase of growth will come from Tier-II and Tier-III locations, which are not suitable markets for Oberoi."

But expansion abroad is not easy, if the Indian Hotels' experience with the Orient Express Hotel group is any indication. In 2013, the Tata group, which had previously acquired two hotels (Ritz-Carlton and Campton Place) in the US in 2006 and 2007, abandoned its $1.2 billion bid for the luxury brand with 45 hotels, cruises and luxury rail businesses in 22 countries. The Oberoi group had evaluated it, and decided not to go ahead with the bid as the sellers merely wanted to give away six to eight per cent stake. PRS Oberoi was clear he would not come away without the full prize.

Rather than acquisitions, he has now decided to go it alone. By 2017, the group will start, one after the other, hotels in Ajman, an emirate that shares the airport with Dubai, and the historical cities of Marrakesh and Casablanca in Morocco, northern Africa. The company has 1,280 rooms abroad - primarily in Egypt, Dubai, Indonesia, and Mauritius - including the 235 coming up in Marrakesh and Casablanca.

Oberoi wants to be in London and New York, possibly Paris, and would also like to have a presence in Thailand, Singapore and Hong Kong. "You need the right opportunity, the right partner and the right sight," he says. "Today, for a five-star hotel, the cost is Rs 2.5 crore a room, without land. Abroad nothing is less than $500,000 (Rs 3 crore) a room." Without partners and his aversion to debt, those ambitions will take time to turn to reality. He is adamant he will not ask any of the stakeholders such as Reliance Industries for assistance in raising funds. "They are purely financial investors in this company," he says.

Reliance came as a white knight in 2010, when ITC Chairman Y.C. Deveshwar was purchasing shares of EIH through treasury operations. In March 2012, Reliance increased its stake in EIH to 18.53 per cent by buying out Max Group Chairman Analjit Singh's 3.73 per cent stake. ITC still holds close to 14.98 per cent in EIH with its unit Russell Credit owning another 1.15 per cent. Oberoi and his family own about 35 per cent of EIH. Both PRS Oberoi and Mukherji say that they will not buy back any shares, nor declare generous dividends. "I will use the money to start new hotels," says Mukherji. When asked if he's ever met Deveshwar, Oberoi's answer is "only socially".


In a situation fraught with so much uncertainty, at least one thing is taken care of - the succession issue. The two scions of the family are joint managing directors. "They are already running the company together," Oberoi says of Vikram, his son, and Arjun, his nephew. Such a relationship may mitigate the risk of a split as has been witnessed in several other corporate groups in India. Swaran Sehgal, Partner and Practice Leader, Leadership Consulting, Grant Thornton India, has helped companies like the Mumbai-based Edelweiss Group go through succession planning. Usually, businesses initiate the process of transformation when a crisis happens, he says. However, successful organisations take a proactive approach by focusing on planning, prevention, values, clarification, training and development, and relationship building.


"We became slightly unconventional, and yet, completely conventional 1970s MBAs in our approach that every single effort in our organisation should be focused in one single direction"


President, The Oberoi Group

The idea came from his father and PRS Oberoi set the ball rolling early, vesting the cousins with responsibilities starting at the bottom rung. Arjun started from the procurement department at the Oberoi Grand in Kolkata, landing up in the city after spending 17 years in England. It was pretty much the same story with Vikram, who started low down the ladder with The Oberoi, Bombay.

Sehgal says a lot depends on the extent to which the next generation wants to take control and how much the current generation wants to let go. CEO Mukherji says both have picked up their own interests - Vikram in operations and Arjun in design and planning. This has created an inter-dependence that works well for the company. "It is not about Arjun and me, or Kapil and me," says Vikram. Adds Arjun: "It isn't one persons idea, it is about making a collective effort to deliver that overall objective, which is very clear in all our minds. It is this alignment of thought, alignment of purpose. There is no one way to skin the cat."

(From left) Arjun Oberoi, Vikram Oberoi and Kapil Chopra
(From left) Arjun Oberoi, Vikram Oberoi and Kapil Chopra (Photo: Vivan Mehra)
The challenges before Vikram, Arjun and Chopra are gorilla-sized. "Customers are getting younger, and by that I don't mean in their age. I mean in their outlook. People are looking at more dynamic experiences," says Arjun. In a capital-intensive industry, that's easier said than executed. Hotels can't be remodelled every two to three years. The Vikram-Arjun-Chopra trio will not reveal their plans but say the strategy will hinge on the group's people captured in PRS Oberoi's "happy people, happy guests" motto. When a hotel is remodelled, among the top things on the chairman's to-do list is staff facilities. All fresh hires are made only after at least one among the top five people at EIH interview them. Of course, there are challenges - with 40-50 hotel brands jostling for the same talent, and poaching rampant, it's becoming harder and harder to find the right people, and how the group does this will determine its course.


At 85, PRS Oberoi is now bowing to the industry trend of mixed use real estate as opposed to a standalone hotel. The group is considering residential and commercial real estate development on a plot of land in Bangalore. These will be like 30-storey high-rises, similar to gated communities, says Mukherji. The edge will still be people, says Oberoi. "We can provide concierge services, maid services, and even security, if you are willing to pay," he says.

Taking stock
EIH has outperformed the benchmark Sensex
The group is considering the emerging asset-light model. One option to ease the burden of capital in constructing a new hotel - a 300-roomer will cost Rs 750 crore or so - is to jointly develop properties or enter into management contracts with existing properties. One such collaboration is a hotel in Vashi, North Mumbai, being built with Reliance.

Business Today met PRS Oberoi twice for this story at his sprawling farm on the south-eastern outskirts of Delhi. It's clear the service excellence he created is safe and secure. How the next generation builds it to the next level will decide its future. The veteran hotelier's brow scrunches up a little when asked about his legacy. "We wish to be the best, not the biggest," he replies. And, then, he breaks into a Cohiba cigar-infused raspy laugh self-assuredly.

Additional reporting by Manu Kaushik

Published on: Jan 27, 2015, 10:17 PM IST
Posted by: Trupti Agarwal, Jan 27, 2015, 10:17 PM IST