US Budget Hotel Chain Looking at India Entry

Continuing the influx of foreign investment into the Indian hotel sector, US-based Vantage Hospitality Group Inc., the world’s 12th-largest hotel company by number of properties, is looking to establish its two and three-star Best Value Inn brand in India. Gene Kordoban, a Partner at Vantage, said the company is hoping to set up to 15 Best Value Inns in India by 2010.

“The country is pretty untapped in the budget hotel segment,” said Kordoban, who is in India as part of a week-long visit by a delegation from the Asian American Hotel Owners’ Association (AAHOA), the largest hospitality industry organization in the US. He said Vantage would most likely introduce Best Value Inn in financial centres like Delhi or Mumbai before moving on to an India-wide expansion.

An eight-year old private company, Vantage currently has over 700 members, or franchisees, in the United States, Canada, and Mexico, and is currently expanding into China.

Vantage will provide an international brand, marketing and technology assistance to Indian members, while their local partners will develop the properties and operate the hotels.

Kordoban said his company is seeking a single partner in India to spearhead the company’s foray into the country and find sub-franchisees to manage the various properties.

Hotel industry analyst Viraj Nadkarni said Vantage’s move into the budget hotel sector may succeed because “the middle class population can afford a two or three-star hotel, not a five-star one.” He added that an overall increase in tourism and business activity inIndia is contributing to demand for budget rooms.

The ministry of tourism estimates that India’s economy is short of 150,000 rooms to meet business and leisure needs, leading international players such as Hilton Hotels Corporation and Accor SA to enter the market by teaming up with local developers. Many industry professionals have, in particular, pointed to a shortage of budget accommodation in India.

Still, high land prices in cities such as Delhi may make new budget hotels difficult to sustain financially. An auction in the Delhi suburb of Gurgaon this month saw a 5-acre plot fetchRs 255.2 crore. Such purchases can be sustained only by making a luxury development. As a result, budget hoteliers have started to look at other models for building properties. In recent bids, motels operators such as Signet Hotels Consortium, were awarded leases for building budget hotels on land owned by the Indian Railways.

The AAHOA has 8,600 members who have $50 billion in assets, said delegation leader Alkesh Patel. About 55% of Vantage’s members—mostly in the US—are of Indian origin, said Kordoban.