Hotel firm, Cabana Hotel Management Pvt. Ltd, is looking to become one of the largest hotel companies in India in the next 10 years, not a bad ambition to have for a company that is less than a decade old.
The master licensee for Best Western International, Inc. brands in India plans to invest $1.2 billion (Rs4,930 crore) in the Indian hospitality sector by 2016 and hopes to make an initial public offering (IPO) in India by 2012, said Cabana’s co-chairman and Silicon Valley-based investor Prabhu Goel. The investment will come through a combination of the company’s own funds, equity, and debt.
“The middle-class traveller is learning how to travel and spend money in a dramatic way, Indians are becoming the highest spenders overseas when they travel on leisure, and the business travel both inside India by Indians as well as business travel from overseas is increasing rapidly,” said Goel, explaining why he believes his company will generate substantial returns over time. He declined to specify an exact figure or timeline.
Cabana is seeking to develop, on its own or through joint ventures, 50-100 hotels branded as Best Western or Best Western Premier and classified in India as four- or five-star. The five-star hotels will be in major metros, while the four-star ones will be in secondary cities.
In addition, Cabana will manage, or sublicense, to other hoteliers about 100 properties branded Best Western or Best Western Premier by 2017, said Goel.
The first six Best Westerns developed by Cabana are scheduled to open by 2009: of these, four will be on land leased from the Indian Railways by Signet Hotels Pvt. Ltd, owned by the same investors as Cabana’s. The hotels, part of the government department’s efforts to provide affordable rooms for its passengers and others, will be required to provide at least 25% of their rooms at Rs1,000 or less, but the remainder will be priced at market levels,said Goel.
The company is also opening a hospitality management institute in Bhubaneswar to help provide manpower for Best Westerns in India and in general for the market.
In India on a four-city tour with Goel to promote both companies, Best Western International Inc.’s president and CEO David Kong spoke to Mint by telephone to explain his company’s plans in India and its relationship with Cabana Hotel Management. Edited excerpts:
What are the roles Best Western, Cabana , and the other franchisees will play in this expansion?
The role that Cabana is going to play is going to be threefold: First of all, they’re going to build their own hotels and manage them, or they’re going to sublicense these hotels as a pure franchise, or they’re going to sublicense them and actually manage them.
And Best Western will only play the role of a franchisor right?
Yes, we’ll be playing the role of licensor…
In that regard we might be a little different from the other brands you’re familiar with.
First of all, Best Western is the world’s largest hotel chain, and what that means is that we have sales and marketing offices worldwide. And having been in business for 60 years, we have tremendous knowhow… For example Cabana’s setting up a hotel school here in Bhubaneswar and we are lending our training expertise, our curriculum, and training materials and…we’re lending all that to Cabana here tomake sure this gets off on the right foot.
Speaking of Cabana, it’s interesting that in expanding in India, Accor SA has formed joint ventures with local developers, Indian Hotels Co. has created a subsidiary, but you’re tapping US-based hoteliers as the promoters to be your master licensees. Why have you done that?
Well first of all, I think we recognize that the most important factor to consider… To work in a foreign country is to have a good partner that you can trust—one of the co-founders of…Cabana….B.P. Patel (has been affiliated with the) Best Western company for 28 years and for 25 of those years he was a trusted, respected?adviser?at?Best Western hotels as a governor….(and) not only someone that we trust, but someone that has the financial wherewithal…who understands the local market, and who has the necessary relationships and connections.
How long did the process take (to select a master licensee in India)?
About two years.
So you made the decision in 2005 that you…wanted to heavily expand into India?
People have talked about the Indian budget segment as a major opportunity for hoteliers. Some of the major issues have been land prices, air connectivity and competition from the unorganized sector like guest houses and service apartments, etc. How is Best Western International going to help its franchisees in India deal with those issues ?
Well, actually you hit the nail on the head by describing all the issues surrounding budget hotels… When I talk about three-and-a-half stars and above in secondary locations and four-and-a-half stars and above in primary locations, I’m actually implying that Best Western’s going to compete in an upscale space…
We don’t want to be in the budget segment… What we want to do is provide the comfort and standards of a five-star hotel chain or four-star hotel chain, but at a pricing that’s affordable…
What pricing are you going to start at?
I think it depends on the market a great deal, but if you think about the Taj pricing, it’s probably going to be 15-20% off of that initially.