The hospitality industry has emerged as one of the key growth drivers in India in the service sector. It is a sunrise industry and a significant player in terms of economic growth, job provider – directly and indirectly – and a huge source of foreign exchange through FDI and tourism.
The sheer diversity and scale of hotels and lodging options in the hospitality industry ensure penetration of numerous start-ups every year and several newer companies and groups foray into this sector with fresh ideas and innovative marketing strategies.
The hotel industry in India is a direct result of the booming tourism sector. There is a sharp rise in the number of budget hotels catering to the increased number of domestic and foreign ‘budget’ travellers and backpackers looking for basic and affordable stay.
The booming Indian middle-class with an increasing disposable income are contributing significantly to the growth of the hospitality sector that accounts for 7.5 per cent of India’s GDP and is expected to grow at 16.1 per cent CAGR (Compound annual growth rate) by 2022.
Besides, the hospitality industry contributes in terms of revenue to the nation at state and central levels through direct and indirect tax revenue – GST, VAT, Luxury Tax, Service Tax, etc.
Also, with increased FDI and growing economic ties with nations all over the world, India is set to become a global business hub. This translates to lucrative business opportunities for luxury and economy hotels across India. Several international hotel chains are also foraying into the domestic market in a bid to ensure a piece of the pie – the hotel industry in India is second to China in the Asia Pacific region.
Hotel start-ups in India are diverse and varied. Some are backed by renowned and reputed venture capitalists and angel investors, while others look for innovative ways to set a foot in virgin territories and leave a mark. Investors are driven by technology-driven models and India – the most digitally-advanced traveller nation (e.g. digital tools used for planning and experiencing travels) and with an ever-increasing internet penetration is a natural draw for serious investors from all over the world. These investments have given a big boost to the hospitality industry and several start-ups are now able to procure funding from international venture capital firms.
Some successful start-ups in India
Of start-ups with phenomenal growth, MakeMyTrip was founded by IIM-Ahmedabad alumnus Deep Kalra in 2000, primarily to cater to the overseas Indian community for their US to India travel needs. In September 2005, MakeMyTrip started Indian operations offering online flight tickets to Indian travelers, and began to focus on non-air businesses like holiday packages and hotel bookings. Within ten years of its inception, on 17 August 2010, MakeMyTrip Limited was listed on the NASDAQ after its initial public offering. In 2016, MakeMyTrip and Ibibo Group, India’s largest travel booking portals, merged through a stock transaction – one of the biggest acquisitions in India’s online travel space.
Among hotel start-ups in India is Lemon Tree Hotels – said to be India’s largest hotel chain in the mid-priced hotel sector and the 3rd largest overall, in terms of controlling interest in owned and leased rooms, according to the 2017 Horwath Report.
Lemon Tree Hotels was founded by Patanjali (Patu) Keswani and opened its first hotel with 49 rooms in May 2004.
Today it operates under seven brands: Aurika Hotels and Resorts (upscale), Lemon Tree Premier (upper midscale), Lemon Tree Hotels (midscale) & Red Fox by Lemon Tree Hotels (economy), Keys Prima (upper midscale), Keys Select (midscale) and Keys Lite (economy).
Its hotels in India are located in major destinations such as Ahmedabad, Alwar, Aurangabad, Baddi, Bandhavgarh, Bengaluru, Bhiwandi, Chandigarh, Chennai, Coimbatore, Corbett, Dehradun, Delhi, Gangtok, Ghaziabad, Goa, Gurgaon, Hyderabad, Indore, Jaipur, Katra, Kerala, Manesar, Noida, Patna, Pune, Siliguri, Srinagar, Tiruchirappalli, Udaipur, Vijayawada and Vadodara. (can delete if space constraints.)
There are plans to operate 105 hotels with 10,500 rooms, across 66 cities in India and abroad. Lemon Tree Hotels went public in early 2018, and got listed on the National Stock Exchange of India (NSE) on 9 April 2018.
OYO is the world’s third-largest and fastest-growing hotel chain of leased and franchised hotels, homes and living spaces and India’s biggest success story in the hotel industry. The chain that started with one hotel in 2013 now marks its presence in more than 800 cities with more than 23,000 hotels, 8,50,000 rooms and 46,000 vacation homes, worldwide. OYO’s success lies in its ability to generate a list of pocket-friendly hotels and good booking deals.
OYO quickly expanded to Indonesia and difficult global markets such as UK, USA and China where it is the largest single hotel brand with a presence in 337 cities across 10,000 hotels. The rapid success of the hotel chain has attracted huge investments from Japan’s SoftBank, China Lodging, Airbnb, etc., and since September 2017, the start-up has raised USD 2.5 billion.
Bengaluru-based seed venture, Colive is an aggregator offering fully-furnished, fully-managed and budget-friendly service apartments. Colive provides an online platform for people to search serviced homes in specific areas in proximity of IT parks and business hubs. Other perks include amenities, professional housekeeping, secured premises, high-speed internet, etc. The technology-enabled network now provides ‘home’ to more than 20,000 single professionals and young couples.
Zostel, founded in 2013 in Jaipur, started as a chain of backpacker hostels and managed to raise a significant sum in capital investment. The motto behind this start-up was to ‘promote travelling as a way of life’, particularly for budget travelers, so they could avail safe, clean and economical social accommodation. By 2017, Zostel had top-rated hostels at 38 locations in India and Nepal.
The start-up is now venturing into international partnerships in the South East Asia region and aiming to strike ‘deals’ in at least ten cities in Thailand, Vietnam, Indonesia, etc. The USP of this chain is that it is service-oriented and promotes picturesque locations, authentic local experiences, all for a backpacker. The founding team see themselves as ‘pioneers of travel’ and not ‘hostel operators’.
Another technology-driven, traveler-friendly start-up is Room On Call that allows business travellers to book hotels online, across Indian cities and offer several deals and discounts in the process. Founded in 2015 in Gurugram, the start-up raised USD two million in its first year itself in a round led by CASHurDRIVE.
Gurugram-based start-up Fabhotels, a budget hotel aggregator founded in 2015, raised nearly USD 35 million through investments from Accel Partners and Goldman Sachs, a huge amount for an early-stage start-up. In the last couple of months, Fabhotels have witnessed a significant increase in sales growth.
US-based company Airbnb started operations in India in 2016, and has collected about 45,000 listings in India since. The major share of its listings, about 6,000, are in Goa also the most popular market. Airbnb has announced new measures to penetrate further in the domestic market such as including Hindi and other vernacular languages for its users and interfaces. The number of guests using Airbnb has doubled since its launch and almost two million Indians have used Airbnb so far.
There are many young professionals who have donned roles of budding entrepreneurs in the hospitality industry. B-school graduates are venturing into the industry as full-time professionals, freelancers and even starting their own ventures with innovative ideas and strategic marketing to draw the ‘new traveler’, a market with huge potential.