NEW DELHI : As the third wave of the covid-19 pandemic rages on, hospitality companies are innovating to survive. For Patanjali Keswani, chairman and managing director of publicly traded Lemon Tree Hotels, one such survival strategy has been to franchise its brands. Lemon Tree, which operates in high-end, mid-range and economy segments, will take the franchise route to expand into small towns. In an interview, Keswani said the pandemic has put a premium on reducing fixed costs to make businesses profitable. Edited excerpts:
You started to franchise hotels. What does this imply?
In this, we simply provide hotel owners with our brand. With this we monetize our brand. Thus, we can either monetize our brand or our management capabilities. And that’s the way to grow without deploying capital. Of our 87 hotels in operation today, three hotels are franchised and one hotel is man-chise (man-chise refers to the model where the general manager is an employee of the company). So far, we have signed two other hotels under the franchise model. It’s profitable. So in the future we will manage and brand or franchise.
Was it something you always planned to do?
Sure, but first we had to build some network and build a large enough customer base to provide the right distribution channels to those hotels, and second, we had to achieve the scale and bandwidth to make sure that when we sign a franchise/man-chise hotels, we would be able to audit them to make sure they are not operating to our brand standards.
For me, franchising is the formalization of the informal hotel business. Today, more than 80% of hotels in India are either unbranded or stand-alone.
Franchising is a way to obtain the benefits and advantages that come with this formalization, which will also lead to improved standards.
Is this going to be a small town strategy for you or are you going to go to the big cities with a franchise?
Every hotel business has what are called exclusion zones. Hotel owners request these areas to avoid being impacted by competition. There is therefore a limit to our ability to manage/franchise/man-chise more and more hotels in specific geographical areas. We have been widely present in all major hotel cities. So, yes, they will be more in towns where we don’t have hotels.
How was travel affected in January?
Travel is down more or less 50-70% in the last few days and I think that will continue this month. After the first wave in April-July 2020, it took a long time to return to a reasonable level of activity. This continued until February or March 2021 until the second wave, which was devastating for three to four months. But the recovery was faster.
In the first wave, it was an L-shaped recovery, while the second wave saw a V-shaped recovery. We expect this third wave to also have a lightning-fast recovery time . People are too tired of the way they’ve lived for the past two years. So my general estimate is that there will definitely be an impact in January, in February as well, maybe, but in March it will be completely over.
What are your pandemic learnings?
A few things: First, what we’ve learned is that companies need to minimize fixed costs and maximize variable costs (food costs, raw materials, etc.). Second, always have cash on hand which can help you mitigate risk. The third, which is true for the entire hospitality industry, is that we needed to be more efficient in our cost structures. So there is a huge reduction in operating expenses now and will be when covid is over. Basically what I’m saying is that all hospitality businesses will see their costs permanently reduced to some degree and therefore be much more profitable. I said it openly, we’ll save more ₹100 crore per year with our optimized cost structures.
What are your expectations from 2022?
There will be a phenomenal rebound by October this year for the hospitality sector. It could be better than pre-covid levels within eight months.
Business travel will return to 100%. Leisure will be added to it. I think Indians have gotten used to the idea of taking vacations by now. This was not necessarily the case before. Yes, there will be additional demand in the leisure segment and I don’t think business hotels will really lose significant business volumes, because my theory is that even working from home irritates everyone and businesses recognize it, at least the companies I’ve spoken to. Collaboration, camaraderie and things like that don’t happen while working from home.
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