InterContinental Hotels Group Is Looking For Scale In India

David Webster swears by the work ethic of his Indian personal assistant and his wife Gail is a “big fan” of India and visits the country often. But these are not the only reasons why the chairman of InterContinental Hotels Group–the largest in the world by number of rooms–is placing his next big bet on the Indian hospitality industry. A day after chairing the company’s board meeting in New Delhi, its first ever in India, Webster talks to Forbes India about the company’s strategy for the country.

Q. You just chaired IHG’s first board meeting in India. Why India?
A. It is a message that we want to send to the hospitality industry. We are placing our bets on India. In 1984, we had bet on the Chinese market much before others. Today we are the largest company in the Chinese market with over 167 hotels and another 150 in the pipeline. We first entered the Indian market in the 1950s. But in 2006 we renewed our focus. Today, we have 12 hotels in India and have another 47 in the pipeline [company officials later told Forbes India that this number will soon increase to 60]. This is our third largest pipeline after the US and China.

Q. But what is it about the Indian market that makes it more interesting for you than Brazil or Russia, which are also growing?
A. First, Indian people and the culture--and the namste is a great reflection of it--are very friendly and tend themselves naturally to the hospitality industry. This morning while I was walking down the hotel corridor, an attendant was sweeping. He saw me, kept his broom down and gave me a namaste with a big smile! I don’t know how many hours of training are needed for us to get this in other countries!

Second, we grow on the back of GDP (gross domestic product) growth and India is among the fastest growing economies in the world. Also, we usually have two broad strategies when we focus on a market. One is led by a key city and another is the country strategy. We do have key investments in many South American cities. We also have hotels in Moscow. But in India, we are following a country strategy, which is scalable. And in India we are looking for scale.

In India, while we could be targeting visitors from outside, our main focus would be on the domestic traveler. More than 500 million Indians travel within the country every year. Businesses are expanding. This is the market that we are targeting.

Q. IHG has seven brands that straddle across market segments, from mid-market (Holiday Inn and Holiday Inn Express) to upscale (InterContinental Hotel). What would be your strategy for India?
A. Globally, we have a strong presence in the mid-market segment. Of the over 4,480 hotels that we have across 100 countries, more than 3,000 of them belong to the Holiday Inn and Holiday Inn Express brands.

In India, the market till now has been top heavy. The luxury hotels in India are unbeatable in service. But when it comes to the mid segment, the market is immature and there is immense scope. Most of the hotels in our pipeline will service this segment of the market. Thirty –eight of the 47 hotels planned for India will be in the mid-market segment. Later this year, we will open the first Holiday Inn Express hotel in Ahmedabad.  

Q. Does it concern you that most of your global peers and many upcoming Indian hotel chains are also targeting this segment?
A. I would have been worried if other multinational companies were not here! That they also have big plans is a clear indication that we are on the right track. And we don’t have to be successful by squeezing the indigenous competition. Our Holiday Inn brand is probably the most recognizable brand and it is known for its systems and quality. That itself is a big start for us.

Also, having brands across segments helps us to cater a market well. In Shanghai itself we have 22 hotels! And there is still opportunity for more there. I think many of the Indian cities have similar opportunities.

Q. Last year you signed a joint venture agreement with the Mumbai-based Duet Group to manage 19 Holiday Inn properties with them. You plan to invest $30 million in that venture. Isn’t that unusual, as IHG is known to follow a management and franchisee model, instead of owning the properties?
A. The decision to follow the management and franchisee business model was a conscious one for us after 2003, when IHG was formed after the demerger from parent Bass Plc. We in fact sold around 200 of our own hotels for $5.1 billion. Today we own only 11 of the hotels in our portfolio.

In India too, we are following the management model. But we still do selective investment, especially when we are introducing a new brand in the market or when we are entering a new market. This helps bolster our partners.

Q Some of the Indian companies too are shifting from “own and manage” model to the management and franchisee model. How does it help to have a management business model?
A. One of the main reasons for us to have this business model was to be asset-light. This helps in growing fast. In China nearly all our hotels and under the management model.

This model also helps when we face a slowdown like the one in 2008 that was sudden. We were among the only few hospitality companies that continued to give dividends.

This model also means that we have very low debt on our books. We have less than $500 million of debt (on gross revenue of $20.2 billion in 2011).

Q Would you franchise your brands in India?
A. Globally, we prefer to manage the top-end brands and look to franchise only the mid segment and budget brands as these are easier to handle in terms of quality management. In India, like in China, we would prefer to go the management model.

Q What have been the challenges while operating in the Indian hospitality industry?
A. Infrastructure is a concern. I have travelled on Indian roads and they need to be improved. The airport in Delhi is very good but we need more of those. India has around 200 airports and the US has 15,000. China has nearly 100 new airports under construction.

Another concern is over-regulation. In India, it takes five year to build a hotel. In China it takes two years! An engineer was telling me that in China you add one storey in a day! At the end of the day, this is a concern in India as the investor needs to  keep writing out checks for quite a long time before he starts getting back some money.

Q Which is your favourite Indian hotel brand?
A. I have stayed in three Taj properties. Their service is exceptional.