report spa hotel industry

INVESTMENT POTENTIAL IN SPA AND HOTEL BUSINESS IN INDIA 1

Prepared For:

Prepared By:

,

IMRB International

INVESTMENT POTENTIAL IN THAI SPA AND

HOTEL RESTAURANT BUSINESS IN INDIA

February 2009


Preface

Thai-Indian business relations have improved considerably over the past decade.

Thailand and India are close to concluding a Free Trade Agreement (FTA) covering trade

in goods by 2010. The Free Trade Agreement between Thailand and India is expected to

improve trade relations between the two countries further. The FTA covering trade in

goods would lead to long term mutual benefits in trade and investment and the

partnership would be expanded further to cover technology know-how and expertise

India's primary imports from Thailand are machinery, electronic appliances, textiles,

plastic material, transport equipment, vegetable oil and latex. The major items of imports

under FTA are polycarbonate, cathode-ray tubes, color-TVs, air conditioners and

Aluminum products. Thailand‘s main imports from India are jewelry, gemstones, steel,

pharmaceuticals and ferrous metal ores.

India's trade with Thailand could touch USD 7 billion by 2010-11 propelled by a

doubling in transaction under Free Trade Agreement (FTA). The EHS was implemented

on September 1, 2004, under which tariffs on 82 items were to be phased out by

September 1, 2006 by both the sides.

The trade between Thailand and India is estimated to be US $ 7 billion by 2010-11 from

US $ 2.2 billion in 2005-06.

The total trade of 82 items under Early Harvest Scheme (EHS) of the FTA was increased

by over 140 percent to about US $ 358.63 million in 2005-06 from US $ 149 million in

2003-04. The share of these 82 items in India-Thailand trade increased from 10.34

percent in 2003-04 to 15.68 percent in 2005-06.

Thailand‘s export to India of the identified 82 EHS items was increased from US $ 84.64

million to US $ 275 million during the period from 2003 – 04 to 2005 – 06. During the

same time, India‘s export to Thailand of these items increased from US $ 64.28 million to

US $ 83.03 million during the same period.


In 2007, Thailand‘s export for these 82 items was US $ 406.31 million. Due the FTA

between two countries, Thailand is able to manage the trade surplus of US $ 598 in 2007

in bilateral trade between Thailand and India.

With significant potential for growth of business between the two countries, the Ministry

of Commerce, Thailand and Royal Thai Embassy would like to understand the

investment potential across the following identified product categories:-

1. Home Utility and Furnishing: This would broadly include three product

categories:-

a. Furniture – Largely focusing on house hold furniture e.g. Sofa-set,

Dining table, Corner / corner table etc. Also covering office furniture

e.g. office chairs, cubicles, tables etc and open-air furniture i.e. the

furniture used in the garden, near pools etc

b. Interior Decoration items – This would include: Show pieces,

Wooden handicraft, photo frames, artificial flowers.

c. Utensils – Household (kitchen), HoReCa (Hotel Restaurant Catering)

Segment, Institutional / Office

d. Plastic Products - Food containers, plastic storage boxes etc e.g.

Cello, Tupperware, Milton, Nyasa etc

2. Construction Material: This would include Bathroom Fittings,

Tiles/Floorings (including wooden), Roof Tiles (used in the costal areas),

Metal (Al, Tin etc) / Gypsum boards used for partition

3. Hospitality Services: This would be understood with the objective of tie-up

with existing hotels – spas, specialty restaurant (e.g. Thai cuisine restaurant),

health wellness services etc. The client would be interested in management

control and running the property. The stand alone spas e.g. Kaya clinic is also

covered in the purview of the study.

4. Auto parts and accessories: It would cover both types of auto parts:-


a. Essential auto parts (low volume high value items e.g. gear box,

clutch plates etc and high volume low value items like break pads etc).

These parts would be for 2-wheelers (e.g. moulding etc) and 4-

wheelers – both cars and commercial vehicles.

b. Accessories / decorative items e.g. music systems, alloy wheels etc

In order to understand the trade potential across the above categories, the Ministry of

Commerce, Thailand and Royal Thai Embassy has commissioned Business and Industrial

Research Division (BIRD) of IMRB International to avail its research based consultancy

services


Table of Contents

1 EXECUTIVE SUMMARY ................................................................................................... 8 1.1 Spa and Wellness Industry ...................................................................................................... 8

1.2 Indian Hotel Industry ............................................................................................................. 14

1.3 Foreign Direct Investment and Government Policy .............................................................. 17

1.4 Attractiveness of segments and Entry Strategy ..................................................................... 18

2 GLOBAL SPA AND HOTEL INDUSTRY ....................................................................... 22 2.1 Classification of Spa and Wellness business ......................................................................... 22

2.2 Trends in Spa and Wellness Business ................................................................................... 23

2.3 Classification of Hotels ......................................................................................................... 24

2.3.1 By Star Categories ...................................................................................... 24

2.3.2 By Target Market ........................................................................................ 26

2.4 Global Hotel Industry Landscape .......................................................................................... 26

2.4.1 Contribution of Travel & Tourism to Global GDP ..................................... 31

2.4.2 Regional Performance of Global Hotel Industry – 2006 Vs 2005 .............. 31

3 INDIAN SPA AND HOTEL INDUSTRY: AN OVERVIEW ......................................... 32 3.1 Spa and Wellness Segment .................................................................................................... 32

3.1.1 Introduction ................................................................................................. 32

3.1.2 Industry Structure & Segments ................................................................... 33

3.1.3 Industry Environment: Thai Spa treatment in perspective ......................... 34

3.1.4 Industry Turnover and growth trends ......................................................... 35

3.1.5 Major Players .............................................................................................. 38

3.1.6 Demand – Supply Scenario ......................................................................... 42

3.2 Hospitality Segment .............................................................................................................. 43

3.2.1 Introduction ................................................................................................. 43

3.2.2 Industry Structure & Segments ................................................................... 45

3.2.3 Transition in Hotel Industry in India .......................................................... 46

3.2.4 Revenue Generation Models in the Hospitality Industry ............................ 47

3.2.5 Industry Turnover and growth trends ......................................................... 48

3.2.6 Major Players .............................................................................................. 50

3.2.7 Demand – Supply Scenario ......................................................................... 51

3.3 Foreign Direct Investment (FDI) flow – Spa and Hotel Segment ......................................... 52

4 NATURE OF HOTEL AND SPA INDUSTRY BUSINESS ............................................ 54 4.1 Key Operating Characteristics ............................................................................................... 54

4.1.1 Cost Structure.............................................................................................. 54

4.1.2 Cost Structure Profitability ......................................................................... 55

4.2 Seasonality ............................................................................................................................. 55

4.3 Operating Risks ..................................................................................................................... 56

4.4 Regulations / Standards ......................................................................................................... 57

4.4.1 Central Excise Act, 1944 ............................................................................ 58

4.4.2 Prevention of Food Adulteration Act, 1954 ................................................ 58


4.4.3 Environmental Laws, Rules & Regulations ................................................ 59

4.5 Government Policy ................................................................................................................ 60

4.5.1 Trade Measures influencing investments.................................................... 60

4.5.2 Incentives for attracting investments .......................................................... 60

5 CHANNEL INSIGHTS ....................................................................................................... 61 5.1 Major Cities and Towns for Spa and Hotel segments ........................................................... 61

5.2 Value Chain ........................................................................................................................... 63

5.3 Filling gaps in Price & Service Value Chain ........................................................................ 63

5.3.1 Service Apartments ..................................................................................... 64

5.3.2 Resort spas / Hotel Spas .............................................................................. 65

5.3.3 Budget Hotels.............................................................................................. 66

5.3.4 Spa & Wellness Centers.............................................................................. 66

6 GROWTH DRIVERS AND CHALLENGES ................................................................... 68 6.1 Spa & Wellness Segment ...................................................................................................... 68

6.1.1 Growth Drivers ........................................................................................... 68

6.1.2 Challenges ................................................................................................... 70

6.2 Hotel Segment ....................................................................................................................... 71

6.2.1 Growth Drivers ........................................................................................... 71

6.2.2 General economic and business conditions in India and other countries ... 72

6.2.3 Discovering New Niches: Case Study – Medical Tourism ........................ 72

6.2.4 Challenges ................................................................................................... 74

7 CRITICAL SUCCESS FACTORS .................................................................................... 75 7.1 Spa and Wellness Industry .................................................................................................... 75

7.2 Hotel Industry ........................................................................................................................ 76

7.2.1 Site & Location ........................................................................................... 76

7.2.2 Positioning & Guest Profile ........................................................................ 76

7.2.3 Financial Strength ....................................................................................... 76

7.2.4 Brand Recognition ...................................................................................... 77

7.2.5 Yield Management ...................................................................................... 77

7.2.6 Differential Pricing ..................................................................................... 77

8 MARKET ATTRACTIVENESS AND POSSIBLE COLLABORATION .................... 78 8.1 Spa and Wellness Industry .................................................................................................... 78

8.1.1 Market attractiveness for various spa segments.......................................... 78

8.1.2 Possibility of collaboration across various spa segments ........................... 79

8.2 Specialty Restaurants across Business and 3 to 4 star hotel categories ................................ 80

8.2.1 Market attractiveness for various specialty Thai cuisine restaurant ........... 80

9 CONSUMER INSIGHTS – SPA AND HOTEL INDUSTRY ......................................... 81 9.1 Spa and Wellness Industry .................................................................................................... 81

9.1.1 Profile of potential customers ..................................................................... 81

9.1.2 Taste and preference across regions ........................................................... 83

9.1.3 Need – gaps in current service offerings..................................................... 83


9.1.4 Brand image of Thai brands in Spa............................................................. 84

9.2 Specialty Cuisine Restaurant ................................................................................................. 85

9.2.1 Consumer Taste and Preferences ................................................................ 85

9.2.2 Case Study: Creating New Food Category: Starting an era of Chinese

cuisines 85

10 CONCLUSION AND RECOMMENDATIONS............................................................... 89 10.1 Market attractiveness and opportunity matrix in Spa and Wellness business in India ......... 89

10.2 Entry Strategy in Spa and wellness business ......................................................................... 90

11 Annexure .............................................................................................................................. 93

12 List of Tables ........................................................................................................................ 95

13 List of Figures ...................................................................................................................... 96

14 References ............................................................................................................................. 97


1 EXECUTIVE SUMMARY

1.1 Spa and Wellness Industry

The Indian beauty and wellness market is pegged at about $9 billion. Under the scope of

this study, spa and wellness business includes body massage therapies with traditional

ayurveda therapies as well as non-ayurveda therapies using aromatic and chemical based

oils. The spa and wellness business in India is estimated to be in the range of US $ 34 –

36 million (INR 150 – 200 crores in 2007 – 08). The spa and wellness business in India is

at early stages. Nevertheless, India has a handful of globally recognized resort spas. The

industry is being developed with a concept of ―total rejuvenation and stress-free life‖.

The growth prospects seem promising across major city clusters as the supply of these

genuine aroma therapies is limited.

The Indian spa and wellness experience is predominantly based on Yoga and Ayurveda

therapies used for preventive and curative ailments. The Thailand spa and wellness

concept is woven around traditional non-oil based massage that incorporates meditation

treatments, rejuvenation and relaxation.

―Ayurveda massage therapy is expected to grow at 15 – 20% whereas non-ayurveda

based aroma massages with different specialties can grow by as high as 50% for the

next few years. It is largely because of the expansion plans of major day spa chains.‖

- Owner of Bangalore based budding spa chain


The massage and spa therapy market in India is in the evolution phase. The same can be

segmented below:-

Spa & Wellness Market - Offerings

Non-ayurveda massage

& spa therapies

Ayurveda Clinics with

Ayurveda Doctors

Massage therapy

based treatments

Non-massage based

Treatments – medicines

Curative

Massages / Treatments

Ayurveda therapy & treatment Salon & Spa treatment

Beauty Enhancement

treatments such as:-

- Facials – herbal and

non-ayurvedic

- Laser treatments

- Pedicure & Manicure

- Foot massage, reflexology

etc

- Salon etc

Gym coupled with

Sauna / steam bath –

oriented towards muscle

toning and fat reduction

Segmentation of Massage & Spa Therapy Market

Diseases such as

- Arthiritis

- Diabetes

- Muscle or bone related

pain, displacement etc

- Obesity treatment

- Relaxation / rejuvination

- Modern day diseases e.g.

Migrane, Stress etc

Preventive


Massage treatments

such as:-

- Javanese

- Swedish

- Thai etc

Figure 1: Segmentation of Massage and Spa therapy market

The industry environment of spa and wellness Industry in India can be assessed under the

following framework:-


Industry CompetitorsNo one is providing real Thai spa

experience except one in

Bangalore

Thai Spa & Massage Treatment in India : Market Analysis

SubstitutesAyurveda therapies using light oils. 4 – 5 pan-

India chains. Southern cluster biggest market

Potential EntrantsOther Spa therapies such as Javanese,

Swedish, Body wraps etc intruding upon non-ayurveda

based spa experience

SuppliersThai therapists training

north-eastern Indian therapists.

Aroma oils procured from Thailand,

Singapore etc.

ConsumersDemand from aspiring price conscious

class (INR 700 – 800 per sitting) and

upper end of the society (INR 1500 &

more per sitting). Demand expected

from both the sexes

Political / Legal Environment

- Closeness in economic cooperation & cultural

exchange between two countries

- FDI norms allow 100% stake in specialty outlets

- No problems with repatriation issues after paying

taxes

Social / Consumer shifts

- Ayurveda massage system already popular in South

India, gaining popularity in North India

- Consumers willing to accept the experience from

therapies from other countries

- City clusters having progressive population, resulting

into modern day diseases

Innovation shifts

- Thai spa therapies now also include aroma oils suiting

local skin and texture

- Relaxation by thorough muscle ligament exercise,

requires experience in service offerings

Economic shifts

- Concentration of disposable income in top 6 – 8 cities

- Rising spending patterns on ―pampering‖ therapies

- International economic environment augurs cautious

approach

Figure 2: Market Analysis of Thai spa treatment offering in India


The market is changing fast both for resort / hotel spas and day spas. Almost all the new

3 star and above category hotels that are coming have spa facility for additional income.

The organized segment spa and wellness market is largely confined to top 6 – 8 cities in

addition to the presence of two major players in the Kerala state. Other than the top 3

cities i.e. Bangalore, Delhi and Mumbai, the other major cities for spa and wellness

therapy market are Hyderabad, Pune, Chennai and Kolkata. The awareness about

preventive and curative aspects of these spa therapies has been the largest impediment in

the market growth.

―Before Commonwealth Youth Games 2008, Pune 13 star category hotels were

planned. All of them are provisioning spa facilities.‖

- Leading Spa Consultant based in Pune


The growth drivers for spa and wellness are shown in the figure below:

Spa and Wellness Industry -

Growth Drivers

Education

Awareness and

education on ―health

conscious‖ functional

platform - most

important reason

Increase in

disposable income

Service industry growth

leading to increasing

incomes

Overseas Exposure

Exposure to SE Asian,

EU experiences leading

to similar experience

demand

Availability &

Proximity

Supply creates Demand

- Indian consumers

willing to try out these

facilities

Affordability

Services not just

confined to super-

riches. Affordability

factor instrument in

increasing demand

Growth

Drivers

Figure 3: Growth drivers for Spa and wellness industry in India

There is a huge scope of association between India and Thailand. The spa and wellness

industry in Thailand is around 5 – 7 years ahead of India‘s spa and wellness industry. The

huge scope between two countries is offset by the import duty structure for spa products

and equipments.


The figure below outlines factors that would play critical role in the success of ―Thai‖ spa

and wellness experience.

Critical SuccessFactors

Type of oil used – %

of therapeutic content

impacts repeat

purchase and WoM

advertising

Point o

f

presence –

close

to ta

rget

custom

ers

Olfactory –

aroma touching

senses

Ambience – Lightening,

color /shades, furniture –

theme specific

(Differentiator)

Trained

Therapists –

“Experience”

factor

Hyg

iene

–

stai

nfre

edr

esse

s,

curtai

ns, w

alls

etc

Courteous &

attire of staff –

theme specific

(“Thai”

experience)




impacts repeat

purchase and WoM

advertising



impacts repeat

purchase and WoM

advertising

Point o

f

presence –

close

to ta

rget

custom

ersPoin

t of

presence –

close

to ta

rget

custom

ers

Olfactory –

aroma touching

senses

Olfactory –

aroma touching

senses



theme specific

(Differentiator)



theme specific

(Differentiator)

Trained

Therapists –

“Experience”

factorTrained

Therapists –

“Experience”

factor

Hyg

iene

–

stai

nfre

edr

esse

s,

curtai

ns, w

alls

etc

Hyg

iene

–

stai

nfre

edr

esse

s,

curtai

ns, w

alls

etc

Courteous &

attire of staff –

theme specific

(“Thai”

experience)

Figure 4: Critical Success Factors for spa and wellness industry in India

―Higher excise duties have been the impediment in importing spa oils and equipments

from Thailand. Spa products are treated as cosmetics, command 35% excise duties.

Similarly Spa tables are furniture, command 32% excise due. The landing cost of

product worth INR 500/Kg purchased in Bankok is INR 1200 - 1400/Kg in India‖

- Delhi based major Spa products and equipments importer from Thailand


The customer availing spa service can be described with the following common set of

characteristics:-

They would be eating out quite often, i.e. more than 2 – 3 times a week

They would be going to malls and multiplexes a lot

Their age would typically between 25 – 40 years

Most of these guys would be first time spa goers

1.2 Indian Hotel Industry

According to the World Travel Market‘s Global Report 2008, scope for new tourism

development could be seen notably in emerging economic giants India and China, which

are likely to remain a strategic priority as growth is predicted to be robust, albeit slow

down in global economy.

As per the table below, overall travel and tourism consumption including domestic and

foreign travel is estimated to be US $ 65.88 billion in the calendar year 2008. The

consumption figures have grown 23% and 26% in 2007 and 2008 respectively.

―The consumer for these (Global) spa therapies would be people who are concerned about

their health and are doing nothing about it. These guys would be from 25 – 45 year of age

profile, earning more than INR 5 Lacs per annum.‖

- Managing Director of budding Aroma and Thai Spa Chain


Travel and Tourism Industry -

India’s Turnover

Table 1: Turnover of India’s Travel and Tourism Industry till 2008

Source: WTTC

According to industry structure as shown in industry structure section of this report, the

estimated market turnover of Hotel Industry, Domestic Tour Industry and Travel Industry

is the calendar year 2010 is show in the graph below:-

Figure 5: Turnover of India’s Travel and Tourism Industry till 2008

Source: WTTC and various industry report

The growth of hotel industry in India can be attributed to the recent growth in the service

industry and economy as a whole. The graph below shows that growth till year 2000 was

demand dominated.

16.9 24.3

40.3

54.2

11.5

8.7

0

20

40

60

80

100

2008 2010

Ma

rke

t Tu

rno

ver

Indian Hotel Industry Indian Tour Industry Indian Travel Industry

Market Turnover (In US $ Bn)

Total US $ 65.9 Bn

CAGR Hotel Industry = 20% Tour Industry = 16% Travel Industry = 15%

Total US $ 90.1 Bn


2000 2004 2008

Demand

Dominance

Supply

Dominance

(Measure: REVPAR & REVPAC)

Path of Paradigm Shift

ProjectionsB

usin

ess T

ran

sfo

rma

tion

Key:

REVPAR: Revenue

per available room

REVPAC: Revenue

per available

customer

Explosiv

e Servi

ce se

ctor G

rowth

Global Crisis

Dominance

Strong

economy

20122000 2004 2008

Demand

Dominance

Supply

Dominance



ProjectionsB

usin

ess T

ran

sfo

rma

tion

Key:

REVPAR: Revenue

per available room

REVPAC: Revenue

per available

customer

Explosiv

e Servi

ce se

ctor G

rowth

Global Crisis

Dominance

Strong

economy

2012

Figure 6: Transition in the hotel industry in India

The revenue sharing models in the hospitality industry can be summarized in the

following figure:-

Franchise

model

Owner -

Operator

model

Leasehold

model

Management

Contract

Global

Hotel

Industry

Revenue Sharing Models in Hotel Industry

Figure 7: Revenue sharing models in the hotel industry


1.3 Foreign Direct Investment and Government Policy

100% Foreign Direct Investment (FDI) is allowed in the hospitality (hotel) sector and spa

and wellness industry. Though Indian Government has been actively promoting the

hospitality industry, the industry has attracted merely USD500m FDI during FY2007.

The foreign investment in the spa and wellness segment has been very low. With the

awareness about day spas and the presence of these services near their door steps, the spa

and wellness industry has promising future

The cumulative FDI inflows (excluding FDI equity inflows and reinvested earnings) into

India during 1991-2005 (up to December, 2005) were USD37.05 billion. FDI statistics

(annual statistics from 2002 to 2005) and trends are given in the table below:-

FDI 2002 2003 2004 2005

1) Inward 5,627 4,585 5,474 6,598

2) Outward 1,679 1,325 2,024 1,364

3) Net (1-2) 3,948 3,260 3,450 5,234

4) Net Growth rate % - -17.43 5.83 51.71

Note: Excluding FDI equity inflows and reinvested earnings Table 2 : FDI flows (USDm): India 2002-2005

Source: WIR

―As of now day spa industry is at small with only one pan-India player (i.e. Lever-

Ayush) in true sense. With the change in the macro economic factors and the plans

laid down by regional players, more than 200 additional day spa point of presence can

be forecasted in next 3 – 4 years.‖

- Owner of the budding day spa chain in West India


1.4 Attractiveness of segments and Entry Strategy

As far as spa and wellness market in India is concerned, all the segments within spa and

wellness segment are poised to grow in the next 2 -3 years.

The spa industry as a whole requires the training infrastructure so that experienced

professionals could be provided to the spas in all the segments.

The Indian market is very lucrative for Thai spa investors who want to enter India by

opening the global therapies institute and certification courses are they exist in Bankok.

Opening the training institute would establish their linkages with all the spa segments and

would ensure that their expertise reaches target audiences through word of mouth.

―Many times resorts want to focus on their key business and outsource the spa

management activities. Our spa consultancy company is managing spa in 2 – 3 star

category resorts. The staff working there are in our payrolls.‖

-One of the renowned Spa Consultant based in Pune

―The trained manpower is critical to providing the experience. There isn‘t any reputed

organized global spa therapies training institute present in India. Individual spas are

forging tie-ups with foreign players.‖


―Demand exists in all the segments. However, I can see a clear shift among resorts

and business hotels to have Spa in their property. Similarly, because of increasing

awareness, more disposable income, the day spas would have better penetration in

next 3 – 5 years‖

- One of the renowned Spa Consultant based in Delhi


We, therefore, suggest entering in day spa business after fully understanding the market

dynamics in the real estate and day spa business.

Day SpasDestination

Spas

Training

Academy

Management

control Spas in

hotel / resorts

Level of Attractiveness

Su

ita

bil

ity

to

Th

ai

Inv

esto

rs

Low High

High

Low

Figure 8: Market Attractiveness and opportunity matrix – Spa and wellness segment

Across the spa segments where entry of Thai Spa investors is recommended, the

positioning of Thai Spa should be based on ―functional benefits‖ rather than just

―pampering, relaxation and rejuvenation‖ plank.

Sl.

No.

Spa

Segments

Recommendation for

immediate entry

How to Enter? / Reasons

supporting recommendation

1.

Day Spas

- Go ahead

Option 1:

1 – 2 centers company owned and

company managed in Delhi and

Mumbai. After that franchise mode.

Option 2:

Technical tie-up with the existing

chains willing to expand. The tie-up

may / may not involve capital

investment. For technical tie up, a

register a company in India as ―Spa

Consultant‖

2.

Medi Spa - Do not enter

- Seen as close to Ayurveda

- Requires technical expertise and

relatively larger capital investment


- Not much data on acceptance of

Thai Medi Spas in India

3.

For Resort /

Hotel Spas

- Go ahead

Option 1: Enter as Spa Consultant

for Designing Spa on Thai concept

- Register company in India as Spa

Consultant, Spa products and

services provider.

- Contact the new hotels and the ones

in expansion mode with previous

expertise.

- Entry would provide platform to

train therapists of day spa chains

- Also, help in entering day spa

segment after demonstrating

expertise

Option 2: Enter as Spa expert

controlling Hotel Spas

- Possible after entering as Spa

Consultant since hotels want to focus

on their primary activity. They don‘t

have expertise, they would be willing

to form alliance where in the

management control, décor‘, trained

staff is from Thai Spa Consultant

4.

Destination

Spas - Do not enter

(as of now)

- High level understanding of leisure

market

- Requires huge capital investment

even after tie-up with Indian

entrepreneurs

5.

Thai Spa

Training

Institute

- Go ahead

- Form equity partnership with Spa

consultants for opening Spa training

academy as less capital investment is

required.

- Open the company in India and

register it as Thai Spa trainer with

Ministry of Tourism, India

- Help in getting business from all

Spa segments as business in

exploding with less skilled therapists Table 3: Recommendation for entry in various spa segments

As far as timeframe for entering in Indian market is concerned, we suggest entering in

various spa segments in the phased manner as shown in the figure below:-


―Resort / Hotel Spa‖Management Control

Horizon – Within 1 year

Horizon – 1– 2 Years

Immediate Entry

Spa Consultant and Training Academy

―Day Spa‖ Chain




Immediate Entry


―Day Spa‖ Chain

Figure 9: Entry across various spa segments across time horizon

Thai investors should not enter into Thai specialty revenue business in 3 – 4 star category

hotels in India at this point of time because of the following reasons:-

Preference of Thai cuisine is confined to the niche segment. The number of

travelers preferring Thai cuisine is very less.

The volume in this business would be very low and would subject to volatility of

demand due to changing macro-economic global business landscape.


2 GLOBAL SPA AND HOTEL INDUSTRY

2.1 Classification of Spa and Wellness business

The global spa and wellness market can be classified as per the following figure:-

Spa and Wellness Market

Resort Spas/

Business Spas

- Resort Spa

- Positioned towards Spa-

cum-leisure holiday

experience

- Spa dominates in

bringing the tourists; leisure

travel for relaxation & luxury

- Hotel Spa

- Business travel

supplemented by spa facility

- Spa cost either built into the

package or a-la-carte

- Associated with medical

approach toward curative and

preventive diseases with spa

therapies; doctor‘s

prescription essential

- Generally includes various

ayurveda massages,

shirodhara and post treatment

medicines. However forms

are gaining grounds

- Package is given for curing

ailments

- Associated with

―Pampering‖ image, Fashion

and Trends

- Extended service offerings

- Generally includes pedicure

and manicure

- May /may not include fully

body massage

- Associated with either

functional benefits or

pampering depending upon

positioning

- Includes Indian and global

massages / therapies

- Mostly catering to

―preventive‖ and lifestyle

diseases where doctor‘s

consultation is not required

- ―Instant rejuvenation‖ in the

stressed lifestyle

Salon Spas

Medi SpasDay Spas

Figure 10: Segmentation of Spa and Wellness Market

Out of the three predominantly visible segments, the resort spa segment is relatively

better organized with the involvement of major global brands. The resort spas are

positioned towards attaining rejuvenation and relaxation from the rigmaroles of daily


lifestyle that is constantly getting competitive and stressful. The resort spa segment is

high value low volume business where as day and salon spas are low value and high

volume business.

At global level, day spas are largely catering to consumers interested in colloquially

traditional spa and massage therapies across respective countries. However, there has

been increasing interest in the massage therapies of various other countries of origin,

providing beneficial results to the global consumers.

2.2 Trends in Spa and Wellness Business

The trends developing today in the global spa and wellness market include:-

Comprehensive package centered around treatment of all diseases

Increasing the hours of education;

Expanding the scope of practice to include more modalities and better training in

the psychological aspects of the work;

―Foreign tourists are more interested in Ayurveda therapies whereas Indian customers

are trying the aromatic oil based non-ayurveda massages.‖

- Spa Manager, One of the renowned Spa Resorts

Massage is the sharing of touch – hands or body, on heads, hands or feet. Any yet

massage goes farther than skin-deep, deeper even than muscles and bones – a good,

caring massage penetrates right to the depth of your being.

- George Downing, The Book of Massage (1984)


Further impact of state regulation and national certification on entry-level

education at massage schools;

Continuing education units for practitioners; and expanding number of massage

course offered at community colleges and universities and

A growing number of degree programs within massage institutions and advance

integration of massage into the broader scope of bodywork and allied healing arts.

The big trend emerging is the return to the basics. A lot of Asian treatments are going

back to ayurveda and Chinese traditions. Most of these treatments are provided throught

hands e.g. at Thailand and India.

Another big trend emerging is the interest of American and European countries coming to

Asian countries such as India and Thailand. These leisure tourists avail age old,

traditional treatments.

2.3 Classification of Hotels

2.3.1 By Star Categories

Globally, hotel industry is classified into star categories. The various categories and their

definition are as under:-

―The global trend as I see is towards comprehensive packages. The spa centers have

evolved to become wellness centers….. We have started wellness section providing

dental care and all type of surgeries. You are under intensive care away from the

depressing environment of hospitals.‖

- (A) General Manager of one of the famous Spa resorts


Star Category Definition

Characteristics of ultimate luxury and sophistication. First class

accommodations. Highly personalized service. Impeccable

standard of excellence.

Upscale in all aspects. Above average level of service.

Enhanced level of quality throughout. In house dining available

with many other services.

Multifaceted and comprehensive. Usually associated with

business travelers. Upgraded physical attributes, service, and

comfort.

Aimed toward traveler looking for more than just the basics.

Usually small to medium sized hotel chains. Limited food

service.

Essential accommodations. Usually food within walking

distance. Appeal to budget minded travelers while keeping in

mind cleanliness Figure 11: Definition of various star categories

Source: Hotels Online & MKG Consulting

Based on the purpose of visit, the guests or travelers can be classified into the following

categories:-

Business Travelers

Pleasure / Leisure Travelers

Group Travelers

International Travelers

The business travel is generally conducted for one of the following purposes:-

Meetings

Incentives

Conferences

Exhibitions


2.3.2 By Target Market

Hotel Classification

by Target Market

Hotels Targeted for

Business Travelers

Hotels Targeted for

Leisure Travelers

- Resort Hotels

- Vacation Ownership and

Condominium Hotels

- Bed-and-Breakfast Hotels

(B&Bs)

- Casino Hotels

- Alternative Lodging

Properties

- Suite Hotels

- Extended-Stay Hotels

- Commercial Hotels

- Airport Hotels

- Conference Centers

- Convention Hotels

Figure 12: Hotel classification by target market

Globally, the hotel properties are also classified based on the primary purpose of usage.

The above figure classifies the hotel by target market.

2.4 Global Hotel Industry Landscape

Spa and Wellness Industry

Despite the pressures of a slow economy, travel agents enjoyed a strong year for spa

travel bookings in 2007 and remain upbeat about the prospects for spa travel for the

remainder of 2008, according to SpaFinder's 2008 State of Spa Travel survey released

recently.

According to the 2008 study, spa travel bookings in 2007 increased for 57 per cent of

surveyed agents and remained steady for an additional 29 per cent, while only 13 per cent


reported a decline. For 2008, 58 per cent expect there to be growth in bookings over

2007, while an additional 26 per cent expect bookings to remain steady. In a shift from

2007, 51 per cent of agents from US now report that travelers aged 35-45 express the

greatest interest in booking spa travel, versus 41 per cent for the boomer 46-60 age group.

According to the survey, health and wellness is now one of the most critical

considerations for today's spa traveler, with 90 per cent of agents reporting that

health/wellness is either 'very' or 'somewhat' important to their vacationing clients.

Similar to restaurants, hotels and fitness centers, spas play a significant role in today‘s

culture worldwide. US spa market is one of the greatest as one in four American adults

has been to a spa and knows what they want from a quality spa experience. The trends are

being driven by educated spa-goers who actually see them as expectations

Global Hospitality Industry

The global hotel industry is studded with over 250 major international and domestic

players.

US

The hotel industry in the US consists of about 30,000 companies that operate 50,000

individual locations, with combined annual revenue of USD90 billion. Large US

companies include Marriott International, Starwood Hotels & Resorts, and Hilton Hotels.

The industry is moderately concentrated; the 50 largest companies hold about 45% of the

market. The majority of hotels are affiliated with a chain. A typical hotel has about

USD7m of annual revenue and 100 employees.

Europe

The total supply of hotel rooms in the EU is over 1.2m with a majority of them in the

upper categories. Hilton and Premier Travel Inn demonstrated their dynamism in 2006

but not as much as Riu, the leisure hotel brand of Touristik Union International, which

jumped up 14%. According to MKG Consulting, the boost received by Europe‘s supply

chain followed through. The supply grew by 2.3% for a positive balance of 262 hotels

and 28,661 rooms. Most of the ten leaders of Europe‘s hotel industry continued to expand


their network. The growth of the Top 10 continental groups brought the supply to 19,342

rooms, or up 2.8% and representing more than half of the growth of all the groups present

in Europe.

The global hospitality industry is dominated by major global hospitality groups. These

hospitality giants, under their hotel group have several renowned brands. The table below

shows the top ten hotel groups globally (in 2006).

RANK GROUPE HOTELS EVOL. CHAMBERS EVOL.

2006 2006 2005 HOTELS 2006 2005 CHAMBERS %

1(1) INTERCONTINENTAL HG GB 3 606 3 532 74 537 533 532 701 4 832 0,9%

2(2) CENDANT USA 6 344 6 396 -52 532 284 520 860 11 424 2,2%

3(3) MARRIOTT INTL USA 2 672 2 564 108 485 979 469 218 16 761 3,6%

4(4) ACCOR FRA 4 065 3 973 92 475 433 463 427 12 006 2,6%

5(6) HILTON CORP. USA 2 747 2 228 519 472 720 354 668 118 052 33,3%

6(5) CHOICE USA 5 132 4 987 145 417 631 403 806 13 825 3,4%

7(7) BEST WESTERN USA 4 195 4 097 98 315 875 308 131 7 744 2,5%

8(8) STARWOOD HOTELS USA 845 733 112 257 889 230 667 27 222 11,8%

9(9) CARLSON HOSPITALITY USA 922 890 32 147 129 147 093 36 0,0%

10(10) GLOBAL HYATT USA 738 355 383 144 671 111 651 33 020 29,6%

TOTAL 31 266 29 755 1 511 3787 144 3 542 222 244 922 6,9%

Table 4 : Rank of Top 10 hotels globally in 2006


These groups own various hotel brands that operate across the globe on various business

models varying from Owner operator to Management control models. In 2006, Asia,

Central and South America, Europe and the Middle East enjoyed double-digit

growth in revenue per available room (RevPAR). Carlson Hospitality, Marriot

International, Accor, Wyndham Worldwide, Inter Continental Hotels group, Best

Western, Starwood Hotel and Resorts, Choice, Hilton Corp and Global Hyatt were the

global majors in terms of revenue and hotel inventory.

The top 20 hotel brands with number of hotels and number of rooms in the world in 2006,

as per one of the travel portal are as under:-


RANK BRAND NAME GROUP HOTELS CHANGE ROOMS CHANGE

2006 2006 2005 HOTELS 2006 2005 CHAMBERS %

1(1) BEST

WESTERN BEST WESTERN USA 4 195 4 097 98 315 875 308 131 7 744 2,5%

2(2) HOLIDAY

INN

INTERCONTINETAL

HG GB 1435 1 484 -49 267 816 278 787 -10 971 -3,9%

3(4) MARRIOTT

HOTELS MARRIOTT INT‘L USA 507 487 20 183 455 178 331 5 124 2,9%

4(3)

COMFORT

INNS &

SUITS

CHOICE USA 2418 2 415 3 182 473 182 038 435 0,2%

5(16) HILTON

HOTELS HILTON CORP. USA 496 230 266 169 636 89 256 80 380 90,1%

6(5) DAYS INN OF

AMERICA CENDANT USA 1844 1 872 -28 150 302 153 701 -3 399 -2.2%

7(7) HAMPTON

INN HILTON CORP. USA 1336 1 290 46 134 121 130 398 3 723 2.9%

8(6) SHERATON

HOTELS STARWOOD HOTELS USA 389 391 -2 134 007 134 866 -859 -0.6%

9(8)

EXPRESS BY

HOLIDAY

INN

INTERCONTINENTAL

HG GB 1590 1 512 78 133 554 126 035 7 519 6,0%

10(9) SUPER 8

MOTELS CENDANT USA 2040 2 076 -36 124 031 125 844 -1813 -1,4%

11(10) RAMADA

WORLDWIDE CENDANT USA 916 1 005 -89 108 937 119 991 -11 054 -9.2%

12(12) QUALITY

INN HOTELS CHOICE USA 1056 966 90 105 790 98 431 7 359 7,5%

13(13) COURTYARD MARRIOTT INT‘L USA 692 656 36 99 669 94 003 5 666 6,0%

14(11) RADISSON CARLSON

HOSPITALITY USA 415 434 -19 96 135 100 733 -4 598 -4,6%

15(14) HYATT

HOTELS GLOBAL HYATT USA 214 212 2 95 145 93 651 1 494 1,6%

16(15) MOTEL 6 ACCOR FRA 905 893 12 93 946 92 948 998 1,1%

17(17) MERCURE ACCOR FRA 738 720 18 87 233 85 352 1 881 2,2%

18(18) IBIS ACCOR FRA 720 692 28 78 780 75 602 3 178 4,2%

19(19) NOVOTEL ACCOR FRA 398 396 2 69 255 68 340 915 1,3%

20(20) CROWNE

PLAZA

INTERCONTINENTAL

HG GB 235 215 20 65 404 61 627 3 777 6,1%

Table 5: Top 20 brands with number of hotels and rooms globally



The sales of major hotels in 2005–2006 and 2006-07 are shown in the table below:

Turnover (INRm) Net Profit (INRm)

S.No Company 2004-05 2005-06 Growth

Rate % 2004-05 2005-06

Growth

Rate %

1 Indian Hotels Co 8,476.3 10,842.6 27.92 1,058.6 1,837.8 73.61

2 EIH Ltd. 5,872.3 7,563.9 28.81 331.2 1,888.0 470.05

3 ITDC 3,413.9 3,557.9 4.23 101.21 390.34 285.67

4 Asian Hotels Ltd 2,579.0 3,284.8 27.37 254.9 567.0 122.44

5 Hotel Leela Ventures 2,566.9 3,269.5 27.37 447.6 731.7 63.47

Top Five 22,908.4 28,518.70 24.49 2,193.51 5,414.84 146.86

Indian H&R Industry 426,240 498,310 21.57 - - -

% Share of Top Five 5.37 5.72 113.54 - - - Table 6 : Top five hotel companies in India

Source: Company Annual Report

The global hospitality industry is quite dynamic and has been consolidation mode in the

last 2 – 3 years where top groups are purchasing various hotel brands. The World Travel

& Tourism spending from 2001 till 2006 is show in the table below:-

2001 2002 2003 2004 2005 2006

Personal Consumption 1,986.55 1,993.67 2,163.72 2,357.84 2,584.13 2,755.86

Intermediate Consumption (transp. Of persons) 500.27 486.22 495.23 559.27 615.23 673.62

Non-Market Products – Individual 86.15 91.03 110.90 126.40 134.11 140.83

Exports (Visitors) Services 554.50 576.77 634.99 751.37 814.19 885.24

Travel & Tourism Consumption 3,127.47 3,147.69 3,404.84 3,794.88 4,147.66 4,455.55

Non-Market Products – Collective 117.60 127.25 137.33 149.10 160.64 171.92

Gross Capital Formation 638.84 631.42 697.39 843.57 946.29 1,049.38

Exports (Non-Visitor) Merchandise 434.98 450.00 523.81 626.66 718.12 807.89

Travel & Tourism Demand 4,321.78 4,359.24 4,766.26 5,417.10 5,975.60 6,487.63

Industry Aggregates

Gross Domestic Product 2,373.71 2,363.23 2,531.52 2,779.00 3,038.32 3,261.35

Employment (000s) 130,611 129,565 123,704 127,910 132,948 136,296

Table 7 : World Travel & Tourism spending (USDbn): 2001-06

Source: World Travel & Tourism Council


2.4.1 Contribution of Travel & Tourism to Global GDP

The contribution of Travel and tourism (T&T) to global GDP was 9.15% in 2001. In the

next two years, the contribution was below the 2001. Natural disaster (earthquakes and

rains) and human-made disasters such as terrorist attacks were the prime reason for the

decline in the T&T‘s contribution to global GDP. However, as the impact of such

disasters declined, the share of T&T in global economy picked up to 9.8% in 2006.

2001 2002 2003 2004 2005 2006

Travel & Tourism Demand 4,321.78 4,359.24 4,766.262 5,417.104 5,975.60 6,487.631

Global GDP* 47,227.38 49,473.73 52,509.87 56,781.90 61,258.71 66,228.67

% Share of T&T in Global

GDP 9.15 8.81 9.08 9.54 9.75 9.80

Table 8: World Travel & Tourism Spending (USDbn) Vs Global GDP: 2001-06

*Current GDP in USD

2.4.2 Regional Performance of Global Hotel Industry – 2006 Vs 2005

According to the Hotel Benchmark survey by Deloitte, in 2006, Asia, Central & South

America, Europe and the Middle East enjoyed double-digit growth in revenue per

available room (RevPAR).

Occupancy Average Room Rate Rev PAR

2006

%

Change

%

2006

%

Change

%

2006

%

Change

%

Middle East 68.7 -1.0 142 17.8 97 16.5

US 68.6 1.63 140 10.6 92 12.4

Central & South America 64.7 0.6 122 12.3 79 13.0

Europe 69.9 3.1 146 8.7 102 8.60

Asia 71.3 0.1 122 10.9 87 11.0

Table 9 : Performance of global hotel markets – 2006 versus 2005



3 INDIAN SPA AND HOTEL INDUSTRY: AN OVERVIEW

3.1 Spa and Wellness Segment

3.1.1 Introduction

The spa and wellness business, under the purview of the scope of this study, includes

body massage therapies with traditional ayurveda therapies as well as non-ayurveda

therapies using aromatic and chemical based oils. The Spa and Wellness Industry and

Hospitality Industry have overlap in terms of resort spa offerings. The connection

between the two can be understood from the following figure:-

Spa &

Wellness

Hotel Resort

Industry Spas

Spa & Wellness and Hotel Industry

Figure 13: Overlap between Hotel and Spa Industry

The Indian spa and wellness industry is at nascent stage. Over the years, it has emerged

from the ayurveda based treatments. The ayurveda massage treatments are viewed as the

ancient Indian way of curing and preventing various diseases. Nevertheless, due to

increase in the disposable incomes in the urban agglomerates over the last few years and

increasing awareness of therapies from other countries, the other methods of relaxation

and rejuvenation have gained consumer acceptance in the urban clusters in India.


3.1.2 Industry Structure & Segments

The wellness industry till now has been classified from the viewpoint from nutritional

drinks and cosmetic products. The spa and wellness industry has not been classified

taking only into account the massage therapies. The segmentation below is based on the

interviews conducted across various therapies existing in India.

Spa & Wellness Market - Offerings

Non-ayurveda massage

& spa therapies

Ayurveda Clinics with

Ayurveda Doctors

Massage therapy

based treatments

Non-massage based

Treatments – medicines

Curative


Ayurveda therapy & treatment Salon & Spa treatment

Beauty Enhancement

treatments such as:-

- Facials – herbal and

non-ayurvedic

- Laser treatments

- Pedicure & Manicure

- Foot massage, reflexology

etc

- Salon etc

Gym coupled with

Sauna / steam bath –

oriented towards muscle

toning and fat reduction

Segmentation of Massage & Spa Therapy Market

Diseases such as

- Arthiritis

- Diabetes

- Muscle or bone related

pain, displacement etc

- Obesity treatment

- Relaxation / rejuvination

- Modern day diseases e.g.

Migrane, Stress etc

Preventive


Massage treatments

such as:-

- Javanese

- Swedish

- Thai etc

Figure 14: Segmentation of Massage and Spa therapy market

―Ayurveda stream is present in India from top to bottom from the past 9000 years. The

modern spa therapies command meager share of the total spa and wellness market in

India.‖

- Owner of Ayurveda based therapy center chain in Bangalore


3.1.3 Industry Environment: Thai Spa treatment in perspective

Industry CompetitorsNo one is providing real Thai spa

experience except one in

Bangalore

Thai Spa & Massage Treatment in India : Market Analysis

SubstitutesAyurveda therapies using light oils. 4 – 5 pan-

India chains. Southern cluster biggest market

Potential EntrantsOther Spa therapies such as Javanese,

Swedish, Body wraps etc intruding upon non-ayurveda

based spa experience

SuppliersThai therapists training

north-eastern Indian therapists.

Aroma oils procured from Thailand,

Singapore etc.

ConsumersDemand from aspiring price conscious

class (INR 700 – 800 per sitting) and

upper end of the society (INR 1500 &

more per sitting). Demand expected

from both the sexes

Political / Legal Environment

- Closeness in economic cooperation & cultural

exchange between two countries

- FDI norms allow 100% stake in specialty outlets

- No problems with repatriation issues after paying

taxes

Social / Consumer shifts

- Ayurveda massage system already popular in South

India, gaining popularity in North India

- Consumers willing to accept the experience from

therapies from other countries

- City clusters having progressive population, resulting

into modern day diseases

Innovation shifts

- Thai spa therapies now also include aroma oils suiting

local skin and texture

- Relaxation by thorough muscle ligament exercise,

requires experience in service offerings

Economic shifts

- Concentration of disposable income in top 6 – 8 cities

- Rising spending patterns on ―pampering‖ therapies

- International economic environment augurs cautious

approach

Figure 15: Market Analysis of Thai spa treatment offering in India

INVESTMENT POTENTIAL IN SPA AND HOTEL BUSINESS IN INDIA

35

3.1.4 Industry Turnover and growth trends

It is difficult to comment on the turnover and the number of hotel spas / resort spas and

day spas because of the following two reasons:-

Market is changing very fast both for resort and hotel spas and day spas. Almost

all the new 3 star and above category hotels that are coming have spa facility for

additional income.

There is no documented information or standards that differentiate Spa from

simply one-man/woman operated massage parlours.

Based on the several expert interviews with leading Spa chain owners and consultants,

the Spa and Wellness market would be to the tune of US $ 34 – 36 million (INR 150 –

175 crores). This includes the revenues from all segments of spas and wellness industry.

For Resort spas, accommodation, food and beverage cost is not included in the turnover

value. The following trends came in the forefront after several interviews:-

Market is largely dominated with ayurveda based spa therapies especially in

Bangalore when compared with Mumbai and Delhi. The split between

―preventive‖ lifestyle diseases (where Global and Thai massage can be

positioned) and ―curative‖ diseases is shown as under:-

―Before Commonwealth Youth Games 2008, Pune 13 star category hotels were

planned. All of them are provisioning spa facilities.‖

- Leading Spa Consultant based in Pune


36

Ayurveda based treatments market

70%

30%

Preventive and lifestyle diseases

Curative Diseases (eg. Diabetes, Arthiritis etc)

Figure 16: Distribution of Ayurveda based treatment in preventive and curative diseases

The resort and hotel spas account for 70% of the industry revenues today. The

difference in the revenues between resort and hotel spa and day spas would come

down in next 3 – 4 years due to rapid increase in the supply of day and medi spas.

Significant growth is also expected in the resort and hotel spa segment as new star

properties are coming up with Spas. In addition, existing properties are also

extending service offerings to Spa treatments

It is estimated that put together there are 1200 – 1500 spa rooms currently in

India. With the expansion plans of many day spas and resort/hotel spas, the spa-

rooms figure is set to double in next 1 – 2 years.

―Earlier the trend was to have swimming pool as additional facility in the resort or

hotels. Then it changed to Gym with modern equipments. Now from last 1 year the

trend is to have Spa center in leisure resorts and business hotels.‖

- Leading Pune based Spa Consultant


37

As per industry thumb rule, on an average, one spa room accounts for INR 1 lacs

per month. This figure however varies as per the positioning, city and location of

spa within that city (due to variation in operational expenses).

Between day and medi spa segment, medi spas are fewer in number as they

require technical expertise and relatively larger capital investment in set up.

Bangalore city accounts for a fifth of the total spa and wellness market today. For

Ayurveda based treatment, growth in South India is much more than it is in the North

India as awareness of functional benefits offered by Ayurveda treatment is limited in the

Northern region.

The growth rate however is slated to be much higher than the present rate due to the

emerging ayurveda and non-ayurveda day spa chains in the country. The industry expects

that spa and wellness industry would touch US $ 0.8 billion (US $ 800 million) in next 8

– 10 years.

Some players in the growing market are growing at the rate of 25 – 30% because of the

increasing point of presence. The organized segment spa and wellness market is largely

confined to top 6 – 8 cities in addition to the presence of two major players in the Kerala

state.

Other than the top 3 cities, the other major cities for spa and wellness therapy market are

Hyderabad, Pune, Chennai and Kolkata. The awareness about preventive and curative

aspects of these spa therapies has been the largest impediment in the market growth. Now

with the greater mobilization of the upper income segments, they are being exposed to

these newer concepts of relaxation and rejuvenation.

―Bangalore is biggest ayurveda based treatment market (city). The next in line would

be Mumbai and Delhi NCR.. Kerala has greater awareness about ayurveda therapies;

it is high volume low value market.‖

- Owner of Ayurveda based therapy center chain in Bangalore


38

Looking the market by ayurveda and non-ayurveda based treatments, ayurveda based

treatments commands more than 90% of the market. The trend of aromatic based

massage therapies could be 3 – 4 years old. Prior to this period the foreign aroma based

therapies were largely confined to luxury resorts.

As of now, around 70 per cent of the spa business is run by local brands, while the rest is

taken over by international spa firms. The Swedish massage, German body treatment and

Thai massage are the most popular therapies across all spa centres. The spa industry is

expecting a cut in customs duty on various products required for spa therapy. The same is

expected to boost the growth of this segment.

3.1.5 Major Players

Global players like MSpa International from Thailand, Aman Resorts from Singapore,

XpresSpa from the US and South America-based Acqua Hotels are all set to enter India,

either as standalone players or through tie-ups with various star hotels.

The Pune based Sahil group forged a tie-up with MSpa International of Thailand to

open Spa therapy center on Thai concept at their 5 star hotel property. The Thailand-

based firm runs centres under Anantara and Mandara brands.

In the similar manner, Uday Samudra, Kovalam resort has forged a tie-up with Thai

based spa company to provide traditional Thai massage, holistic treatments and

rejuvenation options.

The Indian realty major DLF plans to set up a chain of spa treatment centres across the

country with Aman Resorts-Singapore. DLF acquire Aman Resorts – Singapore that has







39

18 spa properties in the Asia Pacific region. DLF has signed an agreement with FIH

(Franchise India Holding) - the organization acting as a platform to bring franchise and

investors closer, to set up 120 ‘Spa – Siam’ brand centers across India. XpresSpa is

exploring the possibilities to set up a centre each at all the international airports in the

country. The Pune-based CMYK Health Boutique has drawn a plan to set up 300 spa

treatment centres under the brand name ―Four Fountains Spa‖ across the country.

The major day spa and wellness treatment centers across major cities in India are shown

in the table below:-

Spa Chains City Number of

Outlets

Business Model Growth rate /

Future Plans

Lever Ayush 6 – 8 cities

Close to 50 Franchising model –

Unilever has tie up with

Coimbatore based

ayurveda firm for

training and procuring

oils

More than 20%

Kottakal Ayurveda

– Arya Vaidshala

3 cities in

Kerala

state, Delhi,

Bangalore

Close to 10 4 company owned

ayurveda hospitals,

franchise in Banglore

operating 4 centers

Growth rate 15

– 20%

Four Fountain Spa Pune,

Mumbai

6 Owning some outlets;

expansion through

franchise

Around 15

outlets by mid

2009; 300

outlets in next

2 – 3 years

across major

cities

Spa Siam Yet to open in Delhi and

Banglore

Franchise Model (tie up

between realty major

DLF and FIH)

Plans to open

120 ―Spa-siam‘

across major

cities

Xpress Spa Yet to open at major airports

Starting with company

owned. Major focus on

airport spa

Airports across

major cities

Floriana –

Lambency Chandan

Sparsh

Delhi,

Bangalore

10 - 15 Owning some outlets,

growing through

franchising

Plans to grow

to major cities

Sree Sankara

Ayurveda Hospital

4 cities in

Kerala,

Delhi,

Mumbai

6 up-market

ayurveda

hospitals

Company owned

hospitals. Focus on

foreign tourist interested

in alternate medicine and

therapies

No information


40

MediSpa Yet to open

in Delhi

14 in next 2 – 3

years

Holistic spa, skin and

beauty treatment centers

spending around Rs 30

crores per center

Major cities;

also looking to

expand in

European

countries

Ayur Care

Hyderabad,

Bangalore,

Pune,

Delhi,

Chennai

24 (including

12 in

Hyderabad and

5 in Pune)

Company owned outlets

in Hyderabad, growing

through franchising

Expand more

centers in

Delhi,

Bangalore and

other major

cities

Jiva Ayurveda Delhi NCR

2 Company owned

ayurveda based therapy

centers

No expansion

plans yet

Body Spa Delhi

2 Singapore based

company; Franchise

model

To expand to

other major

cities

Ayurveda Nature

Health Center Pvt.

Ltd.

Goa

4 centers on

various beaches

Company owned

ayurveda treatment day

spas for leisure tourists

especially foreign tourists

Heathway

Ayurveda Bangalore

4 – 5 centes Ayurveda clinics with

doctors and massage

therapy rooms

Ayurveda Gram Banglore,

Delhi (1

center)

3 clinics (1 in

Delhi), 1

ayurveda

treatment

wellness

facility with

accommodation

near Bangalore

Company owned. Also

manufacturing medicines

in Kerala

Planning 2

wellness

treatment

facilities with

accommodation

including 1 in

Delhi.

May expand to

other major

cities.

Wellness Water Spa Mumbai

Currently 1 – 2 Company owned centers,

looking to expand

through franchise mode

May expand to

other major

cities

Ashtang Ayurveda Delhi,

Ludhiana

2 Company owned;

company largely into

ayurveda medicine

marketing

May expand to

more centers in

Delhi and other

cities

Oushadhi Kerala state

9 – 10 Owned by Government

of Kerala, famous for

Ayurveda based full

treatment

May expand

only in Kerala

state


41

Sawadee Bangalore

2 Pure Thai massage day

spa. Brain child of NRI

(Non-Resident Indian)

family based in Bankok.

Tie up with local

entrepreneur

May expand at

other location

in Bangalore.

Willing to

expand in other

cities with

collaboration /

tie ups

The 5th

Element Bangalore

2 Started by young

entrepreneurs. Up-

market, non-ayurveda,

aromatic oil massage on

Thai concept. Claims to

employ Thai therapists

(deeper probe identified

North-east staff trained

by Thai therapists).

Expanding to

Pune and

Mysore with 1

center each. Tie

up with

Mainpal

Medical Center

for expansion

Spa.ces Bangalore

2 Positioned as day spa,

owned by foreign

entrepreneurs running

service apartments

Expansion

plans in

Bangalore.

Didn‘t

comment much

Other Day Spas with 1 - 2 centers; may open up more centers with regional presence:

LeoJuventa (Hyderabad),

Shahnaz Spa (Hyderabad),

Serena Spa (Mangalore),

Oryza spa (Chennai)

Myras – Thai massage (Mumbai)

Rudra Spa (Mumbai)

Antara Spa (Mumbai)

Wellness water Spa (Mumbai)

Chisel India (Bangalore)

Heavenly Spa (Delhi NCR)

Hibiscus Spa (Delhi NCR)

Other stand alone ayurveda based therapy centers across major cities

In addition, there are some training centers providing training to spa therapists. These

are:-

Oushadhi (Ayurveda Therapy Training, Government of Kerala)

Spa Academy for Ayurvedic and Global massages, Jaipur (In collaboration with

Orient Spa Academy, Bankok, Thailand)

Kottakal Ayurveda (Kerala)

Dhanvantri Institute of Ayurveda (Mumbai)

Core Wellness - Spa & Wellness Association of India (Mumbai)

Table 10: Major Players in Spa chains and training therapists


42

Resort spa / Spa in

4 – 5 star hotels

City Group / Business

House

Positioning

Ananda in the

Himalayas Rishikesh

Owned by Delhi based

entrepreneur

Super premium – oriented

towards elite foreigners.

Selling medium to long

packages

Golden Plam Banglore

Owned by Mr. Sanjay

Khan – bollywood

celebrity

5 star luxury resort with

affordable world class

spa. Modern spa (5 story

separate building) with

almost all pure spa

treatment – largest in

Asia

Angasana Resort

spa Banglore

Owned by entrepreneur;

managed by Hilton group

5 star luxury resort.

Positioned similar to

Golden Palm; spa center

smaller than Golden palm

Kaya Kalp Spa, ITC

– Sheraton, Agra ITC Welcome

5 star luxury hotel with

Spa offerings – claimed

to be biggest spa in Asia.

Major 5 star hotels across Delhi,

Bangalore, Mumbai,

Major Hotel Groups –

Around 5 – 6 Spa per city

Positioned towards

business traveler

Table 11: Major Resort and Hotel Spas in India

3.1.6 Demand – Supply Scenario

The ayurveda based sp treatment though being ancient treatment of science from India

has not grown to its full potential because of lack of awareness. The other spa and

wellness therapies e.g. Thai, Swedish, Turkish etc are at nascent stage. The growth

prospects seem promising across major city clusters as the supply of these genuine aroma

therapies is limited.

―Ayurveda massage therapy is expected to grow at 15 – 20% whereas non-ayurveda

based aroma massages with different specialties can grow by as high as 50% for the

next few years. It is largely because of the expansion plans of major day spa chains.‖

- Owner of Bangalore based budding spa chain


43

3.2 Hospitality Segment

3.2.1 Introduction

India's hotel industry has grown in an unprecedented manner during the last few years

because of healthy corporate and economic performance. India is one of the most

magnificent tourist destinations in the world with an assortment of experiences to

satisfy any domestic or international traveler.

Indian hotel industry is witnessing unprecedented opportunities for growth.

International hotel companies are looking at India positively. As a market, India offers

immense opportunities for hotel companies vying for a considerable share of this

emerging market.

The revenues of Hotel and Restaurant industry in India during the financial year 2006-07

was USD 12.85 billion, a growth of 21.27% over the previous year, primarily driven

by foreign tourist arrivals, which increased by 14.17%. Currently, there are some

1,980 hotels approved and classified by the Ministry of Tourism, Government of

India, with a total capacity of about 110,000 hotel rooms.

With tourism industry showing excellent performance in terms of foreign tourist

arrivals and demand outpacing supply, the hospitality industry is poised to grow at a

faster rate and reach INR 17.6 billion by 2010. It is estimated that over the next two

years, 70,000-80,000 rooms will be added across different categories throughout the

country. Though there is temporary blip in the demand in the roomnites across star

properties especially in Mumbai, Delhi and Bangalore, analysts assume this dip would

get ironed out over a period of 2 – 3 years. This sudden reduction in the demand due to

global economic meltdown and terror attacks has resulted in the correction of roomnite

rates in major cities.

The graph below shows that tourism sector would grow in tandem with arrival of foreign

tourists in India:-


44

Figure 17: Size of organized hospitality sector vis-à-vis growth in tourist arrivals

Source: Secondary search


45

3.2.2 Industry Structure & Segments

The figure below identifies the segments within tourism industry:-

Tourism & Allied

Industry

Hospitality Industry Travel Industry Agents & Tour

Operators

Lodging Operations Food & Beverage Operations

Non-star category /

unapproved rooms

Approved Rooms

- Five Star Deluxe

- Five Star

- Four Star

- Three Star

- Two Star

- One Star and

- Heritage

Segments within Tourism Industry

Figure 18: Segmentation of overall tourism industry in India

The Lodging Operations in the hospitality industry can be categorized into non-star

category or unapproved rooms and Approved rooms. The Ministry of Tourism,

Government of India, grants approval to hotels at the project stage and then classifies into

one of the star categories.

In terms of numbers, unapproved segment constitutes around 25% followed by three star

(23%), approved (22%), two star (10%) four star (6%), five star deluxe (4%), five star


46

(4%) heritage (4%) and one star (2%) in 2006. The share of these segments is estimated

to be roughly the same as in 2005.

Figure 19: Distribution of hotel room across various categories in India

Source: HVS International

3.2.3 Transition in Hotel Industry in India

The growth of hotel industry in India can be attributed to the recent growth in the service

industry and economy as a whole. The graph below shows that growth till year 2000 was

demand dominated. There wasn‘t significant addition of star room between 2000 till

2005. Due to disproportionate growth in the demand and limited supply of star category

rooms in major metros, the roomnite rack rates peaked out in the year 2007. The early

foot prints of recent global meltdown and terror attacks are visible on the hospitality

industry. As per media reports, the demand of star category roomnites has reduced up to

40% across major metros in the recent months. A slight cooling-off effect can be

forecasted for the hospitality industry in the next couple of years. Due to strong economy

fundamentals and the presence of suitable factors for service and business growth, the

demand for hospitality industry can be expected to grow from as the global economy

stabilizes.


47

2000 2004 2008

Demand

Dominance

Supply

Dominance



ProjectionsB

usin

ess T

ran

sfo

rma

tion

Key:

REVPAR: Revenue

per available room

REVPAC: Revenue

per available

customer

Explosiv

e Servi

ce se

ctor G

rowth

Global Crisis

Dominance

Strong

economy

20122000 2004 2008

Demand

Dominance

Supply

Dominance



ProjectionsB

usin

ess T

ran

sfo

rma

tion

Key:

REVPAR: Revenue

per available room

REVPAC: Revenue

per available

customer

Explosiv

e Servi

ce se

ctor G

rowth

Global Crisis

Dominance

Strong

economy

2012

Figure 20: Transition in the hotel industry in India

3.2.4 Revenue Generation Models in the Hospitality Industry

Franchise

model

Owner -

Operator

model

Leasehold

model

Management

Contract

Global

Hotel

Industry

Revenue Sharing Models in Hotel Industry

Figure 21: Revenue sharing models in the hotel industry


48

As far as revenue generation business models are concerned, the hospitality industry

operates on one of the following business models:-

1. Owner operator model – In this model, the hospitality group owns and operates

the hotel property

2. Franchise model – Under this model, the global hospitality groups franchise their

brands to the local entrepreneurs. In return, the local entrepreneurs pay royalty on

the revenue generated from the hotel brand. The hospitality group also audits

various services in the comprehensive manner before providing the franchise of

their brand name to any hotel / resort property.

3. Leasehold basis – This involves long term leasing of the hotel property or the

heritage property or palace converted to the hotel property. Under this

arrangement, the lessor could either be an individual entrepreneur or the family or

Government that owns the property.

4. Management Contract – This involves managing and operating the property.

Quite often three entities are involved in the management contract operating basis

of the hotel property. These are: - the developer, the hotel brand and the party

managing and operating the property.

The value chain of Indian hotel industry has three broad components—asset ownership,

management of hotels and branding and franchising. Indian hotel industry is trying to

diversify by filling the gaps in price (for instance service apartments, budget hotels) and

service value chains (for instance health spas).

3.2.5 Industry Turnover and growth trends

As per the table below, overall travel and tourism consumption including domestic and

foreign travel is estimated to be US $ 65.88 billion in the calendar year 2008. The

consumption figures have grown 23% and 26% in 2007 and 2008 respectively.


49

Travel and Tourism Industry -

India’s Turnover

Table 12: Turnover of India’s Travel and Tourism Industry till 2008

Source: WTTC

According to industry structure as shown in industry structure section of this report, the

estimated market turnover of Hotel Industry, Domestic Tour Industry and Travel Industry

is the calendar year 2010 is show in the graph below:-

16.9 24.3

40.3

54.2

11.5

8.7

0

20

40

60

80

100

2008 2010

Ma

rke

t Tu

rno

ver

Indian Hotel Industry Indian Tour Industry Indian Travel Industry

Market Turnover (In US $ Bn)

Total US $ 65.9 Bn

CAGR Hotel Industry = 20% Tour Industry = 16% Travel Industry = 15%

Total US $ 90.1 Bn

Figure 22: Turnover of India’s Travel and Tourism Industry till 2008

Source: WTTC and various industry report

Room revenues as a percentage of the total operating income of the Indian hotel

industry constituted 57.3% in 2005-06 as against 55% in 2001-02. The increase in the


50

room revenues of the industry as a percentage of the operating income can be

attributed to the increase in the Average Room Rates. The Average Room Rate in the

Indian hotel industry was INR 3,227 in FY2006 compared with INR 2,400 in FY2003.

The rise in the room revenues was also mainly due to increasing demand and

increasing operating costs, which were passed on to the consumer. The net operating

margins for players in the industry have been in the range of 21–42%, with higher

net margins for high-end hotels.

3.2.6 Major Players

The table below provides a list of top five listed hotels based on their turnover in the FY

2005-06.

Turnover (INRm) Net Profit (INRm)

S.No Company 2004-05 2005-06 Growth

Rate % 2004-05 2005-06

Growth

Rate %

1 Indian Hotels Co 8,476.3 10,842.6 27.92 1,058.6 1,837.8 73.61

2 EIH Ltd. 5,872.3 7,563.9 28.81 331.2 1,888.0 470.05

3 ITDC 3,413.9 3,557.9 4.23 101.21 390.34 285.67

4 Asian Hotels Ltd 2,579.0 3,284.8 27.37 254.9 567.0 122.44

5 Hotel Leela Ventures 2,566.9 3,269.5 27.37 447.6 731.7 63.47

Top Five 22,908.4 28,518.70 24.49 2,193.51 5,414.84 146.86

Indian H&R Industry 426,240 498,310 21.57 - - -

% Share of Top Five 5.37 5.72 113.54 - - - Table 13: Turnover of major players in Indian hotel industry

Indian hotel industry is currently dominated by the above players including Indian

Hotels Company Ltd, the largest with 20% market share, India Tourism Development

Corporation (15% market share) and East India Hotels (12% market share). Other

players include ITC Hotels (linked with the Sheraton chain), Hotel Leela Venture,

Asian Hotels and Jaypee Hotels. The foreign hotel giants like Accor, Marriott

International, InterContinental Hotels, Starwood Hotels, and Hilton Hotels and

Shangri-La etc along with the industry leader Indian Hotels are planning to build 100

economy hotels over next three to five years. A few years ago, India was a seven-eight

brand hotel market. By 2010, it will be metamorphosed into 40-brand hotel market,

redefining both the personality and structure of the hospitality industry as it stands today.


51

3.2.7 Demand – Supply Scenario

Demand-supply mismatch will continue to drive growth in India's hospitality sector,

which sees a major boost from inbound tourists. While we expect demand for premium

rooms to rise at 8.8% CAGR over 2008-2010, according to World Travel and Tourism

Council (WTTC), India will continue to be the fastest growing tourist destination

registering 9.4% growth over the next 10 years (vs 4% growth globally). Although

oversupply concerns in the industry persist, incumbent players will benefit in the

medium-term from a supply shortfall, more so on account of expected delays in the

announced projects. We gather while the estimated number of required hotel rooms is

around 250,000, the current availability is just about 110,000, leaving a shortfall of

140,000 rooms to be provided. According to joint study of FHRAI, hospitality

association of India, and HVS International, global hospitality consultants, only 58% of

the announced 102,000 rooms are under active development and are expected to be

completed over the next five years.

The domestic guests continue to be the most important segment for the Indian hotel

industry, accounting for 69.7% of all guests in 2006-07, though this has been steadily

declining from 76.9% in 2002-03.

By 2010 when the Commonwealth Games are scheduled to happen in India, the demand

of classified rooms in India can be estimated to be around 2,50,000. It would increase to

3,00,000 rooms by 2012.

Out of approximately 110,000 rooms only 35,000 are branded; ie fewer rooms than most

major global cities. While Singapore has 70,000 higher-end hotel rooms, India only has

around 12,000. When compared with India, China has ten times as many and the United

States has 40 times as many. Growth rate of foreign tourists‘ visit to India is very high

compared to the growth in availability of hotels where these foreign guests can stay.

Due to the supply – demand mismatch, not only have domestic hotel chains announced

new hotels, but international chains entering India have also tied up with domestic real

estate players so as to manage hotels in India. After assessing this evident supply –

demand mismatch, more than 50 international budget hotel chains are moving into India.


52

This demand-supply mismatch has led to Indian cities posting unusual growth in Average

Room Rates (ARRs). In recent times, key Indian markets like Mumbai, Delhi &

Bangalore have featured among the top 10 of various compilations by global consulting

firms. The overall hospitality industry in India has seen 11.9% growth in average room

rates in 2007-2008 as opposed to 30.0% growth in the previous year. The ARRs will

skyrocket in 2010, when Delhi hosts the Commonwealth Games.

Almost 62–68% of the operating costs of a hotel are fixed in nature, thus requiring a high

level of revenues to break-even. However, the cost structures of different hotel

companies are a function of guest profiles, business strategies, management quality

and property characteristics and would vary from company to company.

3.3 Foreign Direct Investment (FDI) flow – Spa and Hotel Segment

100% Foreign Direct Investment (FDI) is allowed in the hospitality (hotel) sector and spa

and wellness industry. Though Indian Government has been actively promoting the

hospitality industry, the industry has attracted merely USD500m FDI during FY2007.

The foreign investment in the spa and wellness segment has been very low. With the

awareness about day spas and the presence of these services near their door steps, the spa

and wellness industry has promising future







53

The cumulative FDI inflows (excluding FDI equity inflows and reinvested earnings) into

India during 1991-2005 (up to December, 2005) were USD37.05 billion. FDI statistics

(annual statistics from 2002 to 2005) and trends are given in the table below:-

FDI 2002 2003 2004 2005

1) Inward 5,627 4,585 5,474 6,598

2) Outward 1,679 1,325 2,024 1,364

3) Net (1-2) 3,948 3,260 3,450 5,234

4) Net Growth rate % - -17.43 5.83 51.71

Note: Excluding FDI equity inflows and reinvested earnings Table 14 : FDI flows (USDm): India 2002-2005

Source: WIR


54

4 NATURE OF HOTEL AND SPA INDUSTRY BUSINESS

4.1 Key Operating Characteristics

There is strong correlation between F&B revenue and room revenue and even with rising

RevPAR, the overall F&B contribution to total revenue has remained at consistent levels

due to price increase in the F&B outlets.

The room revenues as a percentage of the total operating income of the Indian Hotel

Industry constituted 57.3% in the year 2005-06 as against 55% in the year 2001-02. The

increase in the room revenues of the industry as a percentage of the operating income

can be attributed to the increase in the Average Room Rates. The Average Room Rate

in the Indian hotel industry rose from INR2,400 in the year 2002-03 and to INR3,227 in

FY2006. The rise in the room revenues was also mainly due to increasing demand and

increasing operating costs, which were passed on to the consumer. The table given below

presents aggregate financials for the Indian hotel industry FY2003 through FY2007.

4.1.1 Cost Structure


The treatment cost across resort and day spas vary according to their positioning, point of

presence (locality) especially for day spas. In the 5 star resort spas, average per 60

minutes sitting prices vary from INR 2,000 to INR 4,000. For day spas, the price

variation is more and it depends upon the variety of factor such as positioning of spas,

offerings, uniqueness of offering etc. The treatment cost for various therapies varies

between INR 700 to INR 3,000. The cost structure of one of the upcoming Thai day-spa

in Bangalore is shown in the annexure of this report.

Hotel Industry

Around 62–68% of the operating costs of a hotel are fixed in nature, thus requiring a high

level of sales to break even. Again, the cost structures of different hotel companies are a


55

function of guest profiles, business strategies, and management quality and property

characteristics and would vary from company to company. However, the following trends

are break up of common:

General Administrative & Operating Cost is the largest cost head for players in

the hotel industry in India, accounting for up to 25% of operating cost.

Employee costs account for 15–20% of the operating cost.

Power and fuel costs range 6–10% of operating cost and are on the higher side

due to high consumption of power as well as due to the required power back-

up facilities in the light of erratic and unreliable power availability in the

country.

Repair and Maintenance accounts for 5–10% of the operating cost for the industry

(renovation is a major cost head under this classification).

Marketing and selling expenses account for about 5% of operating cost for the

industry

4.1.2 Cost Structure Profitability

The occupancy rates and average room realisations, primarily, drive profitability in the

hotel sector. The hotel companies function at a very high operating leverage. Thus, any

incremental changes in occupancy rates affect the bottom-line significantly. Net margins

for players in the industry have been in the range of 21–42%, with higher net margins for

high-end hotels. The players in this industry have historically enjoyed very high

operating margins in the range of 30–45%.

4.2 Seasonality

Spa and Wellenss Industry

In a calendar year, the seasonality influence can be gauged in the rainy season when the

demand is relatively less than rest of the seasons. It is especially true in the Western


56

region clusters like Mumbai and Pune. Another seasonality impact comes during the

weekends i.e. during Saturdays and Sundays when the service class has ample time for

Spa and Wellness therapies. Due to this excess weekend demand, some day spa chains

offer discounts for the treatments during week-days i.e. from Monday till Friday. In some

residential clusters in Pune, the weekend demand for these therapies is more than two

times the average week day demand.

Hotel Industry

The hotel business is cyclical and sensitive to changes in the economy in general. The

sector may be unfavorably affected by such factors as changes in the global and

domestic economies, changes in local market conditions, excess hotel supply or

reduced demand for hotel rooms and associated services, competition in the industry,

changes in interest rates, the availability of finance and other natural and social

factors. Since demand for hotels is affected by economic growth in India as well as

world over, a global or domestic recession could lead to a downturn in the hotel

industry. Such adverse developments in the hotel industry in India or in the cities

where the hotels are located would have a negative impact on the profitability and

financial condition.

4.3 Operating Risks

Revenues are generally higher during the second half (October to March) of each a

fiscal year compared to the first half (April to September). Any disturbances /

disruptions during this period may lead to reduction in the revenues and can have a

material adverse impact on the financial performance. As a result of this, the quarter to

quarter comparison of historical results may not be accurate or a meaningful

indicator of future performance. Financial results are affected by occupancy and

room rate achieved by a hotel. Management‘s ability to control cost of developing

and running additional rooms, the success of their food/beverage and catering

operations, have a significant impact on the financials. Further, the operating margins

would be adversely affected by increase in electricity, insurance and environmental


57

compliance expenses. Moreover, hotels would have to be renovated periodically to keep

up with the changing trends and such renovation may involve significant development

and maintenance costs. The inability to manage the above operating risk would have a

negative impact on the profitability and financial position of a hotel group.

4.4 Regulations / Standards


There aren‘t any specific regulations or standards controlling the quality standards of

service. However, there are laws and regulations governing relationships with employees

in such areas as minimum wage and maximum working hours, overtime, working

conditions, hiring and terminating of employees and work permits.

Hotel Industry

The hotel industry is subject to numerous laws and regulations, including those

relating to the preparation and sale of food and beverages, such as health and liquor

licensing laws. The hoteliers‘ properties are also subject to laws and regulations

governing relationships with employees in such areas as minimum wage and maximum

working hours, overtime, working conditions, hiring and terminating of employees and

work permits.

Furthermore, in order to expand its existing properties, acquire new properties or to open

newly-constructed properties receipt of all required licenses, permits and authorizations

including local land use permits, building and zoning permits, environmental, health

and safety permits and liquor licenses. The changes or concessions required by regulatory

authorities could also involve significant costs and delay or prevent completion of the

construction or opening of a project or could result in the loss of an existing license.


58

Project approval and Star Classification of hotels from the Department of Tourism,

Government of India

Under the Tourism Policy of the Government of India, any project seeking to

establish a hotel in India has an option to seek the classification of the proposed hotel in

a star category. The classification in category is issued based on an application made

to the Department of Tourism, Government of India. The Hotel & Restaurant Approval

& Classification Committee (HRACC) inspects and assesses the hotel based on the

facilities and services offered against a fixed marks sheet, including the assessment

of quality of facilities provided. Upon the hotel obtaining a qualifying mark prescribed

for the particular status of star classification, and based on a recommendation of the

HRACC, the hotel is conferred the status of a Star hotel by the Department of Tourism,

Government of India. The Government of India, Department of Tourism approves

projects of two types:

(i) approvals for starting a Star hotel without apartment facilities and

(ii) approval for starting a Star Apartment Hotel.

Both these types of approvals involve the same procedure in the following 2 stages:

(i) the approval of the Project Report and

(ii) the classification of the hotel as a star hotel

4.4.1 Central Excise Act, 1944

The Central Excise Act, 1944 provides that a person who is engaged in production or any

process of production of any specified goods including liquor shall get himself registered

with the proper officer as per the procedure / documentation laid down.

4.4.2 Prevention of Food Adulteration Act, 1954

The Prevention of Food Adulteration Act is a Central legislation and provides provisions

for the prevention of adulteration of food. The Gujarat State Government has adopted the


59

Central Act, which requires any person/ entity manufacturing / storing / selling food

articles to be registered under the provisions of the Act.

4.4.3 Environmental Laws, Rules & Regulations

The three major statutes in India that seek to regulate and protect the environment

against pollution-related activities in India are the Environment Protection Act, 1986,

the Water (Prevention and Control of Pollution) Act 1974 and the Air (Prevention and

Control of Pollution) Act, 1981. The basic purpose of these statutes is to control, abate

and prevent pollution. In order to achieve these objectives, Pollution Control Boards, or

PCBs, which are vested with diverse powers to deal with water and air pollution, have

been set up in each state. The PCBs are responsible for setting the standards for

maintenance of clean air and water, directing the installation of pollution control devices

in industries and undertaking investigations to ensure that industries are functioning in

compliance with the standards prescribed. These authorities also have the power of

search, seizure and investigation if the authorities are aware of or suspect pollution. All

industries and factories are required to obtain consent orders from the PCBs, which are

indicative of the fact that the factory or industry in question is functioning in compliance

with the pollution control norms laid down. These are required to be renewed annually.

The issue of management, storage and disposal of hazardous waste is regulated by the

Hazardous Waste Management Rules, 1989 made under the Environment Protection Act.

Under these rules, the PCBs are empowered to grant authorisation for collection,

treatment, storage and disposal of hazardous waste, either to the occupier or the operator

of the facility. In addition, the Ministry of Environment and Forests looks into

Environment Impact Assessment (EIA). The Ministry receives proposals for expansion,

modernisation and setting up of projects and the impact which such projects would have

on the environment is assessed by the Ministry before granting clearances for the

proposed projects.


60

4.5 Government Policy

4.5.1 Trade Measures influencing investments

The role of the Central and state governments in the Indian economy with reference to

producers, consumers and regulators has remained significant over the years. Since 1991,

the Government of India has pursued policies of economic liberalisation, including

significantly relaxing restrictions on the private sector. The Congress-led UPA

Government, which was formed in May 2004, has continued the policies and initiatives

that support the economic liberalisation policies pursued by the previous governments.

However, one cannot be confident that these liberalisation policies will continue in the

future. The protests against privatisation could slow down the pace of liberalisation and

deregulation. The rate of economic liberalisation could change, and specific laws and

policies affecting hotels, foreign investment, currency exchange rates and other matters

affecting investment in a hotel company‘s securities could change as well. A significant

change in India‘s economic liberalisation and deregulation policies could disrupt business

and economic conditions in India and thereby affect its business.

4.5.2 Incentives for attracting investments

Due to eminent gap between the supply and demand in the star category rooms in Delhi

NCR that might result in the shortage of star category rooms during the Commonwealth

Games 2010, the Government of India has provided incentive to entrepreneurs / hotel

groups for creating the supply in and around New Delhi. The long-term tax holiday for

two-star, three-star and four-star hotels and convention centres to be built in and around

New Delhi from April 1, 2007, to March 31, 2010, to boost capacity for the 2010

Commonwealth Games. The Central Sales Tax reduction of 100 basis points from 4% to

3% would be provided to entrepreneurs. In addition, there has been an increase in

allocation towards development of tourism infrastructure from INR4.23 billion to INR5.2

billion, rise of 23%.


61

5 CHANNEL INSIGHTS

5.1 Major Cities and Towns for Spa and Hotel segments

Spa and Wellness segment

The spa and wellness segment has promising future across Bangalore and Delhi NCR

region followed by Mumbai, Pune and Hyderabad. The other cities where demand for spa

and wellness segment would be present are Chennai and Kolkata.

Hospitality segment

The industry performance is indicated by average occupancy and average room rate. The

Indian hotel industry‘s performance across major tourist destinations is given in the

following table:-


62

Indian Hotel Industry Performance

(Average Occupany in percentage)

Table 15: Average room occupancy of Indian hotels across various cities

Source: IBEF

The table above shows the average occupancy rate for all the registered hotels. However,

considering the occupancy rates for 5 star category rooms, the major Indian cities are

Bangalore, Delhi and Mumbai.


63

5.2 Value Chain

The value chain has three broad components in the hotel industry. First is ownership of

hotels, second is management and the third s branding and franchising. In highly

developed markets like the US, some players who operate only in one component of the

value chain, whereas others operate across the value chain. Linkages between value chain

segments vary internationally. In the luxury segment, the linkage between branding and

management is very strong. Thus, luxury hotels don‘t distinguish between these

components and insist on a strong management role along with the brand.

From the Indian perspective, the companies are moving up the value chain from asset

owning to branding and distribution. For example, Indian Hotels Company Limited as a

part of its Asset Light Strategy is partnering with PIEM Hotels, Oriental Hotels and Taj

GVK Hotels domestically. Internationally, the company partners with Taj Asia, which

owns hotels in Sri Lanka and Maldives. The companies operating in the Indian hotel

industry are also going in for co-branding exercises with international hotel chains

in order increase their visibility and revenues. For example, EIH Limited that owns the

Trident and Oberoi brands has entered into a co-branding pact with Hilton for its nine

existing ―Trident‖ h otels at Agra, Kochi, Chennai, Bhubaneshwar, Jaipur, Udaipur and

proposed hotels at Gurgaon and North Mumbai. With this, the existing Trident hotels in

the above-mentioned cities will be re-branded as Trident Hilton.

5.3 Filling gaps in Price & Service Value Chain

The Indian hotel industry is trying to diversify by filling the gaps in price (for instance

service apartments, budget hotels).

In the spa and wellness segment, a lot more refinement in service offering and awareness

about spa therapies as a mode of relaxation and rejuvenation is required. The day spas

expected to come up would fill the gap between the luxury resort spa and unhygienic and

unscientific home massage.


64

5.3.1 Service Apartments

The service apartments are fully furnished and well equipped apartments specifically

designed for experts with short stays in the country to give them and their family the

comforts and the privacy of home. The ITeS and software business boom have a

catalytic effect on the growth of all hues of accommodation business along with

serviced apartments. The services offered combine luxury and comfort:

Air-conditioned and furnished flat

Attach bath

Fully-equipped kitchen

Colour TV, fridge, washing machine, locker

Telephone connection, net connectivity

100% power back-up

24-hours security

Fire safety

Private parking

Service Apartments - Market scenario

The concept is relatively new in India, but considering the increasing disposable

incomes, new job market dynamics and changing lifestyle, it won‘t take long before it

becomes a common phenomenon. The prices of real estate have grown by about 40% in

certain parts of the country and the growth is expected to continue in the coming years.

However, the size of the extended stay industry is quite limited at present because service

apartments have only been offered in a few cities of India. Indian cities can be compared

to other major markets around Asia. Major cities like Los Angeles, Singapore, and

Bangkok support 3,000-5,000 serviced flats. The secondary cities support several

hundred apartments. The service apartment sector is quite unregulated, with no industry


65

association, operating norms or standards. The rents for service apartments vary from

INR 7,000 a month for a small studio apartment to over INR 0.1m a month for a plush

three bedroom apartment.

With demand strongly emerging, this may be the right time and opportunity to enter the

extended stay segment in India, and fill in the void for quality branded accommodation in

India. Currently, serviced apartments are coming up in cities like Gurgaon and Noida in

the National Capital Region (NCR) due to availability of large land and active demand

from multinationals. Along with Gurgaon and Noida,

The Bangalore and Hyderabad cities have served as major markets for serviced

apartments.

5.3.2 Resort spas / Hotel Spas

The hotels in India are concentrating on spa segment as a tool of de-risking towards new

revenue sources in an effort to have greater stability. The spas are making a splash in

hotels after being tested in leisure destinations as major corporates send their overworked

executives to such centres so that they feel revitalized and cope with the stress of building

profit centres and creating brands in a madly competitive market. While the hotel

industry seems confident of its success, growing competition in the spa business may

have the hotel companies getting stressed out. The players are waking up to this

opportunity, and hotels and resorts in the South, especially in Kerala and some in UP,

have been cashing in on the trend. The luxury hotel chains in India like the Taj, Oberoi,

The Renaissance and the JWT Marriott are setting up spa centres that offer the latest

world-class facilities.

While specialized treatments at the different spas are aimed at retaining the guests in its

leisure hotels, the spas in these hotels aim to tap the local crowds besides the hotel guests.

For example, The Taj Group of Hotels is setting up 15 exclusive spas across its dominant

hotels in over two years. Just like income from food and beverage is a major contributor

to the total revenues, the revenues from the spa business are likely to be equally large

over the next five years. The concepts like medical tourism and spas are still at a nascent

stage in India. The capital expenditure involved is substantial and the players are yet to


66

see them making money. With life becoming more and more unmanageable due to

workplace stress, successes and failures, ups and downs, emotionally draining

relationships and the sheer will to survive, luxury rejuvenation centres and spas seem to

serve a definite purpose today.

5.3.3 Budget Hotels

Budget hotels in India witnessed tremendous growth due to strong domestic travel and

positive economic and investment environment. Strong GDP growth and continued

efforts towards infrastructure provided impetus to hotel industry, reflected in both

occupancy rates and average rate. The booming economy of India inviting business

traveler‘s everyday has resulted in shortage of room with room rates sharply rising,

giving birth to new range of budget hotels in India.

Definition

The minimum expectation of any budget traveler is a clean and comfortable room (air-

conditioned) with a refrigerator, a 17-inch flat-screen television, tea and coffee makers at

the bedside, in-house gym, cyber café, ATM machine, 24-hour automatic check-in kiosk

and wi-fi facilities. This is the new definition that budget hotels have given to the hotel

industry by satisfying the value for money concept.

5.3.4 Spa & Wellness Centers

As the industry is growing, new niches is the Spa & Wellness Industry are emerging e.g.

for Medi Spa market is small now but it has promising future. Medi Spa and medical

tourism would emerge as new niche areas in the next few years. In a few years, medical

tourism will become a multibillion-dollar industry fueled by hundreds of millions of

European and American patients streaming to such exotic locals as China, India, and

Thailand in search of affordable quality health care. Medical tourism is growing rapidly,

triggered by lower costs of air transport and the use of the Internet facilitating relations

between patients and physicians (anywhere in the world).

The need for solitude, space and peace to recharge has been instrumental in mushrooming

of spas in the country. A spa offers relaxation and rejuvenation to its clients. They are


67

designed to be sanctuaries for the inner self, to refresh and rejuvenate one‘s spirit as well

as physical being. The luxuries at these spas include facials, baths, body therapies ranging

from international procedures to Thai or Indian classics, customized packages to deal

with specific problems, beauty advice and therapies and immaculately planned diets.

Indian market for luxury spas is at nascent stage but is growing at a phenomenal speed.


68

6 GROWTH DRIVERS AND CHALLENGES

6.1 Spa & Wellness Segment

6.1.1 Growth Drivers

The growth drivers for spa and wellness are shown in the figure below:

Spa and Wellness Industry -

Growth Drivers

Education

Awareness and

education on ―health

conscious‖ functional

platform - most

important reason

Increase in

disposable income

Service industry growth

leading to increasing

incomes

Overseas Exposure

Exposure to SE Asian,

EU experiences leading

to similar experience

demand

Availability &

Proximity

Supply creates Demand

- Indian consumers

willing to try out these

facilities

Affordability

Services not just

confined to super-

riches. Affordability

factor instrument in

increasing demand

Growth

Drivers

Figure 23: Growth drivers for Spa and wellness industry in India


69

The other trends that are visible in the spa and wellness industry, according to industry

players are:-

Consumers want results. Whether they are looking for stress reduction, relief

from chronic pain or want to look younger, people continue to embrace the

spa lifestyle because they are aware of, and expect to see, the benefits that spa

treatments bring.

Spa visits are seen as necessary and an entitlement. This is particularly true

among baby boomers. They feel entitled to spa experiences rather than

viewing them as a treat or only reserved for special occasions.

The evolution of men as spa-goers is boosting demand for products and

services designed with men in mind.

Spa-goers want experiences that are customized to their personal needs and

desires.

Real estate developers are adding residential spas to the gated communities

and high-end condominiums they are building.

The medical industry in general and the plastic surgery sector in particular, are

beginning to incorporate spa treatments such as naturotherapy and

acupuncture into their service structure.

‗Team‘ or synchronized treatments that use two or more therapists are seen as

being on the rise.

Spa-going moms desire products and experiences designed for them and their

babies.‖

There is huge opportunity for new Spas as there is very less penetration of these

rejuvenation therapies. As more people are becoming aware of such therapies, the

number of people availing Spa services is increasing every day. More Indians are availing


70

spa experiences as overseas travel is increasing due to increasing business opportunities.

It is resulting in these people looking for similar experience back home. Many

International Spa operators are incorporating Ayurvedic treatments in the Spas they are

operating, creating greater scope for the Therapists & the Practitioners.

6.1.2 Challenges

There is a huge scope of association between India and Thailand. The spa and wellness

industry in Thailand is around 5 – 7 years ahead of India‘s spa and wellness industry. The

huge scope between two countries is offset by the import duty structure for spa products

and equipments.

The main problems spa and wellness industry is facing are:

Lack of Standards – there are no organizations currently

Lack of Accredited Training Institutes

Lack of Accredited Spa‘s

Lack of Uniformity in Traditional Treatments - Every Spa one visits in India

do the Traditional Treatments differently, simple therapy like Ayurvedic

Massage is done in different manner in different places, for example,

Shirodhara is done at any time of the day, where as it is strictly contra

indicated in the afternoons.

―Higher excise duties have been the impediment in importing spa oils and equipments

from Thailand. Spa products are treated as cosmetics, command 35% excise duties.

Similarly Spa tables are furniture, command 32% excise due. The landing cost of

product worth INR 500/Kg purchased in Bankok is INR 1200 - 1400/Kg in India‖

- Delhi based major Spa products and equipments importer from Thailand


71

No Association to Address Issues & Grievances of the Industry.

Lack of Government support in promotion of industry except in few cases

Lack of Awareness in all strata‘s of the society

Shady places working under the name of Massage joints giving a bad name to

the profession & Industry.

People not choosing the Spa Industry as a profession as they would choose

any other off course due to the bad name acquired by the Industry due to

wrong doings by few.

Non-sharing, discreet & Orthodox attitude of some Ayurvedic Practitioners

not wanting Ayurveda to be used in Spa Industry.

Many Practitioners looking at Ayurveda as a Therapeutic Modality rather than

Lifestyle Management Modality.

Non Standardized products

Spa word being misused for any thing & every thing from a changing Room

with just a Showers, Steam & a Whirlpool / Plunge pool in a Gym to a small

salon with a Massage Facility in a small cramped room

6.2 Hotel Segment

6.2.1 Growth Drivers

The hotel industry has profited from the fast growing economy of India. This has been

possible owing to the ever increasing tourist arrivals (domestic and foreign). The

compounded growth in tourist inflow over the past ten years (FY1996–FY2005) has been

8.2%, while in the past five years, growth stands at 9.1% per annum.

Major growth drivers for the hotel industry include:


72

General economic and business conditions in India and other countries;

Geo-political stability within India and in other countries;

Changes in laws and regulations that apply to hotel, tourism and hospitality

industry; Discovering/expanding new/niche markets; and

Effectiveness of distribution channels.

6.2.2 General economic and business conditions in India and other countries

The general security, economic and business conditions have a significant impact on the

number of tourists visiting the country/traveling within the country for business purposes.

The vulnerability of hospitality industry to general security conditions was recently

exposed during the Mumbai terror attacks (26/11 attacks). All the major conferences,

delegates and group visits scheduled to happen in the coming 2 months are now cancelled

leading the hospitality industry into a temporary jittery situation.

The foreign business tourists‘ inflow to India depends on the state of civil aviation

industry. The open skies policy has spurred demand by increasing the number of

commercial flights coming into and out of India. The entry of low-cost airlines has

provided a fillip to tourism.

6.2.3 Discovering New Niches: Case Study – Medical Tourism

Medical Tourism India or Health Tourism India is a new concept in which people from

across the world are visiting India for their medical and relaxation needs. Most common

treatments include heart surgery, knee transplant, cosmetic surgery and dental care.

India is a favourable destination since it is at par with the developed countries in terms of

infrastructure and technology. India has some of the best hospitals and treatment centres

in the world with the latest facilities. Moreover, India enjoys the advantage of a skilled

and international standard medical workforce fluent in English. All medical procedures

including hospitalisation and recovery costs in India are much less as compared to

that in the USA and Europe. Indian hospitals adhere to global quality standards for

treatment and surgery.


73

Treatment: Cost benefits

A dental implant will cost at least 75% less in India as compared to that in the USA. An

MRI will cost about USD60 in India as compared to USD700 in the USA. An open-heart

surgery that costs USD18,000 in the USA will cost just USD4,500 in India. The crano-

facial surgery or a hip replacement costs about USD4,300 in an Indian hospital,

while it may cost more than USD13,000 in America.

The treatment cost for various surgeries is economical in India when compared with

Thailand. The table below indicates the cost comparison between Thailand and India:-

Surgery Thailand India

Bone marrow transplant 62,500 30,000

Liver transplant 75,000 40,000

Open heart surgery (CABG) 14,250 4,400

Hip transplant 6,900 4,500

Knee surgery 7,000 4,500

Hysterectomy 2,012 511

Gall bladder removal 1,755 555 Table 16 : Cost comparison with Thailand (USD)

Source: IBE;, E&Y

The graph below shows medical expenses for the same surgeries in the western countries

far exceed the Indian medical expenses:-

Figure 24: Medical cost comparison of India with US and UK


74

6.2.4 Challenges

The hotel industry globally is engulfed with largely the same issues that local hotel

industry and hospitality industry is facing.

Hospitality

Segment

The structure of ownership /

management results in

under-investment

Under-investment in poor

technical infrastructure and

CRM capabilities

Performance is heavily

dependent on uncontrollable,

macroeconomic factors

Changing labour

conditions and shortage

of qualified labour

Land cost, consumer

proximity constraints and

accurate positioning

Fragmented industry supply

chain and inefficient e-

commerce utilization

Growing customer

expectations

· Demand is highly correlated

by internal environment, GDP

& consumer confidence

· Supply is rigid, driven by real

interest rates, past demand

and GDP forecasts

· Profitability forecasting

models are very unreliable

· Increase in employee wages in

the last decade has increased

the operating costs

· With the service industry

growing faster, shortage of

employees with specific skill

sets

· Average number of people

servicing an Indian hotel room

is 2:1 compared to 0.5:1

overseas

· 3 levels of purchasing ( e.g.

corporate, regional, property) with

little visibility and control over

10,000 skus

· In general chains have inadequate

eCommerce strategies and their

capabilities fall far behind other

industries

· Little attempt to target groups and

tours

· Hotel ownership, management and

brand may belong to different

parties resulting in complex

relationships

· Management companies must

offer capabilities for 100% of

managed Hotels, but only control

small fraction of revenue resulting

in under-investment

·

· Less attention to using technology in

hospitality sector is limiting growth

· Despite access to the customer, chains

have limited marketing and CRM

capability

· Few chains have a guest database, a

fraction have it integrated with an

executive information system. A

fraction have significantly automated

the loyalty program

· Consumer expectations increasing

with India emerging as

destination on global travel map.

· True differentiation, unique and

customized experience leads to

loyalty and repeat purchase

· Limited space availability near

airports, city centers, office

clusters leading to high demand of

property

· Positioning of the hotel according

to the target guest segment e.g.

hotel positioned to business

visitors have distinct facilities

compared with leisure travelers

Challenges faced by Indian Hospitality Segment

Figure 25: Challenges faced by Indian hotel industry


75

7 CRITICAL SUCCESS FACTORS


The spa and wellness industry being ―niche‖ in nature, subtle aspects of services may

matter when it comes to providing unmatched experience to the customers. The

differentiating experience results in ―Word of Mouth‖ advertising of the brand, especially

for luxury products like Thai massages. The figure below outlines factors that would play

critical role in the success of ―Thai‖ spa and wellness experience. It is based on the

synthesis of the information collected from primary interviews with the owners of non-

ayurvedic aroma spa and ayurvedic treatment centers across major cities.




impacts repeat

purchase and WoM

advertising

Point o

f

presence –

close

to ta

rget

custom

ers

Olfactory –

aroma touching

senses



theme specific

(Differentiator)

Trained

Therapists –

“Experience”

factor

Hyg

iene

–

stai

nfre

edr

esse

s,

curtai

ns, w

alls

etc

Courteous &

attire of staff –

theme specific

(“Thai”

experience)




impacts repeat

purchase and WoM

advertising



impacts repeat

purchase and WoM

advertising

Point o

f

presence –

close

to ta

rget

custom

ersPoin

t of

presence –

close

to ta

rget

custom

ers

Olfactory –

aroma touching

senses

Olfactory –

aroma touching

senses



theme specific

(Differentiator)



theme specific

(Differentiator)

Trained

Therapists –

“Experience”

factorTrained

Therapists –

“Experience”

factor

Hyg

iene

–

stai

nfre

edr

esse

s,

curtai

ns, w

alls

etc

Hyg

iene

–

stai

nfre

edr

esse

s,

curtai

ns, w

alls

etc

Courteous &

attire of staff –

theme specific

(“Thai”

experience)

Figure 26: Critical Success Factors for spa and wellness industry in India


76

7.2 Hotel Industry

According to the opinion of the industry experts, hospitality service providers need to

follow these critical success factors in order to survive and grow:

7.2.1 Site & Location

This can be considered the most critical factor in determining the success of a hotel

property. In addition to identifying a city, the site location within the city also assumes

significance and issues like distance from the Central Business District (for metro hotels)

and connectivity (access to roads, proximity to airports) assume vast importance.

7.2.2 Positioning & Guest Profile

Equally important is the positioning of the hotel according to the target guest segment.

For example, business hotels set up to cater to the high-yielding corporate clientele in

metro cities would have a distinct competitive advantage over facilities targeted towards

leisure travellers in the same city.

7.2.3 Financial Strength

Development of hotels is a highly capital intensive activity and new hotel properties,

typically, have a high break-even point. Moreover, existing players in any location enjoy

an early mover advantage over newer properties and are able to adjust their tariffs in the

wake of increasing competition in order to maintain occupancies. Thus, newer properties

tend to command relatively low occupancies in their early years of operation. Hence, it is

imperative for a hotel company to have sufficient financial muscle to sustain such losses

during the early years of operation.


77

7.2.4 Brand Recognition

A well-established brand name assumes great significance, especially when a hotel is

targeting high-yielding business or foreign clientele. Some of the companies in the Indian

hotel industry are planning to enter key gateway cities like Shanghai, London, New York

etc in order to increase their visibility globally.

7.2.5 Yield Management

This is a very important tool used in industries dealing with perishable assets and hotel

industry is one among them. Yield management is used in maximizing profits from the

sale of perishable assets, such as hotel rooms, by controlling prices, inventory and

improving services. Yield management in hotel industry is a combination of information,

historical and current with policy supports, procedural support and statistical models to

enhance a hotel's ability to carry out a number of common business practices and thereby

increase both its revenues and its customer service capabilities. Thus, companies

operating in this industry need to have proper yield management practices to enhance

their revenues and profitability.

7.2.6 Differential Pricing

Hotels in India typically offer discounts on published room tariffs to many clients. As a

result, though the occupancy rate of these hotels increases, the ARR does not increase

proportionally. However, the magnitude of discounts varies depending on the nature of

the client location and size of the hotel. Furthermore, in the dual tariff rate system, there

is a domestic currency rate for local travelers and a dollar rate applying to foreign

travelers. Hence, there is need for a common yardstick for tariff rates.


78

8 MARKET ATTRACTIVENESS AND POSSIBLE

COLLABORATION


8.1.1 Market attractiveness for various spa segments

Based on various interviews, certain segments could be classified as more attractive than

the other as far as Thai investors in the spa segment is concerned. The spa industry as a

whole requires the training infrastructure so that experienced professionals could be

provided to the spas in all the segments. The trained manpower is required to popularize

the concept. The repeat customer base that is critical to the success of day spas, is

possible if the customers see the tangible benefits and feel the experience of aroma

therapies and other global therapies on themselves.

The Indian market is very lucrative for Thai spa investors who want to enter India by

opening the global therapies institute and certification courses are they exist in Bankok.

Opening the training institute would establish their linkages with all the spa segments and

―The trained manpower is critical to providing the experience. There isn‘t any reputed

organized global spa therapies training institute present in India. Individual spas are

forging tie-ups with foreign players.‖


―Demand exists in all the segments. However, I can see a clear shift among resorts

and business hotels to have Spa in their property. Similarly, because of increasing

awareness, more disposable income, the day spas would have better penetration in

next 3 – 5 years‖

- One of the renowned Spa Consultant based in Delhi


79

would ensure that their expertise reaches target audiences through word of mouth. The

second most attractive option after establishing Spa training academy would be

contacting various upcoming resorts / hotels and the ones in the expansion mode. The

opportunity exists in managing the spa businesses of these resorts.

Thirdly, the opportunity also exists in day spa chains that have expansion plans as most

of these chains are started with small to medium entrepreneurs having regional presence.

8.1.2 Possibility of collaboration across various spa segments

Though possibility of collaboration exists across all the segments of spa offerings and

training the manpower, it is suggested the Thai investors should open the academy for

training global aroma therapies all alone as it requires less investment and more technical

skills. Secondly, collaboration can be formed with the Indian spa consultants who are into

designing the spas, providing training based on Indian therapies such as Panchkarma etc.

―Indian spa consultants would be willing to gain from Thailand‘s expertise in spa

therapies….. we already have tie up with Oriental Spa academy for certification

courses in the Spa training school we have come up in Jaipur.‖


―Many times resorts want to focus on their key business and outsource the spa

management activities. Our spa consultancy company is managing spa in 2 – 3 star

category resorts. The staff working there are in our payrolls.‖



80

8.2 Specialty Restaurants across Business and 3 to 4 star hotel

categories

8.2.1 Market attractiveness for various specialty Thai cuisine restaurant

There has been an increasing awareness about Thai cuisine among Indian consumers. As

per the hotel industry, it will take some time before Thai specialty restaurant could gain

popularity in the 3 - 4 star and business hotel categories.

It came out quite clearly that business model for any possible collaboration for Thai

specialty restaurants with 3 and 4 star restaurants would not be a feasible as Thai food is

considered as ―niche‖ category with few taker as far as 3 and 4 star hotels are concerned.

Secondly, there has been sudden blip in the business because of terrorism and global

meltdown issues. The hoteliers are planning to ensure the sustainability of their profits by

providing value added offerings such as Spas that can be targeted to larger set of target

audiences.

―Minimum customer base is essential for profitability of specialty restaurant. Indians have

cultivated the taste of ―indigenous Chinese‖ cuisine because of the push from FMCG

companies in the last 20 years. It will take sometime before any mid segment (3 – 4 star

and business class) property would come up with specialty Thai restaurant, on the lines of

Chinese restaurant.‖

- Marketing head of one of the Delhi based hotel chain

―I don‘t think the hotel industry is prepared to open Thai specialty restaurant as of now.

Though there is an increasing awareness about Thai cuisine, it hasn‘t reached the critical

mass where specialty restaurant can work profitably in 3 and 4 star hotels.‖

- One of the Executive Directors of Mumbai based hotel chain


81

9 CONSUMER INSIGHTS – SPA AND HOTEL INDUSTRY


9.1.1 Profile of potential customers

The customer availing spa service can be described with the following common set of

characteristics:-

They would be eating out quite often, i.e. more than 2 – 3 times a week

They would be going to malls and multiplexes a lot

Their age would typically between 25 – 40 years

Most of these guys would be first time spa goers

Based on the interviews across various segments in the spa and wellness industry,

patterns could be identified with respect to typical location and target customers for

various Spa and Wellness therapies. The same has been summarized in the table below:-

―The consumer for these (Global) spa therapies would be people who are concerned about

their health and are doing nothing about it. These guys would be from 25 – 45 year of age

profile, earning more than INR 5 Lacs per annum.‖

- Managing Director of budding Aroma and Thai Spa Chain


82

Spa and Wellness

Segments

Typical Location Target Customers

Ayurveda based

treatment centers

Top 10 – 12 cities.

Next to customers preferred,

could do well even if located

at market locations.

Positioned towards alternate

stream of medicine where

massage therapies play a part

role

Both Male and Females,

proportion of male little higher

(55-60%);

Age profile: 30 to 60 years age;

60+ age

Mostly elderly profile but with

awareness young crowd is also

interested

Both Business and Service class

Non-ayurveda

aroma spa centers

Preferably up-market

localities across major metros.

However, day spa may also

find acceptance in the malls

and city centers.

Acceptable to both Male and

Female, female little higher

(60%);

Age Profile: Below 25 - 40

years availing these facilities

more

Service class working in MNCs

esp. in service industry

(relatively stressful

environment); Business class –

largely females; Housewives

Thai spa

customers

(Sawadee,

Bangalore

Customers)

Similar to aroma spa centers.

Close to elite profile / newly

come-up posh localities with

educated elite young

customers

Largely ―aware‖ class people.

Young professionals working in

MNCs, Traveling abroad,

Educated People. Both male

and female

Age Profile: Below 40 years

availing these services more

Saloon Spa

In city centers; may do well at

city centers, shopping malls

etc;

Focus on very young profile

customers

Largely female, Relative young

population

Age: 16 – 30 years availing

these services more

Elite business / service class

background, Table 17: Profile of Potential Spa customers


83

9.1.2 Taste and preference across regions

In South India, Ayurveda based massages have biggest market. In Western region

(Mumbai and Pune), ayurveda based therapies have better presence than they are in Delhi

NCR. The reason can be attributed to organized efforts put for awareness in the North

and West Indian markets.

As per our estimates the biggest potential for Thai Spa therapies exists in Delhi closely

followed by Mumbai. The other high potential markets are Bangalore, Pune and

Hyderabad. The third level of attractive markets for Thai concept based spa therapies

would be Chennai and Ahmedabad. In general there is less scope of Thai Spa or any Spa

business in Kolkata and eastern region in general. In smaller cities, the salon spas or

beauty parlour extensions end up catering spa requirements. These tier 2 markets would

be considered after successfully tying up in top 6 – 8 bigger cities.

9.1.3 Need – gaps in current service offerings

The following need-gaps were observed across the spa treatment service offerings in the

Indian market:-

Limited supply of well trained therapist with proper communication skills

―Industry is in shortage of well-trained therapist. The customers want real spa experience.

Secondly, they (therapist) should have sound English and Hindi communication skills.‖

- Franchise of the budding Spa chain in Delhi

―As one goes from South towards North, the awareness of ayurveda treatment reduces that

makes the North and West Indian markets attractive for aroma and Thai therapies.‖

- Franchise of the budding Spa chain in Delhi


84

There is no spa chain providing aroma and other therapies across major cities. The

consumers expect the credibility of the spa outlet that is very much fulfilled by the

spa chain offering standard experience across all its outlets.

There is a lack of awareness about the health benefits from Spa therapies. The

customer needs to be educated about these therapies. Hence, there is a need to

focus marketing activities on education platform.

9.1.4 Brand image of Thai brands in Spa

Thai Spa and Wellness experience carry positive experience among the spa owners and

spa consultant who are aware of Thai and other global therapies. All have rated Thai spa

industry much higher than it is in India today. The main reasons for positive brand image

of Thai spa industry against Indian spa are as under:-

There is clear demarcation between spa and wellness industry and entertainment

industry in Thailand where as in India, massages therapy carry bad name among

middle and upper middle profile customers.

Thai spa industry has well documented spa standards that are lacking in Indian

―Out of 10 marks, if would give Thai Spa Industry 9 marks, I would give Indian Spa

Industry 6 marks.‖

- Leading Pune based Spa Consultant


85

9.2 Specialty Cuisine Restaurant

9.2.1 Consumer Taste and Preferences

The elite class segment aware of the health and nutritional benefits of Thai cuisine has

cultivated the taste for Thai cuisine. The number of travelers preferring Thai cuisine is

very less. These customers are willing to pay average INR 2000 or more per person per

meal. That‘s the reason that some Thai specialty restaurants are present in 5 star and

luxury resorts. These travelers are relatively non-existent in the mid segment hotels.

It can be safely assumed that Thai cuisine needs to take the same route as Chinese cuisine

has taken. The Chinese cuisine became popular because of the marketing efforts and

successful product launches of ―Chinese noodles‖ and later on soups by FMCG

companies in India. The case study below explains the introduction of ―Maggi Noodles‖

by Nestle India Limited.

9.2.2 Case Study: Creating New Food Category: Starting an era of Chinese

cuisines

Nestle India Limited (NIL) introduced the Maggi brand to Indian consumers when it

launched Maggi 2 Minute Noodles, an instant food product, in 1982. At that time, Indian

consumers were rather conservative in their food habits, preferring to eat traditional

Indian dishes rather than canned or packaged food. In fact, NIL was trying to create an

entirely new food category, instant noodles, in India. Initially, the company targeted

working women on the premise that Maggi noodles were fast to cook and hence offered

convenience.

However, this approach failed as was evident from the fact that the sales of Maggi

noodles were not picking up despite heavy media advertising. To get to the root of the

problem, NIL conducted a research, which revealed that it was children who liked the

taste of Maggi noodles and who were the largest consumers of the product. After this,

NIL shifted its focus from working women and targeted children and their mothers

through its marketing. NIL's promotions positioned the noodles as a 'convenience


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product', for mothers and as a 'fun' product for children. The noodles' tagline, 'Fast to

Cook Good to Eat' was also in keeping with this positioning.

NIL aggressively promoted Maggi noodles through several schemes like distributing free

samples, giving gifts on the return of empty packs, etc. NIL's advertising too played a

great role in communicating the benefits of the product to target consumers.

Through its ads, NIL positioned Maggi as a 'fun' food for kids which mothers could

prepare easily. Taglines like 'Mummy, bhookh lagi hai' (Mom, I'm hungry), 'Bas 2-

Minute,' (Only 2 minutes) and 'Fast to Cook Good to Eat' effectively communicated the

product's benefits to target consumers.

Advertisement Strategy - Nestle started to advertise Maggi 2-minute Noodles during the

‗Hum Log‘ broadcasts on Doordarshan. In 1984-85 ‗Hum Log‘ reached 60 million TV

viewers. Nestle‘s plan paid off and soon enough the volume of demand for Maggi

Noodles increased from none in 1982 to 1,600 tons in 1983. It would go on to become

15,000 tons in 1998.

These ads had become so popular that the tagline 'Bas 2-Minute' immediately reminded

Indian consumers of Maggi noodles even several years after the ads were taken off the

TV. Maggi's first product extension was Maggi instant soups launched in 1988. With the

launch of Maggi soups, NIL had become a pioneer in the organized packaged soup

market in India...

During the 1990s, the sales of Maggi noodles declined, and this was attributed partly to

the growing popularity of Top Ramen , another instant noodles product. In order to

improve sales and attract more consumers, NIL changed the formulation of Maggi


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noodles in 1997. However, this proved to be a mistake, as consumers did not like the

taste of the new noodles. In March 1999, NIL reintroduced the old formulation of the

noodles, after which the sales revived. Over the years, NIL also introduced several other

products like soups and cooking aids under the Maggi brand.

However, these products were not as successful as the instant noodles. In the early 2000s,

Maggi was the leader in the branded instant noodles segment, and the company faced

little serious competition in this segment. In the early 2000s, NIL started introducing new

'healthy' products in accordance with the Nestlé Group's global strategy to transform

itself into a health and wellness company. In July 2001, Maggi replaced Nescafé (NIL's

coffee products brand) as the company's core brand. Nescafé had been NIL's core brand

since 1998.

Commenting on the shift, Carlo Donati (Donati), chairman and managing director, NIL,

said, "The focused approach on Nescafé, which was the company's flagship brand over

the last few years, has yielded rich dividends and we plan to replicate the same in case of

Maggi as well." According to Donati, the new focus for the Maggi brand was to provide

'the much needed impetus' for the culinary segment as it had been lagging behind some of

NIL's other product segments like milk and milk products and coffee products.

In the early 2000s, the Nestlé Group had been taking measures to transform itself into a

'health and wellness' company. The company had also set up new research and

development facilities with a view to improving the attributes of the existing Nestlé

products to make them healthier, and to develop new health and wellness products. Since

the early 2000s, the Nestlé Group had been introducing 'health and wellness' products all

over the world. In India, NIL introduced new 'healthier' weaning and milk products in

2004.

In March 2005, the Maggi brand too took to the health route with the launch of Vegetable

Atta Noodles. NIL made use of the group's extensive research and development facilities

in developing this new 'healthy' product. According to NIL, Vegetable Atta Noodles were

healthier as they were made of whole wheat flour instead of maida (refined wheat) and

also because they contained real vegetables. The Dal Atta Noodles were another variant


88

of Maggi's healthy instant noodles proved to be a mistake, as consumers did not like the

taste of the new noodles. According to the FICCI (Federation of Indian Chambers and

Commerce Industry) 'Food and Beverage Survey' published in February 2006, health

foods, health food supplements, convenience foods and branded foods were the 'rapidly

rising' segments of the food and beverage industry. The survey also revealed that the

market for branded food products was growing at a healthy rate of around 15 percent in

the early 2000s. The changing lifestyles and eating habits of Indian consumers and the

increasing purchasing power of the growing middle income group were thought to be the

reasons behind this growth.

Even though the demand for convenience food was increasing in India in the early 2000s,

analysts said that most of the Indian consumers were still conservative in their food

habits, and gave importance to the perceived health benefits of traditional food.

Therefore, it remained to be seen whether products like Maggi Atta Noodles, despite their

'health' focus, would prevail in the long run.


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10 CONCLUSION AND RECOMMENDATIONS

10.1 Market attractiveness and opportunity matrix in Spa and

Wellness business in India

Based on the analysis of investment requirements across various spa segments, the core

competence of Thai investors in the spa and wellness segments, we suggest that Thai

investors like Orient Spa and MSpa International should start building credibility by

entering into Global and Thai Spa training institute. They would have immediate

customers from Resort / Hotel spas and day spa chains. After building rapport with Hotel

and Spa chains in India, they can expose them with the idea of Spa centers positioned at

Business and Leisure travelers, as the case may be.

We expect that in order to forge partnership in the day spa chain, more investment would

be required to operate 2 – 3 company owned spa chains at higher rental places i.e. city

centers across Delhi and Mumbai. We, therefore, suggest entering in day spa business

after fully understanding the market dynamics in the real estate and day spa business.

Day SpasDestination

Spas

Training

Academy

Management

control Spas in

hotel / resorts

Level of Attractiveness

Su

ita

bil

ity

to

Th

ai

Inv

esto

rs

Low High

High

Low

Figure 27: Market Attractiveness and opportunity matrix – Spa and wellness segment


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10.2 Entry Strategy in Spa and wellness business

Across the spa segments where entry of Thai Spa investors is recommended, the

positioning of Thai Spa should be based on ―functional benefits‖ rather than just

―pampering, relaxation and rejuvenation‖ plank.

Sl.

No.

Spa

Segments

Recommendation for

immediate entry

How to Enter? / Reasons

supporting recommendation

1.

Day Spas

- Go ahead

Option 1:

1 – 2 centers company owned and

company managed in Delhi and

Mumbai. After that franchise mode.

Option 2:

Technical tie-up with the existing

chains willing to expand. The tie-up

may / may not involve capital

investment. For technical tie up, a

register a company in India as ―Spa

Consultant‖

2.

Medi Spa - Do not enter

- Seen as close to Ayurveda

- Requires technical expertise and

relatively larger capital investment

- Not much data on acceptance of

Thai Medi Spas in India

3.

For Resort /

Hotel Spas

- Go ahead

Option 1: Enter as Spa Consultant

for Designing Spa on Thai concept

- Register company in India as Spa

Consultant, Spa products and

services provider.

- Contact the new hotels and the ones

in expansion mode with previous

expertise.

- Entry would provide platform to

train therapists of day spa chains

- Also, help in entering day spa

segment after demonstrating

expertise

Option 2: Enter as Spa expert

controlling Hotel Spas

- Possible after entering as Spa

Consultant since hotels want to focus

on their primary activity. They don‘t


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have expertise, they would be willing

to form alliance where in the

management control, décor‘, trained

staff is from Thai Spa Consultant

4.

Destination

Spas - Do not enter

(as of now)

- High level understanding of leisure

market

- Requires huge capital investment

even after tie-up with Indian

entrepreneurs

5.

Thai Spa

Training

Institute

- Go ahead

- Form equity partnership with Spa

consultants for opening Spa training

academy as less capital investment is

required.

- Open the company in India and

register it as Thai Spa trainer with

Ministry of Tourism, India

- Help in getting business from all

Spa segments as business in

exploding with less skilled therapists Table 18: Recommendation for entry in various spa segments

We propose that the Thai investors from Spa industry should enter in India as spa

consultants. They can start training academy for training therapist in Thai and aroma

treatments. Their presence would also provide a base for importing Spa furniture and

other products from Thailand. Within 1 year of their entry, while they have established

themselves as ―Spa Management Gurus‖, major hotels would be will to provide them

management control for running the spa based on Thai and aroma therapies in their resort

and hotels. In the 1 – 2 years time when they have understood the dynamics of Indian spa

industry, they can plan to launch 1- 2 company owned day spas in Delhi and Mumbai and

can offer the franchises across other cities on revenue sharing basis.


92

Figure 28: Entry across various spa segments across time horizon

The figure above pictorially shows the entry for Thai investors from spa and wellness

industry across various spa segments over the period of time.

*****




Immediate Entry


―Day Spa‖ Chain




Immediate Entry


―Day Spa‖ Chain


93

11 Annexure

Spa menu for newly opened Thai Spa with 2 centers in the Bangalore city


94

Brochure showing positioning of Ayurveda based Spa chain in Bangalore


95

12 List of Tables

Table 1: Turnover of India‘s Travel and Tourism Industry till 2008 ............................... 15

Table 2 : FDI flows (USDm): India 2002-2005................................................................ 17

Table 3: Recommendation for entry in various spa segments .......................................... 20

Table 4 : Rank of Top 10 hotels globally in 2006 ............................................................ 28

Table 5: Top 20 brands with number of hotels and rooms globally ................................. 29

Table 6 : Top five hotel companies in India .................................................................... 30

Table 7 : World Travel & Tourism spending (USDbn): 2001-06 ................................... 30

Table 8: World Travel & Tourism Spending (USDbn) Vs Global GDP: 2001-06 ......... 31

Table 9 : Performance of global hotel markets – 2006 versus 2005 ................................. 31

Table 10: Major Players in Spa chains and training therapists ......................................... 41

Table 11: Major Resort and Hotel Spas in India ............................................................... 42

Table 12: Turnover of India‘s Travel and Tourism Industry till 2008 ............................. 49

Table 13: Turnover of major players in Indian hotel industry .......................................... 50

Table 14 : FDI flows (USDm): India 2002-2005.............................................................. 53

Table 15: Average room occupancy of Indian hotels across various cities ...................... 62

Table 16 : Cost comparison with Thailand (USD) ........................................................... 73

Table 17: Profile of Potential Spa customers .................................................................... 82

Table 18: Recommendation for entry in various spa segments ........................................ 91


96

13 List of Figures

Figure 1: Segmentation of Massage and Spa therapy market ............................................. 9

Figure 2: Market Analysis of Thai spa treatment offering in India .................................. 10

Figure 3: Growth drivers for Spa and wellness industry in India ..................................... 12

Figure 4: Critical Success Factors for spa and wellness industry in India........................ 13

Figure 5: Turnover of India‘s Travel and Tourism Industry till 2008 .............................. 15

Figure 6: Transition in the hotel industry in India ........................................................... 16

Figure 7: Revenue sharing models in the hotel industry................................................... 16

Figure 8: Market Attractiveness and opportunity matrix – Spa and wellness segment .... 19

Figure 9: Entry across various spa segments across time horizon .................................... 21

Figure 10: Segmentation of Spa and Wellness Market ..................................................... 22

Figure 11: Definition of various star categories ............................................................... 25

Figure 12: Hotel classification by target market ............................................................... 26

Figure 13: Overlap between Hotel and Spa Industry ........................................................ 32

Figure 14: Segmentation of Massage and Spa therapy market ......................................... 33

Figure 15: Market Analysis of Thai spa treatment offering in India ................................ 34

Figure 16: Distribution of Ayurveda based treatment in preventive and curative diseases

........................................................................................................................................... 36

Figure 17: Size of organized hospitality sector vis-à-vis growth in tourist arrivals ......... 44

Figure 18: Segmentation of overall tourism industry in India .......................................... 45

Figure 19: Distribution of hotel room across various categories in India......................... 46

Figure 20: Transition in the hotel industry in India ......................................................... 47

Figure 21: Revenue sharing models in the hotel industry................................................. 47

Figure 22: Turnover of India‘s Travel and Tourism Industry till 2008 ............................ 49

Figure 23: Growth drivers for Spa and wellness industry in India ................................... 68

Figure 24: Medical cost comparison of India with US and UK ....................................... 73

Figure 25: Challenges faced by Indian hotel industry ...................................................... 74

Figure 26: Critical Success Factors for spa and wellness industry in India...................... 75

Figure 27: Market Attractiveness and opportunity matrix – Spa and wellness segment .. 89

Figure 28: Entry across various spa segments across time horizon .................................. 92


97

14 References

Primary Research – Expert Interviews

The expert interviews were conducted with the following organizations. More than one

interview per organization was conducted to gauge the holistic view of information

collectibles.

Spa Consultants

Spa Consultants, Pune

Spa Consultants, Delhi

Spa Equipment Importers and Suppliers

Radhey Mohan International, Delhi

Steam and Sauna Paradise, Delhi

Kranzler, Pune

Spa Resorts

Golden Palms Hotels and Spa, Bangaluru

Angasana Resort & Spa, Bangaluru

Day and Destination Spas

VLCC Spa, Delhi

Ayush Center, Delhi

Lambency Chandan Sparsh, Delhi

The Four Fountains, Pune

Body Mind Soul, Mumbai


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Ayush Center, Bangaluru

Sawadee – Thai Refexology Spa, Bangaluru

Healthway, Bangaluru

The 5th

Element, Bangaluru

Chisel India, Bangaluru

Arya Vaidsala Agency, Bangaluru

Ayurveda Gram, Bangaluru

Hotel Groups

Lemon Tree Hotels, Delhi

Prestige Hotels, Mumbai

Secondary Research Sources / Databases

ISI Emerging Markets Datatbase: Compilation of news articles, news snippets and

various secondary data reports

Internet Search for validation of various data points

report spa hotel industry

Documents