An innovative experiment by the IHCL group is Ginger Hotels, a revolutionary concept in the budget hospitality segment, a BUDGET HOTEL with HELP YOURSELF concept.
Deep-pocket parent brand TATA synonymous with best in class hospitality and at the cusp of expansion: Ginger Hotels was expected to have had a great run, but the subsidiary of the Tata- Indian Hotels Company (IHCL) is still fine-tuning its brand after taking six years of establishment.
C.K. Prahalad’s vision, Ginger hotel serves the segment recognized as the ‘value-demanding’ consumer. But the strong competition and escalating property prices have forced the chain of hotels to restructure their strategies constantly.
Johnson and Scholes (2003) define strategy as follows “Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations”
Ginger’s Business level strategy can be explained with the help of Bowmanâ€Ÿs Strategic clock
Ginger has adopted more than one generic strategy. The company uses the generic strategies of both differentiation and low cost simultaneously which is a hybrid strategy.
Differentiation: Ginger seeks competitive advantage by offering unique services that are different from the services offered by rivals, through technology, brand image, and customer service.
Self Service Concept is adopted in Ginger Hotels right from the entrance:
Self check- kiosk” (Astrolife) are installed in hotels which allows guests to self check in, in turn reducing pressure on the front desk.
Room service: there is no room service!!!!!!!!!
There is no room service! It was the first hotel in India to abolish the over dependence on room service. With almost every facility automated to reduce cost and ultimately provide best deals to guests.
Ginger has, state -of- the- art security systems installed in each of its hotels in order to enhance safety of guests and to cut the need for security, guests stash valuables in lockers. Security system has features like:
Close-circuit TV maintains records of all areas and visitors
Swipe card locks that offer the latest in security
Digital safes located at the Give ‘n’ Takeâ„¢ counter at the lobby
Reservation Apart from basic reservation facilities, Ginger website allows the customers to view special services offered by coffee day or a shopping discount available. Ginger Hotels have also tied up with ngpay – India’s largest Mall on Mobile – to offer instant room bookings. Customer can book or cancel rooms in a simple and secure manner using their mobiles. This service is only offered by Ginger in Indian Budget hotel segment.
Cost leadership: Alternatively, Ginger also pursues a cost leadership strategy to gain competitive advantage based on aiming to be the overall low-cost provider of service.
Ginger has efficiency pooled in the process of delivering services in order to reduce cost. With the help of state of art technology and keeping the staff minimal, Ginger strives to achieve cost leadership in budget industry in India.
But however a strategic drift in terms of pricing expected. Ginger faces stiff competition from other budget players like Formule1 and Red Fox, and mid-market brands such as Premier Inn and Ibis. Launched in 2004, Ginger started off with the pricing Rs 1,000 fixed room rate for all its branches, which is now being revised responding to escalating real estate price.
The Ginger hotel executives have decided to change the fixed rate to a variable pricing strategy in order to keep a control over costs.
Ginger’s growth and development strategies can be analyzed based on Ansoff’s matrix
Ginger is rigorously involved in Market development strategy for growth:
Market development is where a company seeks to sell its existing products into the new markets. As per the growth matrix expansionÂ of the totalÂ marketÂ served by aÂ firmÂ by can be done by the following ways
(1) Entering newÂ segmentsÂ of the market,
(2) Converting non-users intoÂ users, and/or
(3) IncreasingÂ usageÂ perÂ user
Ginger hotel is expanding its Geographic markets by focusing on expanding its reach to increase the size of its market.
Indian conglomerate TATA Group unveiled its plans to accelerate the growth Ginger hotels across India. IHCL, under its hotel business plans to develop 50 new Ginger hotels in India by 2015.
Currently there are 21 Ginger hotels across India. The expansion plan is exploring market development opportunities
The company has commenced work on hotels in Surat, Chennai, Indore, Manesar and Tripur.
IHCL inaugurated second Ginger hotel in Pune and is scouting for land to set up two more in the city.
Also, the Tata group is keenly looking at launching the Ginger brand in global markets as well.
Â IHCL is talking to PE funds to raise funds to finance its overseas growth plan. It aims to raise $75-100 million to expand its operations in the Middle East and south-east Asian markets. Ginger can tap the great potential in emerging economies like China and would do very well in countries in South America and sub-Saharan Africa
Innovative business model of SELF SERVICE in Budget hotel Industry
Only Ginger hotel pursues this business model in India. While its competitors such as Red Fox and Lemon Tree project themselves as a category above the purely budget brand, Ginger sticks to its original business model – ‘SELF SERVICE’ without frills and fuss, yet offering most of the amenities offered by a higher grade hotel.
Tata brand Significance: A Tata enterprise signifies respect for people and passion for its stakeholders. The association Ginger to Tata group assures consumers of the quality of its services. The Tata marquee has become a symbol of quality, reliability, and real value, not just in India but in other parts of the world too.
This aspect provides Ginger with competitive edge over its fragmented small scale budget counterparts. Even if the Budget Hotels segment can counterpart innovative promotion strategies of Ginger, it would be difficult to back it up with the reputation of TATA Brand.
Strong presence in India: Ginger has created a benchmark in the branded budget and economy hotel segment in India with its strong presence (Anon., n.d.) Ginger hotels are the only brand with 21 Ginger hotels located in metros at prime locations.Â Ginger has carved a place for itself in the itinerary of the corporate traveler.
Lack of Innovation in Growth Strategies of Ginger hotels
Currently (2010) IHCL has 21 Ginger hotels India and targets to expand it to 80 hotels over the next five years. However Ginger is adopting tested techniques of growth strategies i.e. build own and operate.
The group aims to achieve a growth rate higher than that of the industry.To achieve an exceeding growth rate of industry average the company may need to aggressively expand, out the above techniques can however delay the process.
Increasing costs affecting the low cost strategy of Ginger
With the escalating real estate prices and competition Ginger has recently adopted a flexible pricing strategy as against its fixed pricing strategy. This could lead to potential lose of customers, if the prices do not match the value offered. Ginger relies on tested techniques of service delivery process. This could be a focal point for competitors to hit the Ginger chain, where the competitors could develop innovative service delivery process, with reduced cost and increased efficiency, ultimately providing customers with best possible deals.
Government support: The government of India has proposed a budget of Rs. 540 crore for the development of hospitality industry. The Department of Tourism (DOT) has already started the “Incredible India” campaign for the promotion of tourism in India.
Open sky benefits: With the open sky policy in effect, the travel and tourism industry has seen an increase in business. Increased airline activity has stimulated demand and has helped improve the infrastructure. It has benefited both international and domestic travels eventually boosting the hospitality sector.
New business opportunities: Over the next three to five years, the biggest surge in accommodation demand is expected to come from commercial zones that are being developed in metro suburbs and secondary markets. This provides a unique opportunity for hospitality projects. Also the new concept, which is going to gain importance, is that of budget hotels, due to their inherent nature of operation, associated costs and flexibility.
Increase of India’s share in international tourism: According to the tourism ministry, 4.4 million tourists visited India in 2009 and demand will soar to 10 million in 2010. ‘Hotels in India’ are falling short of 150,000 rooms. With tremendous pull of opportunity, India is a destination for hotel chains looking for growth (The World Travel and Tourism Council 2010).
The hospitality industry in India is in for a massive expansion with over 50 international budget hotels foraying into India.
Many international budget hotel chains are sizing up plans to debut in India hospitality segment.
Royal Indian Raj International Corporation (RIRIC), has partnered with Choice Hotels to build 15,000 budget hotel rooms investing $4 billion.
Warburg Pincus is investing heavily in Lemon Tree and Red Fox brands to re position the brands in the country.
America’s Best Inns and Best Value Inn are also sizing up to enter the Indian hospitality segment through franchisee route.
Event risk: Dependency on foreign tourism for growth could be a double-edged sword as travel decisions are affected by global patterns and events with serious impact on the performance. Events like SARS outbreak, 9/11 attack, Iraq war have severely impacted the tourism industry in the past and the threat remains.
Delivering unmatched prices:
It is not just the pricing that sets Ginger apart from its competitors but the matching of expectations of customers. Ginger strikes the right balance between what it charges and what consumers expect. Replicating such a process of delivering value would not be easily attainable by its competitors, thus forming this criterion as Gingers strength.
Filling in the gaps
Modification of service delivery process
In the past four years, Ginger has seen a compound annual growth rate of 125 per cent, while its expenditure has grown by 112 per cent. Hit with losses of Rs 1.44 crore in 2004-05, the year of its inception, its losses continued to rise from Rs 8.37 crore in 2007 to Rs 10.48 crore in 2008. Analysts say a hotel in this category should take 30 months to five years to break-even.
Ginger can outsource a wide range of services from cleaning and laundry to computer support and cafeteria service. This model of outsourcing is well practiced in luxury hotel segment however it is very innovative in budget hotel segment of India.
The model Outsourcing has turned out to be the first logical choice in this direction owing to the following key enablers:
1. Reducing operating costs
2. Focus on core operations
3. Quality improvement
4. Process enhancements
The establishment this model would target at removing activities from internal business units, standardizing and consolidating the delivery of these services. The overall goal is to deliver value to the business units through lower back office and administrative costs and to allow Ginger to purely concentrate on having the best occupancy rates.
Innovation in growth strategies
“The last few months have been the most challenging from a real estate point of view in India (Anon., n.d.)
There is no point in sticking to the original model of buying land and then building a hotel if Ginger aims to expand fast. Flexibility and innovativeness is the key.
Pursue the franchisee model based on revenue sharing. To deal with the increasingly expensive real estate rates in India, the company could come up with an innovative strategy of offering landowners a share of the hotels’ profits.
Expansion through redevelopment of existing properties, : replacement of guest houses and via public private partnerships, .The Rail Yatri Niwas in New Delhi is an example of a successful Public Private Partnership model, where hotels have partnered with Indian Railways Catering and Tourism Corporation to offer travelers a contemporary, quality budget hotel at very affordable rates.
Hotels could also be launched as part of shopping malls in Ludhiana and Ahmedabad, which is very innovative business model catching up in the budget hotel segment in India.
Corporate Selling: . India ranks 18th in business travel and will rise to the top 5 in this decade (The World Travel and Tourism Council 2010) could The company pose a Business Development team directed in maintaining a long-term and enriching relationship with corporate houses in order to achieve newer ways of smart and cost-effective business travel.
According to a report released by business body Ficci in 2009, India’s hospitality industry faces a shortage of supply. It currently has a supply of 125,000 rooms, against a demand of 150,000 rooms.
Budget accommodation accounts for 19 per cent of the total hotel rooms in India. While 2008-09 saw 48,475 branded budget rooms, the figure is likely to reach 94,115 by 2013-14. Ginger, which hopes to expand to 30 properties by the end of this year, accounts for 2,100 of these branded budget rooms.
“The basic idea of Ginger is to cater to the mid- and low-level corporate crowd,” says Prabhat Pani, CEO of Roots Corporation, which manages and runs Ginger Hotels. “Our first 2-3 properties, built between 2004 and 2006, were experimental. As we started getting more customer feedback, alterations were made in hotels that came up later.”
The company plans to leverage the huge boom in industrial hubs, SEZs, IT hubs and the growth in tourism to increase the number of Ginger hotels from the existing six to 30 by March 2008, Mr Prabhat Pani, Cheif Executive Officer, Roots Corporation, told presspersons here.
This helps you identify strategic alternatives that address the following additional questions:
Strengths and Opportunities (SO) – How can you use your strengths to take advantage of the opportunities?
There is seen a great potential for growth in Indian hospitality segment. According to India will be accommodating 350 million tourist in 2011.Gingers strengths of TATA brand significance can be used effectively to explore these opportunities. The TATA brand name which has earned itself respect for reliability and quality can be a fine tool to attract foreign customers.
Strengths and Threats (ST) – How can you take advantage of your strengths to avoid real and potential threats?
The innovative service model of self service is a great strength for ginger hotel. This for an extent can potentially decrease the threat of completion, as none of its future competitors are planning to adopt this model. Even if the business model is imitated, copying the best in class service deliver process developed by ginger over the years would be intricate for its competitors. This provides the Chain of hotels with competitive edge.
Weaknesses and Opportunities (WO) – How can you use your opportunities to overcome the weaknesses you are experiencing?
The government of India is supportive for the hospitality industries. The railway ministry plans to lease out land at 11 places for budget hotels. This opportunity can be utilized for overcoming the weakness of slow roll out of hotels.
Weaknesses and Threats (WT) – How can you minimize your weaknesses and avoid threats?