Challenges of budget hotel start-up chains in India


Challenges of budget hotel start-up chains in India

Rise of hotel aggregators in budget domain

We keep reading encouraging stories of thriving startup ecosystem in India. Hospitality industry has seen 3 big startups in budget hotel domain. If all is so good then what is the need to discuss  this topic here. Off late, each passing year we also read news that are not positive in spirit. 

Community of budget hoteliers placed charges against a unicorn start up.

The pre-paid customers booked through their booking app were not allowed to check in. They were asked to cancel pre-paid bookings and were allowed to stay only after they agreed to 'Pay at Hotel. What went so wrong that hoteliers were made to lose the very essence of Indian hospitality industry-'Being Hospitable'. 

In conference of hoteliers offering budget stays, One common emotion was that they were frustrated and felt let down. The heat of wrong-doing of one aggregator had warmed up others also.

Are hotel aggregators providing real value for money? 

1.The hoteliers claimed that did 60-65% occupancy and the franchise added 7-10% more at lower rates. Resulting in overall low RevPAR and similar total revenue. 
2. Unfavorable service agreements and contracts, changed frequently, unilaterally 
3. Major chunk of the revenue goes as franchise commission (22% in most cases) on overall revenue . The hotelier earns negligible profit (5-9% of overall revenue) after paying lease amount and deducting operating expenses. 
4. Most top city level executives  were bossy with hotel staff and even owners. Few hoteliers running franchise were threatened to face legal charges if they discontinued.
5. There are allegation of wrong re-conciliation. Hotels charged or penalised inappropriately 
6. Dues were not cleared on time and not all in few cases.
Above are the problems of supply side, situation on demand side is not bright even. 

Corporates using these economy hotels have their own struggles: 

1. Most of the hotels offered by these budget hotel start-Up chains did not meet international safety standards to accommodate employees of MNC  subsidiary operating in India. 
2. Non availability of hotels short-listed  by the company admin. Either hotelier discontinued the contract or changed franchise. As one of the company admin puts it "We worked hard to zero down on a property just to find, it is no longer available to book". 
3. The contracted rates offered were well above the discounted rates offered on website online. 'Our credibility goes down with corporates', says an employee working in sales department at a hotel start up.
4. Top class service culture at franchise head office is completely different than hospitality standards offered at hotel level. Staff skills at hotel level matter most to guests and start-ups executives clearly do not have full control over it ( even though they claim it to be).


There is an evident gap in 'what is promised' and 'what is delivered'. The inconsistency of discounted rates offered on respective website and non availability of hotel properties adds to the frustration. 

Hard work of franchise operations team to get hotel in shape and multiple visits of admin to narrow down properties. And of course, 'face saving' ability of sales team each time a complaint arrives or the property delists from platform.

Working on these short-comings may work well for the success of Indian startups of budget hotels domain. They should be worthy of corporate travelers booking. Else they will just gain the reputation of cheap hotels reserved for hourly stays. It will be difficult for each one of them to survive on that size of the pie.

  • 2/20/2021 6:05:07 PM
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