Hospitality and tourism strategic planning — business plan for market entry into India for Premier Inn brand of hotels

 

Table of Contents

Introduction. 3

Introduction to the organisation. 3

Growth opportunities. 3

Financial highlights of Whitbread Plc. 4

Present business strategy of Whitbread Plc. 7

Reviewing the options of expansion. 8

Potential market opportunities in India. 9

Options, feasibility and risk assessment. 13

Options of market entry. 13

Advantages of positioning and targeting. 14

Other market related advantages. 14

Recommendations. 15

References. 16

 

Assignment writers UK prices

Assignment writers UK prices

 

Introduction

The following report is a business strategy development report for Premier Inn group of hotels under Whitbread Plc. to enter the Indian market. The background of Whitbread Plc. and the various brands under it has been evaluated in the initial sections of the report along with the potential growth opportunities in the United Kingdom, the reasons for analysing the potential in foreign market conditions and certain financial highlights which indicates that in there is a level of saturation in the United Kingdom market limiting the potential for the development of Premier Inn brand. Further in the report, the business strategy of Premier Inn is evaluated in consonance with a review of different options in international market entry along with the potential opportunities in the Indian market. The different options and feasibility studies conducted are with respect to a 100% direct investment, a strategic alliance and a franchising model which is evaluated as the different potential strategies to enter the Indian market. The pros and cons in terms of risk and advantages of positioning and targeting are evaluated and mainly the concept relating to a standardised branded and chain hotel and its potential opportunities are summarised.

Introduction to the organisation

Assignment writers UK prices

Assignment writers UK prices

Premier Inn is the United Kingdom’s leading budget hotel chain under Whitbread Plc. which is a leading hospitality company and has a number of brands under the hospitality business. Whitbread Plc. has been in the brewing and pub business from the 18th century onwards and has a solid background in the hospitality business in the United Kingdom. The other leading brands under Whitbread Plc. are Costa coffee, Beefeater, Brewers Fayre, Table Table and Taybarns. Premier Inn is the flagship business of Whitbread Plc. and the largest budget hotel chain in the United Kingdom with approximately around 600 budget hotels in the United Kingdom and Ireland and three hotels in Dubai and one in India. Whitbread Plc. has expansion plans within the United Kingdom to add roughly 200 hotels in the same budget segment by 2016 but the major expansion plans are in its international ventures. Considering the other brands under the organisation, the next well-known hospitality brand is Costa coffee Beefeater Grille brand and pub business Brewers Fayre brand (Whitbread Plc., 2012).

Growth opportunities

When considering the growth opportunities for the organisation, except for the Premier Inn and Costa coffee the other brands are targeting a specialised market in the United Kingdom and may not be viable in many international locations. Premier Inn and Costa coffee are the two most valuable brands for Whitbread Plc. which has seen significant growth in the past several years even during the recession period not only in the United Kingdom but also across Europe and in other parts of the world. The other brands in the restaurant and pub business are based on the social and cultural patterns of the United Kingdom and may not be replicable in other parts of the world. The growth opportunities available for the Premier Inn and Costa coffee is validated by the growth objectives and strategy developed by the company in its statements and annual reports where it states that the focus of future growth will be on the value for money hotels and the Costa coffee shops.

Financial highlights of Whitbread Plc.

When considering the entire Whitbread group which has a number of brands, the total revenues have increased by 12%, the profit before tax increase is by 20% and the dividends declared for the last financial year compared to the previous has increased by 17%. The earnings per share have increased by 20% in the last financial year. When considering the revenues by business segment, all the brands except Costa coffee is considered under the business segment of hotels and restaurants which have seen an increase of 5.6% mainly owing to the growth of Premier Inn brand. But the growth of Costa coffee in the last financial year has been in the region of 26% and when comparing the revenues of the two different business segments it can be seen that Costa coffee is providing about 25% of the revenues to the entire organisation. When considering the hotels and restaurants in business segment, the Premier Inn brand alone has improved significantly by 10% whereas all the other brands which are in the restaurant and pub segment have witnessed a compounded growth rate of less than 1% only. The total revenues of Premier Inn within the hotel and restaurant sector is constituting to about 60% of the revenues for the business segment and from this it is clear that Premier Inn and Costa coffee and are the most prominent brands within the fold of Whitbread Plc. which has seen continuous growth in the past several years.

 

Table 1 – Whitbread Plc. revenues by business segment

Table 2 – Whitbread Plc. revenues for hotels and restaurant segment

The below graph indicates the sales growth of the two major flagship brands under Whitbread Plc. which has shown consistent performance in the last two quarters of the financial year and for the entire year. When considering the like-for-like sales the restaurant business which has three different brands have performed poorly with negative sales over the last financial year.

Figure 1 – Sales of different business segments under Whitbread plc.

The below table provides the growth of the company in the budget hotel and the Costa coffee business where it can be seen that a total of around 1400 rooms have been added to the hotel business in the last financial year and the number of total Costa coffee stores have increased from 1800 to 2000 and whereas in the restaurant segment which has three different brands has only seen an increase of or an addition of only five restaurants added during the same period.

Table 3 – Growth in number of units for Premier Inn Costa coffee and restaurant business

The below table provides the analysis of profit by business segments and the growth in profit for the hotels and restaurant segment and the Costa coffee business which indicates that the Costa coffee business in the United Kingdom has provided considerable profit increase of 35.8% and the hotels and restaurant business profits have increased by 8.2% in the United Kingdom and Ireland. Considering that within the hotel and restaurant segment, all the restaurant and pub brands have fared poorly with negative sales, it is the hotels business with Premier Inn contributing to almost all the profits. Moreover since the business segment comprises of hotels and restaurants where Premier Inn is included with the other loss-making restaurants, the 8.2% profit is a compounded one and if one were to consider the profits of Premier Inn alone, it can be seen that it is around 12% in the last financial year.

Table 4 – Profit by business segment for Whitbread plc.

Considering the capital expenditure of the company in the last year to the previous year, it is seen that most of the expenses have been incurred in the hotels and restaurant business whereas the Costa coffee expansion in terms of capital expenditure is significantly less. Moreover it can be seen that Costa coffee has provided significant increase in profits for this comparatively lesser expenditure on this business segment.

Figure 2 – capital expenditure of Whitbread plc.

Present business strategy of Whitbread Plc.

Whitbread Plc. is concentrating in the hospitality segment with hotels, restaurants, coffee shops, pubs and speciality food shops targeted at different segments of the market. Premier Inn and Costa coffee are the most visible, profit-making and expanding brands of the company with the business strategy of focusing on the budget segment (Mohsin and Lockyer, 2010). The low-cost strategy adopted for Premier Inn has paid off in the last one decade especially during the recession period where the hotel chain has witnessed significant increase in revenue due to the increased number of customer intake. Costa coffee has grown as a brand of its own and the profits from these coffee shops across the United Kingdom has shown considerable increase over the past several years even though the capital expenditure in their expansion plans is significantly less than the capital expenditure needed for expanding the hotel business. Although a Costa coffee cannot be said to be targeted at the budget segment, the branding concepts developed by the company along with its aggressive environmental friendly posturing has attracted the younger segment of the population in the United Kingdom. For the hotel business, the company has adopted a direct investment strategy and a central management system where the company manages the marketing, supplier network, branding and expansion with significantly less number of employees for each hotel thereby reducing the cost base.

Assignment writers UK cover photo

Assignment writers UK cover

Considering from the pure theoretical viewpoint, the business strategies adopted by Premier Inn is in its low-cost differentiation, segmentation of market and the value-based strategy. Although the company is forward integrated with the restaurant and coffee business contributing to the strategy of attracting small business people and tourists to the hotel, the main focus of the company was marketing itself through the modern channels of Internet and social media networking. Premier Inn has adopted an aggressive stance in search engine optimisation since most of the reservations are coming through the online channel which reduces the cost of the marketing and sales activities of the company significantly.

Reviewing the options of expansion

Even though Whitbread Plc. as a whole has indicated its interest in expanding the Premier Inn and Costa coffee business within the United Kingdom and Europe, the market factors indicate that the expansion possibilities in the developed regions would be significantly less than that in the past several years. Although Premier Inn has established a brand name in the budget segment, new categories of hotel in the same segment has appeared and competition has increased. Apart from the competition, the growth prospects of the company in the United Kingdom market has reduced because of the high property prices and the saturation in the market. But Costa coffee has significant growth opportunities in the coming years in the United Kingdom and Europe because of the commanding brand name and image along with the marginal expenditure required for expansion. Due to the saturation, competition and high property prices in the United Kingdom which is hindering the growth prospects of Premier Inn brand, it is necessary for the company to scout for the expansion opportunities in international markets. With the present market conditions in Europe and United States, the expansion plans in these regions seem to be significantly less because of the negative investment climate in these countries (Whitbread Plc., 2012). Several market analyst and opinion makers have indicated the significance of emerging markets such as those countries in the Middle East, Asia and Latin America (TFCI, 2010). The emerging markets or the countries which are considered as developing at a fast pace manner in Asia and Latin America are considered to be the best business opportunities for the expansion plans of the company.

Assignment writers UK Prices

Assignment writers UK Prices

Within all the emerging markets, China, Brazil and India seem to be the potential candidates for a brand positioned at the budget segment such as Premier Inn. Out of the three different options, India seems to be the most potential candidate with an insignificant number of branded hotels on a chain basis in the country whereas in Brazil there are a number of American hotels catering to the budget and on upper-class segments (Mohanty, 2008) and considering the Chinese market there are the local brands which is already providing significant competition to international hotel brands.

Potential market opportunities in India

Although local players exist in the Indian market, there are several potential opportunities for branded hotel chains to enter India with increasing levels of tourism contributing to a number of international and internal tourists along with the proliferation of business organisations who requires their executives and business leaders to travel across the country (Chitra, 2010).

Figure 3 – increasing market size of travel and tourism in India

(Source – TFCI, 2010)

The above graph shows the compounded annual growth rate of travel and tourism market in India which has witnessed significant improvements due to the increased levels of capital investment in infrastructure and improved market conditions. Even during the recessionary period of 2009 when the global travel and tourism markets witnessed a significant decline, it was seen that the Indian market sustained the potential of attracting international as well as local tourists.

Figure 4 – Foreign tourist’s arrival in India

It is not only tourism which contributes to the potential of opportunities for branded hotel chains in the Indian market but the contribution from the business travellers are also significant. The effects of globalisation and the improving market conditions within India have contributed to a consumer boom and which is increasing the potential capabilities of organisations to work across the country (Cygnus Business consulting, 2010). Several global organisations are also entering the Indian market and introducing their products. But due to the vast geography of the market in India, it has become necessary for businessmen and executives to travel to different regions. In the United Kingdom, Premier Inn hotel has positioned itself to target the small-scale business travellers who are offered with a low-budget product and service and who are not expecting any additional frills. In the Indian market, although there are several organisations and even small-scale hotels on a regional basis, the concept of branding and developing a unique brand among these hotel have not yet provided results (Sanjeev, 2007). Most of the hotels are independent, small-scale and are completely non-standardised and hence the travellers need to adapt to the different situations and scenarios and the services provided by these independent hotels. The unique proposition of Premier Inn in the United Kingdom was in brand concepts relating to standardisation of the rooms in to meet with the expectations, needs and requirements of the business traveller (Roy and Tisdell, 2005).

One another factor which contributes to the potential opportunity for a branded hotel chain across the Indian market is the lack of increase in the supply of standardised low-budget rooms. As mentioned before there are numerous players who are organised and are branded but almost all of them are catering to the premium segment of the market and mainly intended for the international tourists and business travellers. The below graph indicates the growth of the rooms in several segments and it can be seen that it is in the premium segment and the midmarket segment that the number of rooms have increased over the past several years whereas the budget category has remained static.

Assignment writers UK

Assignment writers UK

Figure 5 – room supply of different segments

(Source – Cygnus Business consulting, 2010)

When taking the entire market, as provided in the below figure it can be seen that the budget hotels is only 6% of the total market whereas the premium segment and the midmarket segment accounts for 25% and 29% of the total room supply. The premium and the midmarket segment are catering to the international tourists and business travellers and the upper class of the Indian tourists and business travellers respectively. A vast majority of the hotels in India are in the unorganised sector with no brand image, unpublicised, having low marketing capabilities and non-standardised. In the budget market segment, although there are some hotels they are also non-standardised and almost all of them offer different levels and qualities of service and hence the customer’s expectations and needs may not be completely met by them.

Figure 6 – Market share of different segments of hotel in India

(Source – TFCI, 2010)

A study conducted by Dutta and Manaktola, (2009) have suggested that the customers of the hotel can be segmented and business travellers (international and domestic), tourists (international and domestic) and others. The below figure is a rough indication of the market in which the Premier Inn has acquired in the United Kingdom market and it can be seen that around 40% of them are the domestic business travellers with the next highest segment being done domestic tourists accounting for about 20%.

Figure 7 – Customer segmentation

(Source – Whitbread Plc., 2012)

Options, feasibility and risk assessment

From the potential market opportunity it is clear that there is an un-owned position in the Indian hotel segment in the form of a branded and standardised hotel chain mainly catering to the business travellers in the cities and towns of India. Premier Inn has already established one hotel in India and has number of Costa coffee shops in the major cities which provides the parent company, the Whitbread Plc. group a certain level of experience and understanding of the potential, feasibility and the risk characteristics. In terms of the feasibility, several market studies have indicated the expansion possibilities of the Indian hotel segment especially a branded hotel chain. From a risk assessment perspective of entering a foreign market especially that of India there are certain regulations to be complied with and the Indian market regulations with respect to foreign direct investment in the hospitality industry is very welcoming and providing opportunities for global players. 100 % foreign direct investment is allowed in the hotel segment and there is also the possibility or the opportunity for Premier Inn to develop a strategic alliance or a tie up with local players who have experience in the Indian market.

Options of market entry

Market entry options for Premier Inn
100% direct investment Strategic partnership Franchising

Table 5 – Options of market entry

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Assignmentwriter process

An organisation can enter the Indian market and set up its own Greenfield hotels in India without any strategic alliance for a tie up with any local player. But the risk associated with the 100 % direct investment growth is higher than that of a strategic alliance or a partnership. Almost all the hotel properties under the Premier Inn brand is either leased out or fully owned by the company thereby increasing the need for capital expenditure. As seen from the initial financial highlights, the requirement of capital expenditure in expanding in the United Kingdom is higher for the hotel segment because of the significant costs involved in building up hotels. In but the cost of land and property in the Indian market is comparatively less than that of United Kingdom and other European nations and this is an opportunity for the Premier Inn to enter with its own greenfield projects. The other option for Premier Inn is to enter into a strategic alliance with a local player either through franchising route or through partial direct investment (Kannan, 2009). Many global hotels chains and establish a presence throughout the world through the franchising route where the potential market knowledge of a local investor or an organisation can be tapped.

Advantages of positioning and targeting

As mentioned before, Premier Inn can position itself as a budget hotel with standardised products and services such as rooms, food and beverages and the associated services to target at the domestic business travellers. One of the significant advantages developed by Premier Inn over the years through its operations in the United Kingdom is its marketing policy and strategy through the Internet. The Internet has significantly reduced the cost base of operations of Premier Inn in the United Kingdom. In India, similar marketing opportunities exist and there is a gap to be filled in terms of introducing a standardised product offering to the customers with a low cost base and the opportunity for marketing through the medium of Internet. In the Indian market, the vast majority of business organisations do not have a contractual agreement with any of leading or chain hotels because of the lack of availability of such hotel chains across different cities and towns. As per Sarkar, (2009), the vast majority of the business travel market has not been directly targeted by any of the hotel organisation in a direct manner. There are individual hotels situated in different locations that are having different types of arrangements with business organisations similar to that of the airline segment that has tie up with leading hotel chains in the major cities for their crew members to stay during operations. Similarly due to the lack of a single hotel chains in most part of the country, the airline industry is also forced to take individual and different contractual agreements with different types of hotels for their crew members.

It is this potential market which Premier Inn has to target where the business travellers and the airlines are provided with a budget offering which is standardised by developing a hotel chain in the Metros, cities and towns in India. Moreover there is a domestic travel market which is also cost conscious and the un-standardised and unorganised nature of the hotel market increases the cost of finding decent and low-cost accommodation which can be fulfilled by the budget offerings of Premier Inn hotel.

Other market related advantages

Premier Inn in the United Kingdom is employing a low cost structure with less number of employees to operate the hotel chain with a centralised marketing and operations system. All the reservations are conducted through the Internet and the number of employees in each individual hotel is less in order to reduce the cost. In the Indian market the cost of employees are significantly less than that of the developed countries and the potential of marketing to the Internet and making a centralised reservation system through a manned customer centre and an automatic Internet reservation system has not been properly targeted by any hotel chain. In Whitbread Plc. has gained enormous experience in the Indian market through the establishment of several Costa coffee outlets in different parts of India and this can provide significant benefits to the management in setting up a hotel chain in India. The branded and standardised offerings can reduce the uncertainty for the customers in terms of what to expect and the customers’ needs and expectations can be met with the adaptation of the rooms and services to the Indian market conditions.

Recommendations

The report evaluated the potential market opportunities existing in the Indian hotel market and the options of entering the market either through direct investment or through strategic alliances. The risk assessment and the feasibility of entering through direct investment and strategic alliance were also briefly evaluated. The recommendations to Premier Inn to enter the Indian market is to develop a strategic alliance with a chain hotel already established in the Indian market and having enough experience about the Indian market conditions. This will reduce the capital expenditure for Premier Inn as they will not be required to put large-scale capital in order to acquire and develop properties. Although a certain level of control will be forfeited to the strategic partner, an option of franchising also can be explored but the management concepts and the organisational model adopted by Premier Inn in expanding in the United Kingdom may not be consistent and relevant with a franchising model. Hence the best opportunity for Premier Inn is to enter the Indian market through a strategic alliance with a local player and position themselves as the budget hotel with standardised offerings and developing partnerships with various leading business organisations to tap the increasing domestic business travellers.

 

References

  1. Babu, S. A., (2008), “Tourism development in India: a case study”, APH Publishing
  2. Chitra, B., (2010), “Great potential for budget hotels in India”, Hotel news, available online at http://www.lemontreehotels.com/resourcefiles/pdf/great%20potential%20for%20budget%20hotels%20in%20india.pdf
  3. Cygnus Business consulting, (2010), “Indian hotel industry”, published by Cygnus business consulting, available online at http://www.cygnusindia.com/pdfs/Industry%20Insight-Indian%20Hotel%20Industry_final-14%208%2007.pdf
  4. Dutta, K. and Manaktola, K., (2009) “Managing online distribution for tourism growth in India”, Worldwide Hospitality and Tourism Themes, Vol. 1 Iss: 1, pp.40 – 51
  5. Kannan, S., (2009), “Hotel Industry In India”, Deep & Deep Publications
  6. Kumar, A., (2010), “Mktg Of Hospitality & Tourism Services”, Tata McGraw-Hill Education
  7. Mohanty, P., (2008), “Hotel Industry And Tourism In India”, APH Publishing
  8. Mohsin, A. and Lockyer, T., (2010) “Customer perceptions of service quality in luxury hotels in New Delhi, India: an exploratory study”, International Journal of Contemporary Hospitality Management, Vol. 22 Iss: 2, pp.160 – 173

  1. Roy, K. C. and Tisdell, C. A., (2005), “Tourism in India and India’s economic development”, Nova Publishers
  2. Sanjeev, G. M., (2007) “Measuring efficiency of the hotel and restaurant sector: the case of India”, International Journal of Contemporary Hospitality Management, Vol. 19 Iss: 5, pp.378 – 387
  3. Sarkar, A. N., (2009), “Enhancing Global Competitiveness: Advantage India”, I. K. International Pvt Ltd
  4. TFCI, (2010), “Hospitality in India”, published by the tourism finance corporation of India, available online at http://www.tfciltd.com/download/hospitality.pdf
  5. Whitbread Plc., (2012), “Financial results”, Available online at http://www.whitbread.co.uk/content/dam/whitbread/siteimages/investors/Whitbread-interim-results-2011-12.pdf