Tata’s Affordable Hotels

Business Standard writes about the launch of Tata IndiOne which is offering hotels at room rates of less than Rs 1,000 ($22) per night. The first such hotel opened recently in Bangalore. The plan is to build 150 more in the next few years.

This could be the budget travellers dream: a cool, air-conditioned room with a refrigerator and a 17 flat-screen television. Tea- and coffee-makers at the bedside and an in-house gym to ensure that guests dont get out of shape on those long business trips. The cost: a startlingly low Rs 900.

The chain roped in management guru C K Prahlad and then reversed gear they calculated how much customers were ready to pay. The mathematics and consensus was in favour of Rs 1,000 (one tenth of a five star deluxe hotel). The next step was to work backwards and control costs. Says Nair: Instead of going top-down we started the project business plan with a clean piece of paper where the key was tight financial control.

So how has indiOne kept costs under control? First it created a module: the hotels would be on 1 acre of land with 100 rooms. If each hotel costs about Rs 10 crore that comes to around Rs 10 lakh a room. That compares favourably with deluxe hotels and five stars where per room cost ranges from Rs 50 lakh to Rs 1.5 crore. And of course, by scaling up it could dramatically reduce investment in each hotel.

Then, room sizes were fixed at around 200 metres compared to five stars where they are between 250 to 400 metres. Also, it was crucial to keep staff numbers down.

For instance the entire Bangalore hotel will be run by 25 people. By comparison most five star hotels have about 250 people for every 100 rooms. Inevitably, that means slashing some services like, for instance, a room porter. Also, the company is working on automatic check-in kiosks.

IHC is also turning to technology to save on marketing and sales. For instance, its offering Rs 50 off on Internet bookings. Nair says that in Bangalore 70 per cent of the bookings are currently coming on the Internet. Says Nair: Sales and marketing constitute 10 per cent to 15 per cent of room cost which you save if booking through the Net becomes popular.

I think their strategy will work. The key is to think out-of-the-box to come with a 10x differential. So, how can we apply these ideas to “commPuting” – provide hardware, software, connectivity and support for Rs 500-700 per month ($11-15). There are 100 million Indians waiting.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.