The Middle Path to Profitability
Three decades, 120+ hotels. The remarkable success story of Sarovar Hotels 30 years on, especially in the hitherto oft-ignored midscale segment of Indian hospitality, has transformed the hospitality landscape in India.
By Suman Tarafdar
Mid-scale hotels. In 1994, the year Sarovar Hotels began its remarkable journey, they were not a reality in the branded segment. At least not in India. But then relatively young and already with a wealth of experience, two The Oberoi Hotels veterans, Anil Madhok and Ajay Bakaya, joined hands to venture into this hitherto ignored space in Indian hospitality. The fact that they came from a luxury hotels background and created a brand like Sarovar, one of the fastest-growing hotel brands in India, with a score of openings this year alone, is a feat almost unmatched in the sector.
While the group’s largest presence is in metros such as Delhi NCR (14 hotels) and Bengaluru (10), its success lay in going to Tier II towns, usually becoming the first hotel brand to do so. From Saharanpur to Shravasti, from Siliguri to Somnath, Sasan Gir and Sonipat, the Sarovar flag has been setting benchmarks across the country. As the brand marks its 30th anniversary, SOH looks back at this remarkable journey.
“When we started, we had clarity,” points out Ajay Bakaya, Managing Director, Sarovar Hotels. “I can't claim that we saw things as they are today or as good as they are today. And we were new to the game. None of us had had any successful exposure to being entrepreneurs. Mr Madhok had moved from a very corporate life into Sarovar and he was finding direction. I had one stint as an entrepreneur, which had nothing to do with hotels. When we joined hands we knew our strengths, we knew our competency in terms of running hotels, in terms of being able to sell hotels and doing business to the hotels. We were all expert operators.”
Bakaya also mentions the timing of their decision to go into business. “Liberalisation had happened. The questions to ask were: what are your strengths? What are the competencies? We knew we could run hotels. We knew there was a huge market in India where hotels were not run properly. So, we were there at the right time. The only people who'd been before us was Choice, and they had gone very largely into a franchise model.” Madhok, who passed away last year, made a similar point in an interview in 2012. “Of course, there was an element of being in the right place at the right time, but I would credit us for figuring out the right approach to business. It was simple—none of the big chains were looking at small hotels. We were virtually the only company to do so.”
Madhok worked with The Oberoi Group for 25 years, with postings in Mumbai, Sri Lanka and Singapore, rising to be vice president of operations. He had been inspired to exit the ‘make-believe world’ of luxury hospitality while in Singapore, and decided to start his own venture. “Due to the liberalisation in 1991, there were a lot of hotels mushrooming everywhere but there was no company to manage them,” he said in the same interview. “So, I started Sarovar Hotels and Resorts in 1994 with ₹50,000 from my personal savings. I believed there was an opportunity to give a burgeoning, amateur hotel industry access to operational expertise, and I could do that.”
Bakaya recollects that Madhok and he were clear on three key factors when they started. “One was building long-term owner relationships. The owner is the king. He’s putting in the money, he is taking the risk. We are providing a service to the owner. And as an entrepreneur, we had to start thinking as an owner or as a true business person would: where is the money coming from? Where is it going? What are the returns? If he is hurting, you need to hurt with him and change and modify and adapt to make sure he hurts as little as possible.”
The other pillar was to bring in key people with strong experiences that the owners could not possibly attract or retain. “So from day one, in our very early stages, when we had the Marine Plaza in Mumbai, we brought in a corporate housekeeper, a corporate chef, and we had a corporate engineer,” recollects Bakaya. “Two of these three were also the executive housekeeper and the executive chef in the hotel. I am the only company in this country that can pitch ourselves against anybody. We have IT training and HR, etc. So we have a huge team.” The Sarovar team is already over a thousand members strong, plus another about 7,000 odd in the hotels.
The third element was the ability to bring business to the hotels. “We started with three sales offices in city centre locations,” says Bakaya. “Today we have 16 sales offices. Sarovar delivers 25% of its business through these offline channels. I offer support services that no other company in this country offers. I have owners who have given me two hotels, three hotels, and four hotels. I have multi-property owners, which means I must be doing something right for those relationships.”
As the group reflects on their journey from one hotel to 120 over the past 30 years, they recognise the need to continuously evolve our operations. Says Jatin Khanna, CEO, Sarovar Hotels, “Each decade has brought transformative changes in our strategies and today, we stand on the brink of another significant shift. We've always been proactive in deploying manpower and over the past year-and-a-half, we've doubled the size of our revenue, marketing and HR teams, as well as expanded our sales offices.”
Paris-based hospitality firm Groupe Du Louvre acquired a majority stake in the group in 2017, and then, as Bakaya says, “the ball got rolling”.
He points to the advantage of being local as a crucial recipe for success. “We click with the owners; we talk in a language that they understand. We give them continuity that large companies don't give them. For an international company, a guy comes in and then disappears, after which the owner talks to somebody else, and somebody else, and somebody else. With us, there are also cultural gaps to deal with. We don't talk down to our owners. We understand, we empathise, but we are not subservient either. We are on equal footing. We are partners.”
Interestingly, Bakaya claims that at least 70% of his owners are first-time investors for whom this is their only large business. “That is a different dimension altogether, because you are not dealing with people who are used to dealing in millions here and there and could not care if it goes right or wrong one way or the other, or we'll wait three months.”
Marasa Sarovar, Premiere, Tirupati.
Mid-market opportunity
While today, every hotel brand that desires to scale up is looking at the mid-market opportunity, Sarovar began its journey with this segment and remains focused on the space. “We were very clear we wanted to position ourselves in the mid-market. That's my core. I run deluxe hotels, but they are a small minority. I keep telling my team, luxury feels nice, but that's not our DNA.”
There is very clear clarity on the basic values that are not going to change, underscores Bakaya. “There are things that are changing. Yes, we need to wake up and we need to learn and we need to listen, and we need to treat people differently today than we did earlier on. It's a changing world. But our main narrative is Tier II and Tier III. I think our experience has been phenomenal.
“The markets in these two segments are growing today largely because of people’s aspirations. They are travelling often, and they want similar facilities in their cities. Tier III is not going as fast as it possibly could. Land is equally expensive, of course. Land in Indore or even Kanpur is no less expensive than the bigger cities. That's why the growth is smaller. But our niche is anywhere from a 60-room to 110-120-room hotel, a space in which there is huge demand. That’s a smaller investment package because we position ourselves in the aspirational middle class.”
Going to an emerging destination also has paid off exceptionally well for Sarovar. “When we went to Lucknow, it was a very small city at that time. Amritsar too. Tier II and III cities give you even more opportunity to showcase your talent and your experience because they just don’t have anything,” says Bakaya.
He admits there were considerable challenges in going to smaller cities, especially in the group's early years of operation. “The scale of the opportunity was still small at that time because there weren't a lot of people building opportunities in these destinations. The demand was low, though you were assured of a certain level of success. Your freight connections weren't there, roads were horrible. You went on trains to a lot of these places.”
Ajay Bakaya admits there were considerable challenges in going to smaller cities, especially in the group's early years of operation.
We were very clear we wanted to position ourselves in the mid-market. that's my core. i run deluxe hotels, but they are a small minority. I keep telling my team, luxury feels nice, but that's not our DNA.
Ajay Bakaya
Managing Director, Sarovar Hotels
The essentials for Tier II and Tier III markets
What does a traveller need when he heads to a Tier II or III town or city? Bakaya says the top priority is cleanliness. “Housekeeping was non-negotiable. When you put food on the plate, it should taste good. Forget all the other fancy dramas. As I tell people, your guest in a hotel is like a guest coming to your home. You make sure you take care of him, and he goes out happy.”
Bakaya is confident Sarovar can take on the competition even as hospitality majors such as Taj (Ginger), Marriott (Aloft, Moxy), Accor (ibis), Hyatt (Hyatt Place), ITC (Fortune), Radisson (Park Plaza, Park Inn), Wyndham (Ramada, Days Inn, Microtel, Howard Johnson), Lemon Tree (Red Fox) and others increasingly deepen the foray into the mid-market and economy space.
As for the potential of the midscale segment in India, Bakaya reiterates a point that Dmitri Manikis, President EMEA, Wyndham Hotels and Resorts, made at HICSA earlier this year to the industry: even going by the most generous estimate, the luxury and premium customer do not make up more than 10% of the market. “The rest is us.”
India is currently experiencing remarkable growth, often referred to as the shining story of this decade. With a burgeoning middle class and supporting data, India stands as the youngest country in the world and will remain so for years to come, says Khanna. “This youthful demographic brings to the table an increasing capacity for spending and a strong inclination towards travel, including holidays and long weekends. Sarovar, as a leading domestic brand in the mid-market and premium segments, is uniquely positioned to cater to this demand, offering unparalleled hotel experiences.”
The group ended 2023 with double-digit growth and the first quarter of 2024 has seen double-digit gains, Bakaya elaborates. “Excluding the election months, which understandably were slower, we see the market as very stable.”
Located in the heart of Dalhousie, Presidium Sarovar Premium offers breathtaking views of snow-covered mountains.
Creating an army
Bakaya admits to the challenge of staffing, which is impacting the entire sector significantly. “I think my biggest challenge today is people. We are at a stage where I am very deeply concerned that I am not always delivering what I promised to my owners before they signed up.” He says that a hotel requires a room-to-staff ratio of 1.2. “Anybody thinks it can be done in less is cheating you.”
Cultural habits are changing in India. “You have to make sure you are paying more. You have to make sure you're not cutting corners. You have got to ensure that the back of the house in terms of cafeterias and locker facilities is as clean as the front of the house is. And this is not expensive to do. We have started building our army,” Bakaya says.
Sarovar has tied up with the Indian School of Hospitality to train executive staff. “Starting from August 1, we are starting a programme where I will pick up youngsters from hotel schools and for 12 months, I will pay for them. In that year, they will be certified with a proper school. They will be trained either as young assistant managers, young housekeeping executives or young chefs. We are making this investment in people. And hopefully, they will understand our philosophy. Even if half of them remain with us, we are building a certain culture that can multiply over time.”
Hotel V Sarovar Portico, MI Road, Jaipur.
Talking tech
Bakaya points out that the recent spurt in growth means that he can no longer be in touch with hotels as frequently as earlier. “The systems and the structure that we had in place in these early stages, even in the first 10 or 15 years, don't work anymore. So I can't visit all my hotels, nor can my CEO. I don't necessarily know what's going on. Yes, I look at my reports weekly, and monthly, but I'm not in touch with the hotels, day-to-day. We are now developing a system, a brand deck that will prompt me which hotel has gone down in say the last four days, or which hotel is performing subpar. We're moving to that level of technology now, which will help us manage things better. We were always hungry, and we remain hungry.”
With the Louvre association, the group has embarked on a technology revolution, “which is way ahead. Currently leading the industry, the company offers systems that allow every employee to access e-learning on a mobile phone, providing the flexibility to train whenever they choose,” says Bakaya. “We are making sure that in India, the translation is available in multiple languages because right now, everything is in English. More recently, we have the advantage of being the only Indian hotel company with a global distribution system and reach through the Louvre systems.”
On the technology front, all Sarovar hotels are integrated into a best-in-class Central Reservation System (CRS), adds Khanna. “We are also aligning our backend technology with that of Louvre Hotels, which operates 1,800 hotels globally. This alignment will enable us to develop new tools, enhance business analysis, and improve product offerings, all from a guest experience perspective.”
Bakaya is confident Sarovar can take on the competition even as hospitality majors deepen the foray into the mid-market and economy space.
I think my biggest challenge is people. We are at a stage where i am very deeply concerned that i am not always delivering what i promised to my owners before they signed up.
Ajay Bakaya
Future? Planned!
Sarovar's growth strategy includes quick conversions, points out Khanna. In 2011, Sarovar had 50 hotels. In 2024, the group is in 77 destinations and aims to reach 130 hotels by the year-end. “By the end of 2025, we aim to operate 150 hotels and this number will continue to grow. Currently, we have 80 projects in the pipeline. From a growth perspective, we are on a steady trajectory. Looking at 2019 as a base year and factoring in the impact of COVID-19, we expect to double our company's revenue by 2025. Achieving this in just four years, excluding the two years affected by the pandemic, is a remarkable accomplishment and a testament to both India's growth story and Sarovar's success.”
Innovation, especially with regards to environment, is still the key. One such, which will be an industry first, is the plan to install water dispensers in the rooms, eliminating the need for plastic, or indeed, any bottles. Bakaya points out that clearer the regulations, the easier it is to persuade owners to implement them, such as the use of STPs or environmental procedures. “I am glad these things are happening because the regulation needs to be stronger in this country.”
Khanna is optimistic about the changing travel patterns for younger Indians. “India's young generation is eager to explore new destinations, and Sarovar is committed to adding more locations to our map, resonating with this forward-looking mindset. India is a young nation with a growing appetite for travel, the trend of taking five to six holidays and long weekends annually.”
Sarovar is building steadily on its firm base. At around 120 hotels, it is already vying for the second largest hotel group by number of hotels. And there’s a major celebration just around the corner. “Although our official anniversary was on June 1, we are planning a grand celebration in September during our annual GM conference,” reveals Khanna. “This event will be an extraordinary opportunity to gather all our leaders, senior representatives from Paris, stakeholders, owners, and employees as well as thought leaders from various sectors to commemorate our achievements and look forward to the future. We will also be making a few announcements in the space to recognise all our stakeholders.” Our long-term focus for the next five years is to ensure that whenever a guest, owner, or employee thinks about investing in, staying at, or working with hotels, Sarovar is the top brand that comes to mind.”
We were always ethical and clean,. And we remain ethical and clean. I have hotels that are doing brilliantly. I have hotels that are doing well. I have hotels that are doing below average for whatever reason.
Ajay Bakaya
Why Values Matter
Most in the sector agree that the Sarovar Group brought certain elements to the midscale space, which were conspicuously missing. “We were always ethical and clean,” says Ajay Bakaya. “And we remain ethical and clean. I have hotels that are doing brilliantly. I have hotels that are doing well. I have hotels that are doing below average for whatever reason. But I doubt very much that you will find an owner, past or present, who will have anything negative to say about Sarovar or its people. We are very clear, we make mistakes. We say we made a mistake and we fix it. We don't invest, but in every other manner, we are partners. We go anywhere and everywhere.”
Bakaya cites an example of the standards the group has set. “I was pursuing hotels in Iraq at one time and Mr Madhok said to me, ‘Are you serious?’ And I said yes. He said no. I said, Well, why? I'll go. He said, ‘Look, I am not going to go to Iraq. I forbid you to go to Iraq. It is not safe enough. And if I and you are not going to travel, then the same applies to our people. We are not going to send other people there too.”