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‘It’s ideal to engage an expert consultant from drawing board stage’

Monday, February 12, 2018, 15:48 Hrs  [IST]

The success of any hospitality venture depends on multiple ‘right decisions at the right time’. To arrive at these right decisions, developers and investors invariably require right guidance and advise from expert Industry Consultants. GK Hospitality Services is one such trusted consultancy company which has delivered more than 30 hotel projects in the country within a short time. At a time, GKHS is all set to open their international operations in London to service the larger Europe market,Beni Agrawal of GK Hospitality Services (GKHS) spoke to Hospitality Biz. Excerpts of the interview...



Q What are the core competencies of GKHS as a Hospitality consultant?
GKHS has its core focus towards advising, delivering and protecting interests of hotel developers and owners across all segments. The firm has three key areas of specialisation – Market Feasibility Study and Valuation, Brand Search and Contract Negotiation, and Asset Management and Owner Advisory. Between these three verticals, the firm covers planning, development and operations of hotel projects with guided expertise. The firm so far has successfully delivered 31 assignments across the country and now looking at exploring the neighbouring grounds. GKHS is also planning to open its first international office at Romford, London, by the mid of 2018 to cater to its clients in the UK and Europe.

Following its two core values: i.e. Continued Long-term Support, and Genuine Connect with its Clients, the firm has created ‘GKHS Client Club’ (GCC). All GKHS Clients, Past and Current, automatically become part of GKHS Client Club and keep getting continued benefits such as: Industry updates, friendly assistance, invites to participate in Hospitality seminars in India and abroad, and much more. Most of all, GCC showcases GKHS’s continued commitment towards each Client and Assignment.

Further, moving towards becoming one-stop-hospitality-solution for developers and existing owners, GKHS has entered into a partnership with one of the top website designing and digital/social media marketing companies in the country. The firm is exploring to launch a couple of other high demand Key Services where clients need significant handholding, which also includes – Food and Beverage Planning, Conceptualisation and Execution.

Q While an expert industry consultant can deliver value at every stage of a hotel project, from feasibility study to brand selection to brand negotiation and contracting, etc., how much that value is recognised in the Indian scenario by developers, hoteliers, etc.?
There actually exists a pretty significant percentage of owners and developers who prefer to take ‘research based’ and ‘expert-guided’ decision rather than relying their investment on a hunch. We often receive queries for feasibility study for sites at ace locations that are a no-brainer to anyone. For example – markets like Goa, Gurgaon and Vijayawada have booming business currently, however, we’re conducting feasibilities for our clients in all three markets. Our careful set of investors prefer to find out if there are several other investors in process of adding more inventory to these markets thereby making it more competitive, which can be a critical variable for right decision making. Most of them also need guidance on the appropriate product mix and positioning (i.e. no. of rooms and sizes, banquet foot print, retail element if mixed-use, etc.).

This is partially applicable to Brand search and Contract negotiation primarily because prior to approaching us for help, most clients spend few months in their own research of connecting with various brands. So, while they reach us out, they are already in a state of grand-confusion with several ‘What-ifs’ and ‘Whys’ vis-à-vis which brand to choose. Some are already partially inclined towards ‘a’ particular brand and need our assistance only with ‘Negotiating the Contract’. For Asset Management, however, we’d completely agree to the fact that it does need more recognition among Hotel Owners, Developers and also Brands surprisingly. Our team spends a lot of time educating the owners about the value creation by Asset Management however it is mostly seen as an added cost. On the other hand, we’ve also noticed few brands expressing their unhappiness towards filtering everything through Asset Managers as secondary monitoring system. We feel it will mature overtime as both Brands and Owners understand that healthy Asset Management Process actually may end up sweating the asset to optimum for everyone’s benefit.

Q Where all you feel an expert consultant can really make the difference as far as a hotel project is concerned and what would be the impact of ignoring expert advises on the long term?
Planning, Planning and Planning. Building the ‘right product’ is the key to success in hospitality. See it up-side down, building a ‘wrong’ product could actually be like fighting a lost battle right from day one. We come across several clients who have built their projects (or half built) with twice the amount of investment and FSI than necessary and then they attempt to lease it to someone who could run it with maximum efficiency and generate desired profits to match their exaggerated investment. We encourage that an experienced Hotel Consultant must come on-board even prior to the drawing board stage to remain associated with the project throughout its development. It may not be a daily-basis role, however, the Developer shall have the expert sitting with him for making all kinds of decisions right from – What to build and how much to invest, to which Brand or Architect or MEP Consultant or Vendor to engage and on what terms and scope with timelines. Consultants may also assist the clients on matters relating to Funding, Imports, Approvals, Licensing, Insurances, etc. These are very critical decisions that may make or break a project.



Q Where all you feel Indian owners make mistakes while negotiating brands, contracts, etc.?
Negotiation is secondary, what’s more critical is understanding one’s expectations/aspirations, and accordingly choosing the right brand. With the right brand, need for negotiation on several matters might just settle for itself. Consider matters like Control on the Property, Business Performance and Upkeep, Term of Engagement, Geographical Exclusivity, Co-branding, Eventual Sale of the Asset, etc. If the Client’s thought process is to Co-brand the property, it may be pointless negotiating the contract with brands who do not entertain it. Same may apply to Sale of Hotel as certain brands might restrict the Owner from selling the Hotel during the term of the contract. One of the most common mistakes that Owners make while negotiating with brands is over focussing on Commercials therefore ignoring other critical non-Commercial or even semi-Commercial parameters. This is primarily because Owners understand money pretty well, they subconsciously tend to over focus on it. On the other hand, such Owners who try and see things from overall perspective yet fail to optimise the negotiation in the absence of strong understanding towards industry benchmarks and negotiation thresholds. A Client recently brought us a signed document with a leading international brand with terms like 25 years contract with auto renewal for equal tenure, heavy monthly penalty for the delay in project completion, no budget approval rights, no approval rights towards hiring of key positions, no performance clause, very limited Area of Protection, unconditional surrender of bank account, no understanding on Pre-opening and operating expenses, undefined Termination clause and several other critical areas of concern. Some of these terms are definitely less fair than they should be and is a good example of bad negotiation due to insufficient understanding of the contractual terms and what’s prevailing in the market.

Q How do you look at recent trend of owners switching brands mid-way through the contract? Is it a signal of maturing owner-brand relationship or lack of the same?
It is definitely a sign of a highly competitive and mature market indicating reduced ‘degree of surrender’ by the Owners. But while market has empowered the Owners, it may not always be a good idea to continually switch in search of better performance, positioning and fee structure. Brand switching may have its own downsides including reworking on the new identity, heavily investing in Property Improvement Plan (PIP) before the next brand takes over, and also little or no surety of performance by the next brand. GKHS has educated several Owners to be little patient before taking the plunge with the next brand and try to mend their relationship or brand discrepancies by raising various issues in all modesty. For performance matters, if Brand A being a reasonably good brand is not able to perform too well, chances are, even a Brand B’s performance wouldn’t be too different than marginal as it might be the market-effect. In my personal opinion Brand switch must be exercised only in extreme cases.

 
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