Why the hospitality sector is ripe for Make in India

When the world reads about Make in India, what does it imagine? Maybe motorbikes whizzing off the production line or hi-tech fighter jets defending our nation. Perhaps pharmaceuticals or IT or maybe the extraordinary Indian textile industry?

How about restaurants or the hospitality sector? Hmm... Maybe not.

But why not? Perhaps it’s some kind of involuntary association between the word "Make" and images of machinery or factories.

As investors and managers in the Indian hospitality industry, we would argue strongly that our sector is a natural candidate for the world’s best companies and brands to Make in India.

Firstly, India has a deep reservoir of the natural resource upon which our industry depends – people. And not just any people, a country of young, dynamic, bright and hard working people brought up on the importance of hospitality and starting at home.

As children, we learn the mantra "Atithi devo Bhava" – Guest is god. For us, the act of hospitality is central to our social code.

And it shows in the wealth of world-class hotels across the country from Indian pioneers and leaders like Taj Hotels to modern innovators such as the Oberoi Group. Both these brands have not only flourished in India but exported their product and service excellence around the world.

When one stays at The Pierre (a Taj Hotel) in New York, you feel the history of this grande dame of US hotels given a new lease of life by one of the great Indian service providers.

The Taj and Oberoi (and many other great Indian hotels) have been joined by top tier international players – Four Seasons, JW Marriott, Hyatt, Westin to name a few. These brands choose to make in India, of course, to access the market but also to benefit from our superb workforce, and the depth and heritage of the Indian hospitality ethos.

The restaurant sector is no different. Of late, India has seen the latest wave of world-class brands enter the market, including Wendy’s, Burger King, Jamie Oliver’s restaurants, PizzaExpress, Megu, Yauatcha, Nando’s and many more. For these brands, the opportunity to "Make in India" has become compelling for several important reasons.

Firstly, the market for international cuisine is now well-established thanks in large part to pioneers such as McDonald’s who single-handedly built supply chains and organised a highly disorganised sector during the 1990s.

Secondly, real estate developments are (after the post-2008 slump) growing at a rate commensurate with demand. Much as we all love Khan Market in New Delhi, it is unreasonable to expect rent levels on a par with Ginza, Bond Street or Lexington Avenue!

Thirdly, India boasts a well-trained labour force available to brands at an extraordinary level of value. From an economic standpoint this delivers two important outcomes:

1) Very high levels of efficiency at a P+L level because of the costs of labour, and

2) The opportunity to deliver a superior Return On Capital Employed (ROCE) due to materially lower construction costs (again a function of labour efficiency).

In fact ROCE is the big "Make in India" story for the hospitality trade because while the topline may not yet be comparable to markets ahead in the economic cycle, the investment returns may well be.

In fact, building hotels and restaurants in India provides multiple opportunities versus other markets. Not only is our labour plentiful and great value, our craft skills are the match of anywhere on earth.

On top of this, India provides a wealth of extraordinary building materials with no need for imports. For example, in our restaurants, we work with Rajasthan hand-made tiles, we create our own wrought-iron jali screens; we even design and make our own furniture. And we do this at a quality and cost level that is very hard to achieve in other comparable markets.

Lastly, technology. Like all industries, the hospitality sector is increasingly driven by the use of smart technologies and the approach to digital. This means investment in apps, in mobile, in CRM and so forth.

Here, being in India provides a major advantage in being able to access the deep pool of engineers, developers and digital entrepreneurs who are hungry to work with the best brands and who bring energy and creativity to our industry.

All in all, the hospitality sector offers compelling Make in India opportunities. But of course there are challenges.

Competition is intense and brands now need to work hard to find their voice and make themselves distinct in an increasingly crowded market. However, help is on hand with the many great creative agencies now dominated by smart and insightful millennials. India is a very attractive market for brands but investment in adjusting the offer and in understanding customer habits is a must.

Real estate is tough. Yes, supply is increasing but brands need to work hard to get the best sites and not break the P+L model by chasing unaffordable locations. Invest in systems and people who can master Real estate acquisition.

Like all developing markets (especially the large ones) India is very promising in the medium to long term but tends to experience bumps on the way. What this means for hospitality brands is getting used to active management of capital and of the business P+L. The winners are those who develop flexible models that accommodate the swings up and the swings down. Being adaptable, responsive and entrepreneurial is all.

And the last of these – being entrepreneurial is the key to success in India. Like any great and large nation, cracking the code requires people who can solve problems, change direction and take risks.

And here’s the single most exciting aspect of our country: we are a country of entrepreneurs – born and bred traders, deal-makers and innovators. This, above all, is why the world’s best hospitality brands should "Make in India".