'Disruption can be turned into an opportunity': Behind Puneet Chhatwal's ambitious vision for his hospitality company

A visit to the Presidential Suite at the Taj Mahal Palace hotel in Mumbai is an overwhelming experience. It is very large, luxurious and has had an impressive guest list. Surprisingly, it is the first time that Puneet Chhatwal, MD & CEO of The Indian Hotels Company Ltd (IHCL)—that runs the Taj group of hotels—is here. It is an indication of how busy the man, who joined as IHCL’s big boss in November 2017, is as travel takes away most of his time. Now, he is as busy as ever with new hotel openings and innovative product offerings. Chhatwal, who has spent more than 40 years in the space, explains why he is optimistic about India in an interview with Business Today’s Sourav Majumdar and Krishna Gopalan. Edited excerpts:

Q: Can you tell us about IHCL’s transition from hotels to a bigger play in hospitality?

A: We were always in hospitality. The concept of a flight kitchen is not new, nor is Vivanta. Some additions to our portfolio are SeleQtions [signature hotels and resorts], home stays [amã Stays & Trails] and home delivery [Qmin].

In India, I would like to think the concept of hospitality was focussed on just a service. It was important that we had a good look at the business. I had the advantage of working overseas for many years... [and] saw from close quarters the success of Ibis for instance [in France] or Premier Inn in the UK. Premier Inn has over 5,000 hotels in this category [a limited service chain]. What’s the limit for that in India?

I started my career with flight kitchens. Today, TajSats has 58 per cent market share of all domestic meals. Those kitchens can be used as cloud kitchens as well... [it is an] untapped opportunity. Taj is not just our brand, but the crown jewel of this nation. This is everybody’s Taj. It is very special.

When I joined, we went for a multi-brand strategy and created the largest hospitality ecosystem… We embarked on a journey of growth—gain not just in the number of rooms, but growth in revenue and margins—and we succeeded for nine consecutive quarters. Then came Covid-19 and lockdowns. The last four quarters have been phenomenal and the outlook going ahead looks good.

Q: The Covid-19 pandemic has been a tough time for all. How did it make IHCL more resilient in the midst of a very challenging business environment?

A: There is a fundamental human need for business and leisure and you cannot take that away. That is a huge plus working in our favour. However, in India, the landscape is not easy since connectivity is a challenge... Often, planning travel in India is difficult because of air connectivity. Over time, good infrastructure will assist our business and bring in scale. We are present in 125 destinations across the world and good connectivity [in India] augurs well for our business.

Q: Obviously, the scale that you possess is a huge advantage…

A: Yes, our corporate overhead as a percentage of sales has steadily been going down. As you become more efficient with operations, that number goes straight to the bottom line. We have 188 properties today. That said, there is still pressure on costs and now with business coming back, the cost of hiring too has gone up. We suffered a lot less, but the fact is that salary costs are higher. We are probably among the few players in hospitality that paid both parts of the salary component—the fixed portion and the variable [during the Covid-19 pandemic].

Q: How have skill sets in your industry changed over time? One constantly hears of a talent shortage across sectors.

A: People knew their guests in the past but these days, a lot has changed. Gadgets are a big thing and that is a generational change.

The question is, what are we doing as an organisation? All our key employees don’t retire completely. They are involved in areas like conducting heritage walks; [some] played a part in relaunching The Chambers in Delhi… our sector is more convenience-driven and some of these skills cannot be lost.

Q: What is the approach towards owning property versus the fee-based operating model? Your target is to have a 50:50 split between the two.

A: At one point, the traditional model of owning property was 77 per cent... Today, we are at 56 per cent, while the other 44 per cent is fee-based. Therefore, we are very much on course as far as the target goes. Having said that, only going asset-light is not the right structure since it’s a lot of work for very little value creation.

Q: How do you decide on the approach?

A: It is always opportunity-driven. In key markets, we want to own the asset. In other markets, it is a revolving-door approach. With Taj, we would be definitely getting close to the 50:50 split. The name is so strong that you will get management contracts. With Ginger, we will be asset-heavy going forward since a lot of it is leased and that is counted as being as good as owned. The reason for a large chunk of it being leased is because the revenue is small. We need a lot of properties to make it a viable business… at least 500 of them. Again, it is necessary for scale to kick in if you adopt a purely asset-light [model]—since the ticket size is lower than the luxury [segment].

Q: How has the revenue pie across your properties changed over time?

A: Pre-Covid-19, 50 per cent of the business came from our Taj properties. We are now at 70 per cent. That said, the overall revenue has grown and so has the share. In 2016-17, Taj had 41 hotels and today, that number is at 81. Now, 24 of them had been Taj properties but [had been] rebranded to Vivanta; now they have been upgraded by effective asset management. Our ambition is to have 30-40 per cent of the business from Taj. In an ideal world, it should be equally split between Taj and non-Taj. Just to give you some perspective, the revenue of this [Taj] hotel will be Rs 700 crore, while the entire Ginger range in two to three years from now, with its 100 hotels, will do Rs 700 crore.

On the portfolio mix, you will need all the formats since India is heterogeneous… Having a range means the customer is with you at all times.

Besides, volatility and cyclicality are big factors, where the latter results in the former. The lower you go down from the Taj, the less is the nature of the fixed-cost business, with a higher proportion of variable costs. That is a cushion in bad times. We are doing well since we are benefitting from the operating leverage in the old hotels and also through the asset-light fee that we are getting.

Q: How do you make a difference between Ginger and Vivanta in terms of positioning?

A: A room at Ginger has an area of around 200 sq. ft, but Vivanta is larger at 300 sq. ft, with more public areas, like a swimming pool. Vivanta targets the upscale segment, while Ginger is a mid-scale offering.

There are a few changes we made in Ginger. In 2018, we added a lifestyle component… [Now] it is a combination of quality and customer engagement.

On the other brands, Qmin has become larger and is more than just delivery. It is profitable and has 25 outlets, of which 18-19 are in Ginger. Soon, we will join hands with large business houses with the objective of serving their staff at a reasonable price.

Q: You have a set of robust brands. Are there plans to hive away any of them as a separate entity?

A: No, we will keep all of them. We are expanding our hospitality ecosystem in which many brands that existed are being treated as standalone businesses. Take the case of The Chambers, which was put together over 40 years ago to serve the Taj. That is now opening in other locations.

Q: What is the plan on the overseas front? Will you be aggressively looking at acquisitions?

A: We have to grow internationally with the Taj. We first wanted to regain lost ground at home… It is important for us to be clear that we come from India and want to be the largest hospitality ecosystem here. On the basis of how things are playing out here, the Indian portfolio is growing and very soon will hit 270 hotels.

Just to elaborate on opportunities in other markets globally, we need to add hotels in Europe and wherever Air India is flying or for that matter, wherever there is a significant Indian diaspora. We want to benefit from that and are already working on leads... There are a few handicaps we face if we want to look at locations like Munich, Zurich or Amsterdam. There are issues on local tax laws, local languages—you can hire people but it is important to get the right mix. That takes time and one must be honest that it can be a bit of a challenge.

Q: How will the form and shape of the organisation be in three to five years in terms of properties?

A: As we have said publicly, in 2025, we will be at more than 300 hotels across the globe. We do need a presence in Bangkok and Singapore, to name a few locations. Success in this business is not just adding dots on the map but creating sustainable value. From where we are placed, we can dominate the subcontinent and Dubai before starting to look around.

Q: How do you strike the right balance between allocation of capital and margins?

A: Development is an art and a science. Hence, we need a balanced portfolio and that’s why we have the focus on different formats. Ginger is quickly scaling up, while Taj is making the big investments. We can easily adopt an asset-light model and to scale up, we need to do it with Ginger, Vivanta, amã, Qmin—these four are critical.

Q: You are at the core of the services industry story. With so much talk on AI, what is your approach to this?

A: AI will not replace the services. You don’t want to go to a palace hotel and use a mobile phone to open the door. It is a very intimate, personal experience. That said, we have been using the enablers very effectively, but I think we will always be a service-driven business and that part is in need of the human touch.

Q: One is seeing disruptions in the hospitality industry. Would you see any threat from the likes of OYO?

A: I think we are blessed since it is difficult to disrupt assets like these. All the online travel companies only help in increasing our reach… To me, the disruption can be converted into an opportunity. It really comes down to the market opening up and that is good for us.

@TheSouravM, @krishnagopalan