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ITC Hotel 11
Strategic Management
Sachin Kumar
Table of Contents
Executive Summary....3
Introduction of the company.................3
ITC Hotel business:......4
Hotel Industry Introduction............4
Structure of the industry:..................4
Key stats for hotel Industry:.................5
Key Consumer Segments:..................................................................................5
Analysis of External Environment factors influencing Hotel Industry....................6
Political/Legal Segment:.....................................................................................6
Economic Segment:...........................................................................................7
Sociocultural Segment:......................................................................................7
Technological Segment:.....................................................................................7
Global Segment:................................................................................................8
For Industry Attractiveness- Porter Five forces.....................................................8
Threat of entry: (LOW)-high entry barriers.........................................................8
Threat of Substitutes: (HIGH).............................................................................8
Bargaining power of the customers :( Moderate)...............................................8
Bargaining power of the suppliers: (MODERATE)...............................................9
Internal rivalry :( HIGH)......................................................................................9
For Internal Analysis of company: SWOT Analysis.................................................9
Strength:............................................................................................................9
Weakness:..........................................................................................................9
Opportunities:....................................................................................................9
Threats:............................................................................................................10
Resources:..........................................................................................................10
Tangible Resources:.........................................................................................10
Intangible Resources:.......................................................................................11
Capabilities:........................................................................................................11
Executive Summary
The project looks at the various challenges and opportunities provide by the
Indian Hotel industry and what should be the strategy of ITC in order to
overcome the challenges and to utilise the opportunities in its benefit. First we
studied the external environment using PESTEL analysis and used Porter’s Five
forces tool to analyse the attractiveness of the industry. Then we did a value
chain analysis of ITC hotels to gauge its capabilities and core competencies. The
analysis threw light upon the strengths of ITC which were a strong distribution
system for sales and services, strong brand name, sound financial base and an
efficient and dynamic management. The main problems in the hospitality
industry were in loss of revenues due to recession and recent terrorist attacks.
But surge in tourism and slew of government subsidies had placed the industry
in growth track. Apart from international tourism the industry was supported by
large number of business travellers and domestic tourists. Lowering of airfares
and open sky policies has also had positive externalities on the hotel sector.
Based on our study and analysis we have conclude that ITC has to make huge
investments in the emerging markets which is the tier 2&tier 3 cities and also
increase the number of rooms available in the luxury collection segment. We
have also recommended that ITC should also focus on new opportunities like
MICE, eco tourism, medical tourism and adventure tourism. Finally we have also
stressed upon the development of human resources.
Introduction of the
company
ITC was incorporated in 1910 under the name of Imperial Tobacco Company
of India Limited. The first six decades of the group's existence was primarily
devoted to the growth and consolidation of cigarettes and leaf tobacco
businesses. In 1974, it was renamed as ITC Limited. In 1975, the group forayed
into the hospitality business. In 1979, ITC entered the paperboards business
by promoting ITC Bhadrachalam Paperboards.
Currently ITC LTD. is in following businesses:
• Cigarettes
• Hotels
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• Paperboards & Speciality papers
• Packaging
• Information Technology
• Branded Apparel
• FMCG Products
• Greeting cards, safety match e.t.c
Presently ITC is one of INDIA’s foremost private sector companies with market
capitalization of over 13 billion USD and a turnover of more than 4
billion USD. Winning various top ranks in various surveys and ratings, ITC
ranked 3rd in terms of pre tax profit among INDIA’s private sector
companies.
ITC’s different brands in hotel segment and available rooms are as following:
Aurangabad
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major cities
Hotel Industry
Introduction
Hotel industry is a major part of the tourism industry, the growth of hotel
industry is directly proportional to the growth of tourism industry in any country.
Before 1980 the hotel industry in India was growing with a slow pace but 1982
after partial liberalization and ASIAD in New Delhi demand increases for the
quality hotels, which was further increased in 1990’s. In recent years the growth
of hotel industry is more than the GDP, which is mainly due to good economical
and political condition in India. A GDP growth of 9.4 per cent was witnessed in
2006-07, thus creating a trickledown effect for the growth of support industries
such as hospitality. In near future the growing economy will increase the
spending power and will fuel the growth of tourism industry.
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Total room capacity of Taj Group: 12000, Total room capacity of ITC hotels: 8000
• Revenue distribution.
○ 60% of the revenue comes from rooms sales. This depends on average
room rate(ARR), no of rooms and the occupancy rate (OR)
○ 35% of the revenue comes from Food & Beverage services
○ The other 5% comes from services like telecommunication, laundry,
transport etc.
○ F&B revenue is indirectly dependent on the Occupancy rate.
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• Cost
○ Most of the cost is for infrastructure development. A 5 star luxury room
on an average costs Rs 1Crore. So most of the cost is fixed.
○ The employee cost of salaries, training and other compensations
account for 20% of the cost.
The Leisure Traveller: India is largely known for its cultural attraction followed
by conferences and conventions, tourist attractions like beaches, wild life, hill
resorts etc. Usually, leisure travellers are part of a package run by a tour
operator and the margins offered by them tends to be lower this is because they
seek higher discounts and also provide less Food & Beverage revenues as they
usually eat out. The business offered by this segment is also very seasonal in
nature and tends to peak in the month of September to March.
Airline Cabin Crew: Airline Cabin Crew forms another important segment as it
provides repetitive and guaranteed nature of the business. Basically these are
part of an annual contract which has a fixed rate and a certain number of rooms
are provided on the demand of cabin crews. With high discount rates in the
range of 40%-50%, so that is why this segment is a low-yield segment for hotels.
The growth in foreign tourists in India was 78% during 2001-2006.
Similarly the domestic tourists are also growing with high speed.
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Analysis of External Environment factors
influencing Hotel Industry
Political/Legal Segment:
In recent years government has taken several steps to boost travel & tourism
which have benefited hotel industry in India. For example:
Economic Segment:
Recent year changes in economic condition of India have fuelled the growth of
Indian hotel industry.
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4. Capital investment in India's travel and tourism sector is
expected to grow at 8.8 % between 2010 and 2019 this will in turn help
tourism industry which will also increase the hotel industry growth rate.
5. The per capita income in India also has rose to a new extent enabling the
common man to go to luxurious hotels to have a lunch or a dinner.
Sociocultural Segment:
1. The income of people in India is increasing due to fine growth of economy,
so due to increase in disposable income the demand for luxury services is
increasing in Indian hotel industry. So the growth of luxury hotel segment
looks rosy in near future.
2. Energy resources high prices and global warming issues are also creating
few hindrances in the growth of hotel industry. Green lodging certification
programs are popping up at the state level around the country.
3. The growing concern for environment has put lots of taxes on
transportation industry in turn affecting the demand side of hotel industry
due to high travelling cost.
Technological Segment:
Global Segment:
1. Due to the economic downturn of economies, swine flu in various
countries has affected the hotel industry badly. In 2009 the tourism and
travel industries growth in India has slowed down to 1%.
2. Terror Activities in India in yr 2009 also affected the hotel industry badly.
3. ICC world cup and Common wealth game these kind of activities have
increased the demand of luxury hotels in India.
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2. Product differentiation- Brand Identification in hotel
industry creates a barrier by forcing new entrants to spend heavily to
overcome customer loyalty.
3. Poor infrastructure and low availability of land especially in metros
are also entry barriers.
4. Access of raw material and distribution channels are controlled
by existing players such as: Taj group, ITC- LTD. Leela palace e.t.c.
So from this we can say that in case of luxury hotel category the threat is
low, but in case of budget hotel category due to low brand association factor
and demand supply disparity the threat is high.
In present scenario demand is more than what no. of rooms are available, so
there is a possibility of increment in the demand of substitutes.
So we can say that they can bargain due to low switching cost but due to limited
option availability this power is hampered after certain point.
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2. 20% cost is of man power and supply of qualified man power is
low which leads to high cost.
3. No. of suppliers are high.
4. Possibility of forward integration is low.
5. The possibility of supplier’s switching from one hotel chain to other is low
due to high purchase volume of the hotel chains.
Weakness:
○ Shortage of skilled labour force
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○ High tariffs and service charges
○ Huge competition with Taj, Oberai, leela groups.
Opportunities:
○ The gap between demand and supply in hotel industry leads to good
opportunity for expansions in varies areas
○ Natural and cultural diversity in India can be explored and more tourist
can be attracted
○ Govt. proposed 540 crores rupees to develop tourism industry in India,
which will increase the demand in hotel industry as well
○ India’s share in international tourism industry is set to increased in
future(Due to open sky policy, various initiatives such as Incredible India,
Atithi Devo Bhawa, high economic growth rate ) which will increase the
demand of hotels in India
○ Rising income of the people in India has created new opportunities in
luxury segment so growth of this segment in future is good
○ Budget segment is also increasing with good pace
Threats:
○ Union Budget 2011-12 announces an Increase in service tax in
Hospitality sector (Increase of tax in Domestic and International Air travel
also) and No major capital investment in this sector. This can decrease
the revenue of the ITC hotel business in the year 2011-12.
○ Terror activities, riots and Naxalite problems in India can affect the whole
hotel industry
○ Low infrastructure development rate, policies implementation problem in
India can hamper the overall growth of industry
○ Cheaper international airfares increasing affordability of travel to
international destinations
○ Entrance of international hotel chains
○ Increasing customer expectation with high competition among the
existing player will reduce the operating profit
Resources:
Tangible Resources:
Intangible Resources:
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Capabilities:
Functional Area Capabilities
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responsibility for strategic
supervision of company.
Research and ITC invest huge amount every Valuable and Costly-
Development year to bench mark and to-Imitate
innovate new ideas which
helps to promote its Hotel
business
Inbound Logistics:
ITC-Welcomgroup has connection with famous and trusted food and beverage
chain brands which supply them quality food products. Help from ITC –e-
Choupal reduces the procurement cost of food grains, spices etc.ITC received
goods from its own suppliers. ITC has a strong and efficient logistic management
which has strong connectivity from its factories and warehouses.
Operations:
Being a service oriented business, there are very few operational activities
involved in ITC hotel business. Individual operations could include room service
in a hotel etc. ITC is regarded as one of the most reputed companies with
excellent operational structure in hotel as well as other business.
Outbound Logistics:
Main outbound logistics activities involved in ITC hotel business is booking hotel
rooms online or via GDS or booker.
ITC hotel builds its brand via different advertising and promotional campaigns. It
also has a strong brand value due to its existence in other businesses. ITC
always made offering which meets the needs of targeted customers. ITC focus
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on strong marketing communications and promotions which creates
brand image in the mind of the customers
Service:
This involves all services which are after sales like complaint handling, training
etc. ITC invest every year a huge amount to train and motivate their employees
to perform effectively and satisfy their consumers. ITC not only provide good
service to its customers but its distributers and suppliers also so that it can
enhance companies’ goodwill.
Support Activities:
Activities which provide the assistance necessary for the primary activities
Procurement:
It involves purchase of goods, services and raw materials. Aim is to secure the
lowest possible price for purchase.ITC procures most of its food and beverage
items from the famous and branded suppliers (Ex: Bukhara, Peshawri, Dumpukht,
Dakshin and PanAsian). The goodwill they develop through their superior service
helps them to procure items at lowest prices as compared to its competitors.
Technological Development:
Apart from traditional booking system, ITC use internet and GDS system to
enhance its booking system. ITC use Internet marketing activities, lean
manufacturing, CRM and many other technological techniques to gain a edge
over its competitors.
As employees are expensive and vital resources. ITC continues to invest in the
up-gradation of the quality of human resource, which makes the decisive
difference in hotel industry (service industry). ITC also focused on “quality of
life” for its employees for all locations through the creation of quality
accommodation. ITC use reward and remuneration system to motivate its
employees.
Firm Infrastructure:
ITC has strong financial base and very good government relations. Its initiative
like E-choupal helps to improve its public image and currently ITC is one of the
most reputed brands in Indian market.
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Government is trying to improve the tourism industry by the help of
“Incredible India” campaign and ITC hotel business also tries to attract foreign
and domestic tourist by bench marking and improving its existing hotel
business.
We can clearly see that the performance of ITC hotels in past few years is not
good in spite of decent growth in industry. Till 2010 130,000 rooms are available
in India and in next to 2-3 years 50,000 more rooms will be in demand
(According to WTCC report). So let’s see what are the main strategical issues for
further investment and expansion decisions:
Recommendations
• The Growing Economy: The economy has been growing at a steady rate
with exponential growth in FDI. Investment will be supported by parallel
growth in other service sectors like Banking, BPO, and Telecom etc.
• Development of Indian Hotel Market: The Indian Hotel market is
experiencing an upward surge with emergence of secondary and tertiary
cities and infrastructure development in most of the cities and towns. The
market has benefited from growth in Indian Tourism especially niche tourism
like medical and adventure tourism.
• Hotel Brand Explosion: There has been change in perception of the Indian
hotel industry as a lucrative investment due its strong economy, huge FDIs
and growing tourism sector. This has resulted in the entry of many
international players like Marriott, Starwood, Hilton, Hyatt, Accor etc.
• The MICE opportunity: The MICE (Meetings, Incentive, conventions and
Exhibition) business is a major contributor to hotel revenues in many
developed countries. HVS research says that 20% of international arrivals
around the world are contributed by Meeting and Convention tourism.
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Operational opportunities to be explored:
1. There is need for rooms in the near future. So ITC should invest more in
supply of rooms to meet the demand.
In recent time India has become Outsourcing hub so ITC should increase its
hotels in these cities. These travellers are foreigners so hotels should be opened
in Luxury segment.
So ITC should expand more in BANGLORE, HYDRABAD and PUNE.
3. Due to high growth rate in no. of people with income more than 1mn. (@
15% 2007-16), ITC should focus on mid segment and should invest more
in FORTUNE brand.
4. In budget segment ITC should Expand more in following two sectors:
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a. Small tourist locations and religious places such as: Banaras,
Ooty, Shimla, kochin, Gaya, Puri
b. Expansion in Industrial areas and near SEZ’s to cover growing budget
segment of small business travellers of cities like Bangalore, Pune,
Kolkata, Baddi, Surat
1. To improve on operational effectives- Hotel management institute can be
developed.
2. As more and more foreign players are coming into picture, ITC can try for
mergers, acquisitions and franchises as both the companies can benefit from
such alliances. The foreign company can gain a foot hold in the market and
ITC can leverage the company’s brand equity. This is all the more possible as
there is advantage of the lower costs of debt and easier access to equity
capital.
3. ITC can provide facilities for Meetings and conventions and can attract more
business travellers and business tourists. The MICE business gains more
priority in the light of global companies’ foray into India and the ever growing
IT industry.
4. ITC can also augment its F&B business as it cashes in lot of revenues.
Branding and extensive marketing can help reap the benefits of F&B sector.
Bibliography:
http://www.itcportal.com/
www.moneycontrol.com
www.crisil.com
www.datamonitor.com
http://www.capitaline.com/user/framepage.asp?id=1
http://www.businessindiagroup.com/
http://www.equitymaster.com/
http://www.rediff.com/business/slide-show/slide-show-1-2010-hospitality-sector-
bids-adieu-to-hard-times/20101221.htm
http://www.hospitalitynet.org/news/4045090
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Exhibits:
Exhibit 1.1
2009-2010
Exhibit 1.2
IT cities 2009-
10
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Bengalu Pune Hyderab
ru ad
3,149 556 1,977
61 47 56
Exhibit 1.3
Budget
cities
Agra
1,601
971
61
Exhibit 1.4
Annexure:
Future Development plans of ITC hotels:
• Fortune Hotels plans to maintain its leadership position in the mid-market to
upscale segment by following a balanced approach towards growth,
expansion, brand extensions and providing the same assured quality of
product and service across all extension brands. The company’s priority will
continue to be to consolidate its position domestically.
• ITC revealed its plan to open 60 new hotels in the next 3-4 years, Fortune
Park Hotels, ITC's wholly-owned subsidiary, said that it had plans to add 25
new property by 2011-end.
• Capacity expansion underway at Bangalore and Chennai; plans for other
locations also being progressed
• Plans to invest close to $2 billion in the next 3-4 years in building capacities
across the country
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• Fortune Hotels has 62 signed alliances and 35 operational hotels
across 46 cities. The properties are being set up in major metros, mini
metros, state capitals and business towns. (business line jan 3 2011)
• ITC-Welcomgroup foresees a steep increase in business-induced tourism in
the country.
• ITC has been focusing on “super luxury” properties when it comes to
investing in physical assets, according to Deveshwar. It would, at the same
time, expand in the five-star and budget hotel segments as well. Mint 23 july
2010
• ITC's 600-room Chennai hotel to open doors by end 2011 business line, 11
jan 2011
Development Incentives:
Foreign Players
• Microsoft founder Bill Gates-
promoted luxury hotel group
Four Seasons has plans to
open four new properties in
India within the next five
years.
• Global hospitality chain Carlson announced plans to open its luxury brand
Regent here with the opening of a hotel in Gurgaon in 2013.
• Similarly the InterContinental Hotels Group launched its first Holiday Inn
brand in India with a 225-room property in Mumbai.
• Even Thai hospitality group Amari expressed its desire to open seven hotels
across the country by 2018.
• Other big names that joined the bandwagon include Singapore-based
hospitality firm Alila Hotels and Resorts, US-based Choice Hotels
International, JW Marriott and Accor
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