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INVESTMENT POTENTIAL IN THAI SPA AND HOTEL RESTAURANT BUSINESS IN INDIA

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IMRB International
INVESTMENT POTENTIAL IN SPA AND HOTEL BUSINESS IN INDIA

February 2009
1

Preface
Thai-Indian business relations have improved considerably over the past decade. Thailand and India are close to concluding a Free Trade Agreement (FTA) covering trade in goods by 2010. The Free Trade Agreement between Thailand and India is expected to improve trade relations between the two countries further. The FTA covering trade in goods would lead to long term mutual benefits in trade and investment and the partnership would be expanded further to cover technology know-how and expertise India's primary imports from Thailand are machinery, electronic appliances, textiles, plastic material, transport equipment, vegetable oil and latex. The major items of imports under FTA are polycarbonate, cathode-ray tubes, color-TVs, air conditioners and Aluminum products. Thailand‘s main imports from India are jewelry, gemstones, steel, pharmaceuticals and ferrous metal ores. India's trade with Thailand could touch USD 7 billion by 2010-11 propelled by a doubling in transaction under Free Trade Agreement (FTA). The EHS was implemented on September 1, 2004, under which tariffs on 82 items were to be phased out by September 1, 2006 by both the sides. The trade between Thailand and India is estimated to be US $ 7 billion by 2010-11 from US $ 2.2 billion in 2005-06. The total trade of 82 items under Early Harvest Scheme (EHS) of the FTA was increased by over 140 percent to about US $ 358.63 million in 2005-06 from US $ 149 million in 2003-04. The share of these 82 items in India-Thailand trade increased from 10.34 percent in 2003-04 to 15.68 percent in 2005-06. Thailand‘s export to India of the identified 82 EHS items was increased from US $ 84.64 million to US $ 275 million during the period from 2003 – 04 to 2005 – 06. During the same time, India‘s export to Thailand of these items increased from US $ 64.28 million to US $ 83.03 million during the same period.

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In 2007, Thailand‘s export for these 82 items was US $ 406.31 million. Due the FTA between two countries, Thailand is able to manage the trade surplus of US $ 598 in 2007 in bilateral trade between Thailand and India. With significant potential for growth of business between the two countries, the Ministry of Commerce, Thailand and Royal Thai Embassy would like to understand the investment potential across the following identified product categories:1. Home Utility and Furnishing: This would broadly include three product categories:a. Furniture – Largely focusing on house hold furniture e.g. Sofa-set, Dining table, Corner / corner table etc. Also covering office furniture e.g. office chairs, cubicles, tables etc and open-air furniture i.e. the furniture used in the garden, near pools etc b. Interior Decoration items – This would include: Show pieces, Wooden handicraft, photo frames, artificial flowers. c. Utensils – Household (kitchen), HoReCa (Hotel Restaurant Catering) Segment, Institutional / Office d. Plastic Products - Food containers, plastic storage boxes etc e.g. Cello, Tupperware, Milton, Nyasa etc 2. Construction Material: This would include Bathroom Fittings,

Tiles/Floorings (including wooden), Roof Tiles (used in the costal areas), Metal (Al, Tin etc) / Gypsum boards used for partition 3. Hospitality Services: This would be understood with the objective of tie-up with existing hotels – spas, specialty restaurant (e.g. Thai cuisine restaurant), health wellness services etc. The client would be interested in management control and running the property. The stand alone spas e.g. Kaya clinic is also covered in the purview of the study. 4. Auto parts and accessories: It would cover both types of auto parts:-

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a. Essential auto parts (low volume high value items e.g. gear box, clutch plates etc and high volume low value items like break pads etc). These parts would be for 2-wheelers (e.g. moulding etc) and 4wheelers – both cars and commercial vehicles. b. Accessories / decorative items e.g. music systems, alloy wheels etc In order to understand the trade potential across the above categories, the Ministry of Commerce, Thailand and Royal Thai Embassy has commissioned Business and Industrial Research Division (BIRD) of IMRB International to avail its research based consultancy services

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Table of Contents
1 1.1 1.2 1.3 1.4 2 2.1 2.2 2.3 EXECUTIVE SUMMARY ................................................................................................... 8 Spa and Wellness Industry ...................................................................................................... 8 Indian Hotel Industry............................................................................................................. 14 Foreign Direct Investment and Government Policy .............................................................. 17 Attractiveness of segments and Entry Strategy ..................................................................... 18

GLOBAL SPA AND HOTEL INDUSTRY ....................................................................... 22 Classification of Spa and Wellness business ......................................................................... 22 Trends in Spa and Wellness Business ................................................................................... 23 Classification of Hotels ......................................................................................................... 24 2.3.1 By Star Categories ...................................................................................... 24 2.3.2 By Target Market ........................................................................................ 26 2.4 Global Hotel Industry Landscape .......................................................................................... 26 2.4.1 Contribution of Travel & Tourism to Global GDP ..................................... 31 2.4.2 Regional Performance of Global Hotel Industry – 2006 Vs 2005 .............. 31 3 INDIAN SPA AND HOTEL INDUSTRY: AN OVERVIEW ......................................... 32 3.1 Spa and Wellness Segment.................................................................................................... 32 3.1.1 Introduction ................................................................................................. 32 3.1.2 Industry Structure & Segments ................................................................... 33 3.1.3 Industry Environment: Thai Spa treatment in perspective ......................... 34 3.1.4 Industry Turnover and growth trends ......................................................... 35 3.1.5 Major Players .............................................................................................. 38 3.1.6 Demand – Supply Scenario ......................................................................... 42 3.2 Hospitality Segment .............................................................................................................. 43 3.2.1 Introduction ................................................................................................. 43 3.2.2 Industry Structure & Segments ................................................................... 45 3.2.3 Transition in Hotel Industry in India .......................................................... 46 3.2.4 Revenue Generation Models in the Hospitality Industry ............................ 47 3.2.5 Industry Turnover and growth trends ......................................................... 48 3.2.6 Major Players .............................................................................................. 50 3.2.7 Demand – Supply Scenario ......................................................................... 51 3.3 Foreign Direct Investment (FDI) flow – Spa and Hotel Segment ......................................... 52 4 NATURE OF HOTEL AND SPA INDUSTRY BUSINESS ............................................ 54 4.1 Key Operating Characteristics............................................................................................... 54 4.1.1 Cost Structure.............................................................................................. 54 4.1.2 Cost Structure Profitability ......................................................................... 55 4.2 Seasonality............................................................................................................................. 55 4.3 Operating Risks ..................................................................................................................... 56 4.4 Regulations / Standards ......................................................................................................... 57 4.4.1 Central Excise Act, 1944 ............................................................................ 58 4.4.2 Prevention of Food Adulteration Act, 1954 ................................................ 58

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4.4.3 Environmental Laws, Rules & Regulations ................................................ 59 4.5 Government Policy ................................................................................................................ 60 4.5.1 Trade Measures influencing investments.................................................... 60 4.5.2 Incentives for attracting investments .......................................................... 60 5 5.1 5.2 5.3 CHANNEL INSIGHTS ....................................................................................................... 61 Major Cities and Towns for Spa and Hotel segments ........................................................... 61 Value Chain ........................................................................................................................... 63 Filling gaps in Price & Service Value Chain ........................................................................ 63 5.3.1 Service Apartments ..................................................................................... 64 5.3.2 Resort spas / Hotel Spas .............................................................................. 65 5.3.3 Budget Hotels.............................................................................................. 66 5.3.4 Spa & Wellness Centers.............................................................................. 66

6 GROWTH DRIVERS AND CHALLENGES ................................................................... 68 6.1 Spa & Wellness Segment ...................................................................................................... 68 6.1.1 Growth Drivers ........................................................................................... 68 6.1.2 Challenges ................................................................................................... 70 6.2 Hotel Segment ....................................................................................................................... 71 6.2.1 Growth Drivers ........................................................................................... 71 6.2.2 General economic and business conditions in India and other countries ... 72 6.2.3 Discovering New Niches: Case Study – Medical Tourism ........................ 72 6.2.4 Challenges ................................................................................................... 74 7 CRITICAL SUCCESS FACTORS .................................................................................... 75 7.1 Spa and Wellness Industry .................................................................................................... 75 7.2 Hotel Industry ........................................................................................................................ 76 7.2.1 Site & Location ........................................................................................... 76 7.2.2 Positioning & Guest Profile ........................................................................ 76 7.2.3 Financial Strength ....................................................................................... 76 7.2.4 Brand Recognition ...................................................................................... 77 7.2.5 Yield Management ...................................................................................... 77 7.2.6 Differential Pricing ..................................................................................... 77 8 MARKET ATTRACTIVENESS AND POSSIBLE COLLABORATION .................... 78 8.1 Spa and Wellness Industry .................................................................................................... 78 8.1.1 Market attractiveness for various spa segments.......................................... 78 8.1.2 Possibility of collaboration across various spa segments ........................... 79 8.2 Specialty Restaurants across Business and 3 to 4 star hotel categories ................................ 80 8.2.1 Market attractiveness for various specialty Thai cuisine restaurant ........... 80 9 CONSUMER INSIGHTS – SPA AND HOTEL INDUSTRY ......................................... 81 9.1 Spa and Wellness Industry .................................................................................................... 81 9.1.1 Profile of potential customers ..................................................................... 81 9.1.2 Taste and preference across regions ........................................................... 83 9.1.3 Need – gaps in current service offerings..................................................... 83

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9.1.4 Brand image of Thai brands in Spa............................................................. 84 9.2 Specialty Cuisine Restaurant ................................................................................................. 85 9.2.1 Consumer Taste and Preferences ................................................................ 85 9.2.2 Case Study: Creating New Food Category: Starting an era of Chinese cuisines 85 10 CONCLUSION AND RECOMMENDATIONS............................................................... 89 10.1 Market attractiveness and opportunity matrix in Spa and Wellness business in India ......... 89 10.2 Entry Strategy in Spa and wellness business......................................................................... 90 11 Annexure .............................................................................................................................. 93 12 List of Tables ........................................................................................................................ 95 13 List of Figures ...................................................................................................................... 96 14 References............................................................................................................................. 97

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1 EXECUTIVE SUMMARY
1.1 Spa and Wellness Industry
The Indian beauty and wellness market is pegged at about $9 billion. Under the scope of this study, spa and wellness business includes body massage therapies with traditional ayurveda therapies as well as non-ayurveda therapies using aromatic and chemical based oils. The spa and wellness business in India is estimated to be in the range of US $ 34 – 36 million (INR 150 – 200 crores in 2007 – 08). The spa and wellness business in India is at early stages. Nevertheless, India has a handful of globally recognized resort spas. The industry is being developed with a concept of ―total rejuvenation and stress-free life‖. The growth prospects seem promising across major city clusters as the supply of these genuine aroma therapies is limited. ―Ayurveda massage therapy is expected to grow at 15 – 20% whereas non-ayurveda based aroma massages with different specialties can grow by as high as 50% for the next few years. It is largely because of the expansion plans of major day spa chains.‖ - Owner of Bangalore based budding spa chain

The Indian spa and wellness experience is predominantly based on Yoga and Ayurveda therapies used for preventive and curative ailments. The Thailand spa and wellness concept is woven around traditional non-oil based massage that incorporates meditation treatments, rejuvenation and relaxation.

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The massage and spa therapy market in India is in the evolution phase. The same can be segmented below:-

Segmentation of Massage & Spa Therapy Market

Spa & Wellness Market - Offerings

Ayurveda therapy & treatment

Non-ayurveda massage & spa therapies

Salon & Spa treatment

Ayurveda Clinics with Ayurveda Doctors

Gym coupled with Sauna / steam bath – oriented towards muscle toning and fat reduction

Massage therapy based treatments

Non-massage based Treatments – medicines

Massage treatments such as:- Javanese - Swedish - Thai etc

Beauty Enhancement treatments such as:- Facials – herbal and non-ayurvedic - Laser treatments - Pedicure & Manicure - Foot massage, reflexology etc - Salon etc

Preventive Massages / Treatments

Curative Massages / Treatments

- Obesity treatment - Relaxation / rejuvination - Modern day diseases e.g. Migrane, Stress etc

Diseases such as - Arthiritis - Diabetes - Muscle or bone related pain, displacement etc

Figure 1: Segmentation of Massage and Spa therapy market

The industry environment of spa and wellness Industry in India can be assessed under the following framework:-

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Thai Spa & Massage Treatment in India : Market Analysis

Political / Legal Environment - Closeness in economic cooperation & cultural exchange between two countries - FDI norms allow 100% stake in specialty outlets - No problems with repatriation issues after paying taxes

Potential Entrants
Other Spa therapies such as Javanese, Swedish, Body wraps etc intruding upon non-ayurveda based spa experience

Innovation shifts
- Thai spa therapies now also include aroma oils suiting local skin and texture - Relaxation by thorough muscle ligament exercise, requires experience in service offerings

Suppliers
Thai therapists training north-eastern Indian therapists. Aroma oils procured from Thailand, Singapore etc.

Industry Competitors
No one is providing real Thai spa experience except one in Bangalore

Consumers
Demand from aspiring price conscious class (INR 700 – 800 per sitting) and upper end of the society (INR 1500 & more per sitting). Demand expected from both the sexes

Social / Consumer shifts - Ayurveda massage system already popular in South India, gaining popularity in North India - Consumers willing to accept the experience from therapies from other countries - City clusters having progressive population, resulting into modern day diseases

Substitutes
Ayurveda therapies using light oils. 4 – 5 panIndia chains. Southern cluster biggest market

Economic shifts
- Concentration of disposable income in top 6 – 8 cities - Rising spending patterns on ―pampering‖ therapies - International economic environment augurs cautious approach

Figure 2: Market Analysis of Thai spa treatment offering in India

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The market is changing fast both for resort / hotel spas and day spas. Almost all the new 3 star and above category hotels that are coming have spa facility for additional income. ―Before Commonwealth Youth Games 2008, Pune 13 star category hotels were planned. All of them are provisioning spa facilities.‖ - Leading Spa Consultant based in Pune

The organized segment spa and wellness market is largely confined to top 6 – 8 cities in addition to the presence of two major players in the Kerala state. Other than the top 3 cities i.e. Bangalore, Delhi and Mumbai, the other major cities for spa and wellness therapy market are Hyderabad, Pune, Chennai and Kolkata. The awareness about preventive and curative aspects of these spa therapies has been the largest impediment in the market growth.

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The growth drivers for spa and wellness are shown in the figure below:

Spa and Wellness Industry Growth Drivers

Overseas Exposure Exposure to SE Asian, EU experiences leading to similar experience demand Increase in disposable income Service industry growth leading to increasing incomes Availability & Proximity Supply creates Demand - Indian consumers willing to try out these facilities

Growth Drivers

Education Awareness and education on ―health conscious‖ functional platform - most important reason

Affordability Services not just confined to superriches. Affordability factor instrument in increasing demand

Figure 3: Growth drivers for Spa and wellness industry in India

There is a huge scope of association between India and Thailand. The spa and wellness industry in Thailand is around 5 – 7 years ahead of India‘s spa and wellness industry. The huge scope between two countries is offset by the import duty structure for spa products and equipments.

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―Higher excise duties have been the impediment in importing spa oils and equipments from Thailand. Spa products are treated as cosmetics, command 35% excise duties. Similarly Spa tables are furniture, command 32% excise due. The landing cost of product worth INR 500/Kg purchased in Bankok is INR 1200 - 1400/Kg in India‖ - Delhi based major Spa products and equipments importer from Thailand

The figure below outlines factors that would play critical role in the success of ―Thai‖ spa and wellness experience.

Type of oil used – % of therapeutic content impacts repeat purchase and WoM advertising

Critical Success Factors

se of nt clo oi e – t P c e en rg rs es to ta me pr to s cu

Courteous & attire of staff – theme specific (“Thai” experience)

Figure 4: Critical Success Factors for spa and wellness industry in India

INVESTMENT POTENTIAL IN SPA AND HOTEL BUSINESS IN INDIA

s H cu tain yg rta fre ien in e d e s, – w res al se ls s et , c

d d ed – in ts ” r ra is ce c Tr ap nc a a er rie he r o he r or Th xpe cto c c Ex f Ex f “E fa

Ambience – Lightening, color /shades, furniture – theme specific (Differentiator)

ar Olfa om c a tor se tou y – ns ch es ing

13

―The consumer for these (Global) spa therapies would be people who are concerned about their health and are doing nothing about it. These guys would be from 25 – 45 year of age profile, earning more than INR 5 Lacs per annum.‖ - Managing Director of budding Aroma and Thai Spa Chain

The customer availing spa service can be described with the following common set of characteristics: They would be eating out quite often, i.e. more than 2 – 3 times a week  They would be going to malls and multiplexes a lot  Their age would typically between 25 – 40 years  Most of these guys would be first time spa goers

1.2 Indian Hotel Industry
According to the World Travel Market‘s Global Report 2008, scope for new tourism development could be seen notably in emerging economic giants India and China, which are likely to remain a strategic priority as growth is predicted to be robust, albeit slow down in global economy. As per the table below, overall travel and tourism consumption including domestic and foreign travel is estimated to be US $ 65.88 billion in the calendar year 2008. The consumption figures have grown 23% and 26% in 2007 and 2008 respectively.

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Travel and Tourism Industry India’s Turnover

Table 1: Turnover of India’s Travel and Tourism Industry till 2008 Source: WTTC

According to industry structure as shown in industry structure section of this report, the estimated market turnover of Hotel Industry, Domestic Tour Industry and Travel Industry is the calendar year 2010 is show in the graph below:Total US $ 90.1 Bn
100

Market Turnover (In US $ Bn)
Total US $ 65.9 Bn

Market Turnover

11.5

80 60 40 20

8.7
CAGR Hotel Industry = 20% Tour Industry = 16% Travel Industry = 15%

54.2

40.3 16.9

24.3

0

2008 Indian Hotel Industry Indian Tour Industry

2010 Indian Travel Industry

Figure 5: Turnover of India’s Travel and Tourism Industry till 2008 Source: WTTC and various industry report

The growth of hotel industry in India can be attributed to the recent growth in the service industry and economy as a whole. The graph below shows that growth till year 2000 was demand dominated.

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Supply Dominance

Projections Strong economy Global Crisis Dominance Key: REVPAR: Revenue per available room REVPAC: Revenue per available customer

Business Transformation

Demand Dominance

plo Ex

r Se ive s

e vic

c se

to

r rG

th ow

(Measure: REVPAR & REVPAC)

2000

2004 Path of Paradigm Shift

2008

2012

Figure 6: Transition in the hotel industry in India

The revenue sharing models in the hospitality industry can be summarized in the following figure:-

Revenue Sharing Models in Hotel Industry

Owner Operator model

Franchise model

Global Hotel Industry

Leasehold model

Management Contract

Figure 7: Revenue sharing models in the hotel industry

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1.3 Foreign Direct Investment and Government Policy
100% Foreign Direct Investment (FDI) is allowed in the hospitality (hotel) sector and spa and wellness industry. Though Indian Government has been actively promoting the hospitality industry, the industry has attracted merely USD500m FDI during FY2007. The foreign investment in the spa and wellness segment has been very low. With the awareness about day spas and the presence of these services near their door steps, the spa and wellness industry has promising future ―As of now day spa industry is at small with only one pan-India player (i.e. LeverAyush) in true sense. With the change in the macro economic factors and the plans laid down by regional players, more than 200 additional day spa point of presence can be forecasted in next 3 – 4 years.‖ - Owner of the budding day spa chain in West India

The cumulative FDI inflows (excluding FDI equity inflows and reinvested earnings) into India during 1991-2005 (up to December, 2005) were USD37.05 billion. FDI statistics (annual statistics from 2002 to 2005) and trends are given in the table below:-

FDI

2002

2003
4,585 1,325 3,260 -17.43

2004
5,474 2,024 3,450 5.83

2005
6,598 1,364 5,234 51.71

5,627 1) Inward 1,679 2) Outward 3,948 3) Net (1-2) 4) Net Growth rate % Note: Excluding FDI equity inflows and reinvested earnings

Table 2 : FDI flows (USDm): India 2002-2005 Source: WIR

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1.4 Attractiveness of segments and Entry Strategy
As far as spa and wellness market in India is concerned, all the segments within spa and wellness segment are poised to grow in the next 2 -3 years. ―Demand exists in all the segments. However, I can see a clear shift among resorts and business hotels to have Spa in their property. Similarly, because of increasing awareness, more disposable income, the day spas would have better penetration in next 3 – 5 years‖ - One of the renowned Spa Consultant based in Delhi

The spa industry as a whole requires the training infrastructure so that experienced professionals could be provided to the spas in all the segments. ―The trained manpower is critical to providing the experience. There isn‘t any reputed organized global spa therapies training institute present in India. Individual spas are forging tie-ups with foreign players.‖ -One of the renowned Spa Consultant based in Pune

The Indian market is very lucrative for Thai spa investors who want to enter India by opening the global therapies institute and certification courses are they exist in Bankok. Opening the training institute would establish their linkages with all the spa segments and would ensure that their expertise reaches target audiences through word of mouth.

―Many times resorts want to focus on their key business and outsource the spa management activities. Our spa consultancy company is managing spa in 2 – 3 star category resorts. The staff working there are in our payrolls.‖ -One of the renowned Spa Consultant based in Pune

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We, therefore, suggest entering in day spa business after fully understanding the market dynamics in the real estate and day spa business.

Low Level of Attractiveness

High

High

Suitability to Thai Investors

Training Academy Management control Spas in hotel / resorts

Destination Spas

Day Spas

Low

Figure 8: Market Attractiveness and opportunity matrix – Spa and wellness segment

Across the spa segments where entry of Thai Spa investors is recommended, the positioning of Thai Spa should be based on ―functional benefits‖ rather than just ―pampering, relaxation and rejuvenation‖ plank. Sl. No. Spa Segments Recommendation for immediate entry How to Enter? / Reasons supporting recommendation Option 1: 1 – 2 centers company owned and company managed in Delhi and Mumbai. After that franchise mode. Option 2: Technical tie-up with the existing chains willing to expand. The tie-up may / may not involve capital investment. For technical tie up, a register a company in India as ―Spa Consultant‖ - Seen as close to Ayurveda - Requires technical expertise and relatively larger capital investment

1.

Day Spas

- Go ahead

2. Medi Spa - Do not enter

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For Resort / Hotel Spas - Go ahead 3.

- Not much data on acceptance of Thai Medi Spas in India Option 1: Enter as Spa Consultant for Designing Spa on Thai concept - Register company in India as Spa Consultant, Spa products and services provider. - Contact the new hotels and the ones in expansion mode with previous expertise. - Entry would provide platform to train therapists of day spa chains - Also, help in entering day spa segment after demonstrating expertise Option 2: Enter as Spa expert controlling Hotel Spas - Possible after entering as Spa Consultant since hotels want to focus on their primary activity. They don‘t have expertise, they would be willing to form alliance where in the management control, décor‘, trained staff is from Thai Spa Consultant
- High level understanding of leisure

4.

Destination Spas

- Do not enter (as of now)

5.

Thai Spa Training Institute

- Go ahead

market - Requires huge capital investment even after tie-up with Indian entrepreneurs - Form equity partnership with Spa consultants for opening Spa training academy as less capital investment is required. - Open the company in India and register it as Thai Spa trainer with Ministry of Tourism, India - Help in getting business from all Spa segments as business in exploding with less skilled therapists

Table 3: Recommendation for entry in various spa segments

As far as timeframe for entering in Indian market is concerned, we suggest entering in various spa segments in the phased manner as shown in the figure below:-

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Immediate Entry Spa Consultant and Training Academy Horizon – Within 1 year ―Resort / Hotel Spa‖ Management Control

Horizon – 1– 2 Years ―Day Spa‖ Chain

Figure 9: Entry across various spa segments across time horizon

Thai investors should not enter into Thai specialty revenue business in 3 – 4 star category hotels in India at this point of time because of the following reasons: Preference of Thai cuisine is confined to the niche segment. The number of travelers preferring Thai cuisine is very less.  The volume in this business would be very low and would subject to volatility of demand due to changing macro-economic global business landscape.

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2 GLOBAL SPA AND HOTEL INDUSTRY
2.1 Classification of Spa and Wellness business
The global spa and wellness market can be classified as per the following figure:-

Spa and Wellness Market

- Resort Spa - Positioned towards Spacum-leisure holiday experience - Spa dominates in bringing the tourists; leisure travel for relaxation & luxury - Hotel Spa - Business travel supplemented by spa facility - Spa cost either built into the package or a-la-carte

Resort Spas/ Business Spas

Salon Spas

- Associated with ―Pampering‖ image, Fashion and Trends - Extended service offerings - Generally includes pedicure and manicure - May /may not include fully body massage

Day Spas
- Associated with either functional benefits or pampering depending upon positioning - Includes Indian and global massages / therapies - Mostly catering to ―preventive‖ and lifestyle diseases where doctor‘s consultation is not required - ―Instant rejuvenation‖ in the stressed lifestyle

Medi Spas

- Associated with medical approach toward curative and preventive diseases with spa therapies; doctor‘s prescription essential - Generally includes various ayurveda massages, shirodhara and post treatment medicines. However forms are gaining grounds - Package is given for curing ailments

Figure 10: Segmentation of Spa and Wellness Market

Out of the three predominantly visible segments, the resort spa segment is relatively better organized with the involvement of major global brands. The resort spas are positioned towards attaining rejuvenation and relaxation from the rigmaroles of daily

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lifestyle that is constantly getting competitive and stressful. The resort spa segment is high value low volume business where as day and salon spas are low value and high volume business. At global level, day spas are largely catering to consumers interested in colloquially traditional spa and massage therapies across respective countries. However, there has been increasing interest in the massage therapies of various other countries of origin, providing beneficial results to the global consumers. ―Foreign tourists are more interested in Ayurveda therapies whereas Indian customers are trying the aromatic oil based non-ayurveda massages.‖ - Spa Manager, One of the renowned Spa Resorts

2.2 Trends in Spa and Wellness Business
Massage is the sharing of touch – hands or body, on heads, hands or feet. Any yet massage goes farther than skin-deep, deeper even than muscles and bones – a good, caring massage penetrates right to the depth of your being. - George Downing, The Book of Massage (1984)

The trends developing today in the global spa and wellness market include: Comprehensive package centered around treatment of all diseases  Increasing the hours of education;  Expanding the scope of practice to include more modalities and better training in the psychological aspects of the work;

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 Further impact of state regulation and national certification on entry-level education at massage schools;  Continuing education units for practitioners; and expanding number of massage course offered at community colleges and universities and  A growing number of degree programs within massage institutions and advance integration of massage into the broader scope of bodywork and allied healing arts.

―The global trend as I see is towards comprehensive packages. The spa centers have evolved to become wellness centers….. We have started wellness section providing dental care and all type of surgeries. You are under intensive care away from the depressing environment of hospitals.‖ - (A) General Manager of one of the famous Spa resorts

The big trend emerging is the return to the basics. A lot of Asian treatments are going back to ayurveda and Chinese traditions. Most of these treatments are provided throught hands e.g. at Thailand and India. Another big trend emerging is the interest of American and European countries coming to Asian countries such as India and Thailand. These leisure tourists avail age old, traditional treatments.

2.3 Classification of Hotels
2.3.1 By Star Categories

Globally, hotel industry is classified into star categories. The various categories and their definition are as under:-

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Star Category     

Definition Characteristics of ultimate luxury and sophistication. First class accommodations. Highly personalized service. Impeccable standard of excellence. Upscale in all aspects. Above average level of service. Enhanced level of quality throughout. In house dining available with many other services. Multifaceted and comprehensive. Usually associated with business travelers. Upgraded physical attributes, service, and comfort. Aimed toward traveler looking for more than just the basics. Usually small to medium sized hotel chains. Limited food service. Essential accommodations. Usually food within walking distance. Appeal to budget minded travelers while keeping in mind cleanliness
Figure 11: Definition of various star categories Source: Hotels Online & MKG Consulting

Based on the purpose of visit, the guests or travelers can be classified into the following categories: Business Travelers  Pleasure / Leisure Travelers  Group Travelers  International Travelers The business travel is generally conducted for one of the following purposes: Meetings  Incentives  Conferences  Exhibitions

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2.3.2

By Target Market

Hotel Classification by Target Market

Hotels Targeted for Leisure Travelers

Hotels Targeted for Business Travelers

- Resort Hotels - Vacation Ownership and Condominium Hotels - Bed-and-Breakfast Hotels (B&Bs) - Casino Hotels - Alternative Lodging Properties

- Suite Hotels - Extended-Stay Hotels

- Commercial Hotels - Airport Hotels - Conference Centers - Convention Hotels

Figure 12: Hotel classification by target market

Globally, the hotel properties are also classified based on the primary purpose of usage. The above figure classifies the hotel by target market.

2.4 Global Hotel Industry Landscape
Spa and Wellness Industry Despite the pressures of a slow economy, travel agents enjoyed a strong year for spa travel bookings in 2007 and remain upbeat about the prospects for spa travel for the remainder of 2008, according to SpaFinder's 2008 State of Spa Travel survey released recently. According to the 2008 study, spa travel bookings in 2007 increased for 57 per cent of surveyed agents and remained steady for an additional 29 per cent, while only 13 per cent

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reported a decline. For 2008, 58 per cent expect there to be growth in bookings over 2007, while an additional 26 per cent expect bookings to remain steady. In a shift from 2007, 51 per cent of agents from US now report that travelers aged 35-45 express the greatest interest in booking spa travel, versus 41 per cent for the boomer 46-60 age group. According to the survey, health and wellness is now one of the most critical considerations for today's spa traveler, with 90 per cent of agents reporting that health/wellness is either 'very' or 'somewhat' important to their vacationing clients. Similar to restaurants, hotels and fitness centers, spas play a significant role in today‘s culture worldwide. US spa market is one of the greatest as one in four American adults has been to a spa and knows what they want from a quality spa experience. The trends are being driven by educated spa-goers who actually see them as expectations Global Hospitality Industry The global hotel industry is studded with over 250 major international and domestic players. US The hotel industry in the US consists of about 30,000 companies that operate 50,000 individual locations, with combined annual revenue of USD90 billion. Large US companies include Marriott International, Starwood Hotels & Resorts, and Hilton Hotels. The industry is moderately concentrated; the 50 largest companies hold about 45% of the market. The majority of hotels are affiliated with a chain. A typical hotel has about USD7m of annual revenue and 100 employees. Europe The total supply of hotel rooms in the EU is over 1.2m with a majority of them in the upper categories. Hilton and Premier Travel Inn demonstrated their dynamism in 2006 but not as much as Riu, the leisure hotel brand of Touristik Union International, which jumped up 14%. According to MKG Consulting, the boost received by Europe‘s supply chain followed through. The supply grew by 2.3% for a positive balance of 262 hotels and 28,661 rooms. Most of the ten leaders of Europe‘s hotel industry continued to expand

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their network. The growth of the Top 10 continental groups brought the supply to 19,342 rooms, or up 2.8% and representing more than half of the growth of all the groups present in Europe. The global hospitality industry is dominated by major global hospitality groups. These hospitality giants, under their hotel group have several renowned brands. The table below shows the top ten hotel groups globally (in 2006).
RANK 2006 GROUPE HOTELS 2006 2005 EVOL. HOTELS CHAMBERS 2006 2005 EVOL. CHAMBERS

%

1(1) 2(2) 3(3) 4(4) 5(6) 6(5) 7(7) 8(8) 9(9) 10(10)

INTERCONTINENTAL HG CENDANT MARRIOTT INTL ACCOR HILTON CORP. CHOICE BEST WESTERN STARWOOD HOTELS CARLSON HOSPITALITY GLOBAL HYATT TOTAL

GB USA USA FRA USA USA USA USA USA USA

3 606 6 344 2 672 4 065 2 747 5 132 4 195 845 922 738 31 266

3 532 6 396 2 564 3 973 2 228 4 987 4 097 733 890 355 29 755

74 -52 108 92 519 145 98 112 32 383 1 511

537 533 532 284 485 979 475 433 472 720 417 631 315 875 257 889 147 129 144 671 3787 144

532 701 520 860 469 218 463 427 354 668 403 806 308 131 230 667 147 093 111 651 3 542 222

4 832 11 424 16 761 12 006 118 052 13 825 7 744 27 222 36 33 020 244 922

0,9% 2,2% 3,6% 2,6% 33,3% 3,4% 2,5% 11,8% 0,0% 29,6% 6,9%

Table 4 : Rank of Top 10 hotels globally in 2006 Source: Hotels Online & MKG Consulting

These groups own various hotel brands that operate across the globe on various business models varying from Owner operator to Management control models. In 2006, Asia,

Central and South America, Europe and the Middle East enjoyed double-digit growth in revenue per available room (RevPAR). Carlson Hospitality, Marriot

International, Accor, Wyndham Worldwide, Inter Continental Hotels group, Best Western, Starwood Hotel and Resorts, Choice, Hilton Corp and Global Hyatt were the global majors in terms of revenue and hotel inventory. The top 20 hotel brands with number of hotels and number of rooms in the world in 2006, as per one of the travel portal are as under:-

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RANK 2006

BRAND NAME

GROUP

HOTELS 2006 2005

CHANGE
HOTELS

ROOMS 2006 2005

CHANGE
CHAMBERS %

1(1) 2(2) 3(4) 4(3) 5(16) 6(5) 7(7) 8(6) 9(8) 10(9) 11(10) 12(12) 13(13) 14(11) 15(14) 16(15) 17(17) 18(18) 19(19) 20(20)

BEST WESTERN HOLIDAY INN MARRIOTT HOTELS COMFORT INNS & SUITS HILTON HOTELS DAYS INN OF AMERICA HAMPTON INN SHERATON HOTELS EXPRESS BY HOLIDAY INN SUPER 8 MOTELS RAMADA WORLDWIDE QUALITY INN HOTELS COURTYARD RADISSON HYATT HOTELS MOTEL 6 MERCURE IBIS NOVOTEL CROWNE PLAZA

BEST WESTERN INTERCONTINETAL HG MARRIOTT INT‘L CHOICE HILTON CORP. CENDANT HILTON CORP. STARWOOD HOTELS INTERCONTINENTAL HG CENDANT CENDANT CHOICE MARRIOTT INT‘L CARLSON HOSPITALITY GLOBAL HYATT ACCOR ACCOR ACCOR ACCOR INTERCONTINENTAL HG

USA GB USA USA USA USA USA USA GB USA USA USA USA USA USA FRA FRA FRA FRA GB

4 195 1435 507 2418 496 1844 1336 389 1590 2040 916 1056 692 415 214 905 738 720 398 235

4 097 1 484 487 2 415 230 1 872 1 290 391 1 512 2 076 1 005 966 656 434 212 893 720 692 396 215

98 -49 20 3 266 -28 46 -2 78 -36 -89 90 36 -19 2 12 18 28 2 20

315 875 267 816 183 455 182 473 169 636 150 302 134 121 134 007 133 554 124 031 108 937 105 790 99 669 96 135 95 145 93 946 87 233 78 780 69 255 65 404

308 131 278 787 178 331 182 038 89 256 153 701 130 398 134 866 126 035 125 844 119 991 98 431 94 003 100 733 93 651 92 948 85 352 75 602 68 340 61 627

7 744 -10 971 5 124 435 80 380 -3 399 3 723 -859 7 519 -1813 -11 054 7 359 5 666 -4 598 1 494 998 1 881 3 178 915 3 777

2,5% -3,9% 2,9% 0,2% 90,1% -2.2% 2.9% -0.6% 6,0% -1,4% -9.2% 7,5% 6,0% -4,6% 1,6% 1,1% 2,2% 4,2% 1,3% 6,1%

Table 5: Top 20 brands with number of hotels and rooms globally Source: Hotels Online & MKG Consulting

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The sales of major hotels in 2005–2006 and 2006-07 are shown in the table below:

S.No 1 2 3 4 5

Company

Turnover (INRm) Growth 2004-05 2005-06 Rate %
8,476.3 5,872.3 3,413.9 2,579.0 2,566.9 22,908.4 426,240 5.37 10,842.6 7,563.9 3,557.9 3,284.8 3,269.5 28,518.70 498,310 5.72 27.92 28.81 4.23 27.37 27.37 24.49 21.57 113.54

Net Profit (INRm) Growth 2004-05 2005-06 Rate %
1,058.6 331.2 101.21 254.9 447.6 2,193.51 1,837.8 1,888.0 390.34 567.0 731.7 5,414.84 73.61 470.05 285.67 122.44 63.47 146.86 -

Indian Hotels Co EIH Ltd. ITDC Asian Hotels Ltd Hotel Leela Ventures Top Five Indian H&R Industry % Share of Top Five

Table 6 : Top five hotel companies in India Source: Company Annual Report

The global hospitality industry is quite dynamic and has been consolidation mode in the last 2 – 3 years where top groups are purchasing various hotel brands. The World Travel & Tourism spending from 2001 till 2006 is show in the table below:-

2001 Personal Consumption Intermediate Consumption (transp. Of persons) Non-Market Products – Individual Exports (Visitors) Services Travel & Tourism Consumption Non-Market Products – Collective Gross Capital Formation Exports (Non-Visitor) Merchandise Travel & Tourism Demand Industry Aggregates Gross Domestic Product Employment (000s)

2002

2003

2004

2005

2006

1,986.55 1,993.67 2,163.72 2,357.84 2,584.13 2,755.86 486.22 495.23 559.27 673.62 500.27 615.23 91.03 110.90 126.40 140.83 86.15 134.11 576.77 634.99 751.37 885.24 554.50 814.19 3,147.69 3,404.84 3,794.88 4,147.66 4,455.55 3,127.47 127.25 137.33 149.10 171.92 117.60 160.64 631.42 697.39 843.57 638.84 946.29 1,049.38 450.00 523.81 626.66 807.89 434.98 718.12 4,321.78 4,359.24 4,766.26 5,417.10 5,975.60 6,487.63 2,373.71 2,363.23 2,531.52 2,779.00 3,038.32 3,261.35 130,611 129,565 123,704 127,910 132,948 136,296

Table 7 : World Travel & Tourism spending (USDbn): 2001-06 Source: World Travel & Tourism Council

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2.4.1

Contribution of Travel & Tourism to Global GDP

The contribution of Travel and tourism (T&T) to global GDP was 9.15% in 2001. In the next two years, the contribution was below the 2001. Natural disaster (earthquakes and rains) and human-made disasters such as terrorist attacks were the prime reason for the decline in the T&T‘s contribution to global GDP. However, as the impact of such disasters declined, the share of T&T in global economy picked up to 9.8% in 2006. 2001 Travel & Tourism Demand Global GDP* % Share of T&T in Global GDP 2002 2003 2004 2005 2006

4,321.78 4,359.24 4,766.262 5,417.104 5,975.60 6,487.631 47,227.38 49,473.73 52,509.87 56,781.90 61,258.71 66,228.67 9.15 8.81 9.08 9.54 9.75 9.80

Table 8: World Travel & Tourism Spending (USDbn) Vs Global GDP: 2001-06 *Current GDP in USD

2.4.2

Regional Performance of Global Hotel Industry – 2006 Vs 2005

According to the Hotel Benchmark survey by Deloitte, in 2006, Asia, Central & South America, Europe and the Middle East enjoyed double-digit growth in revenue per available room (RevPAR). Occupancy Middle East US Central & South America Europe Asia
2006 % 68.7 68.6 64.7 69.9 71.3 Change % -1.0 1.63 0.6 3.1 0.1

Average Room Rate
2006 % 142 140 122 146 122 Change % 17.8 10.6 12.3 8.7 10.9

Rev PAR
2006 % 97 92 79 102 87 Change % 16.5 12.4 13.0 8.60 11.0

Table 9 : Performance of global hotel markets – 2006 versus 2005 Source: Hotels Online & MKG Consulting

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3 INDIAN SPA AND HOTEL INDUSTRY: AN OVERVIEW
3.1 Spa and Wellness Segment
3.1.1 Introduction

The spa and wellness business, under the purview of the scope of this study, includes body massage therapies with traditional ayurveda therapies as well as non-ayurveda therapies using aromatic and chemical based oils. The Spa and Wellness Industry and Hospitality Industry have overlap in terms of resort spa offerings. The connection between the two can be understood from the following figure:-

Spa & Wellness and Hotel Industry

Hotel Industry

Resort Spa & Spas Wellness

Figure 13: Overlap between Hotel and Spa Industry

The Indian spa and wellness industry is at nascent stage. Over the years, it has emerged from the ayurveda based treatments. The ayurveda massage treatments are viewed as the ancient Indian way of curing and preventing various diseases. Nevertheless, due to increase in the disposable incomes in the urban agglomerates over the last few years and increasing awareness of therapies from other countries, the other methods of relaxation and rejuvenation have gained consumer acceptance in the urban clusters in India.

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―Ayurveda stream is present in India from top to bottom from the past 9000 years. The modern spa therapies command meager share of the total spa and wellness market in India.‖ - Owner of Ayurveda based therapy center chain in Bangalore

3.1.2

Industry Structure & Segments

The wellness industry till now has been classified from the viewpoint from nutritional drinks and cosmetic products. The spa and wellness industry has not been classified taking only into account the massage therapies. The segmentation below is based on the interviews conducted across various therapies existing in India.

Segmentation of Massage & Spa Therapy Market

Spa & Wellness Market - Offerings

Ayurveda therapy & treatment

Non-ayurveda massage & spa therapies

Salon & Spa treatment

Ayurveda Clinics with Ayurveda Doctors

Gym coupled with Sauna / steam bath – oriented towards muscle toning and fat reduction

Massage therapy based treatments

Non-massage based Treatments – medicines

Massage treatments such as:- Javanese - Swedish - Thai etc

Beauty Enhancement treatments such as:- Facials – herbal and non-ayurvedic - Laser treatments - Pedicure & Manicure - Foot massage, reflexology etc - Salon etc

Preventive Massages / Treatments

Curative Massages / Treatments

- Obesity treatment - Relaxation / rejuvination - Modern day diseases e.g. Migrane, Stress etc

Diseases such as - Arthiritis - Diabetes - Muscle or bone related pain, displacement etc

Figure 14: Segmentation of Massage and Spa therapy market

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3.1.3 Industry Environment: Thai Spa treatment in perspective
Thai Spa & Massage Treatment in India : Market Analysis

Political / Legal Environment - Closeness in economic cooperation & cultural exchange between two countries - FDI norms allow 100% stake in specialty outlets - No problems with repatriation issues after paying taxes

Potential Entrants
Other Spa therapies such as Javanese, Swedish, Body wraps etc intruding upon non-ayurveda based spa experience

Innovation shifts
- Thai spa therapies now also include aroma oils suiting local skin and texture - Relaxation by thorough muscle ligament exercise, requires experience in service offerings

Suppliers
Thai therapists training north-eastern Indian therapists. Aroma oils procured from Thailand, Singapore etc.

Industry Competitors
No one is providing real Thai spa experience except one in Bangalore

Consumers
Demand from aspiring price conscious class (INR 700 – 800 per sitting) and upper end of the society (INR 1500 & more per sitting). Demand expected from both the sexes

Social / Consumer shifts - Ayurveda massage system already popular in South India, gaining popularity in North India - Consumers willing to accept the experience from therapies from other countries - City clusters having progressive population, resulting into modern day diseases

Substitutes
Ayurveda therapies using light oils. 4 – 5 panIndia chains. Southern cluster biggest market

Economic shifts
- Concentration of disposable income in top 6 – 8 cities - Rising spending patterns on ―pampering‖ therapies - International economic environment augurs cautious approach

Figure 15: Market Analysis of Thai spa treatment offering in India

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3.1.4

Industry Turnover and growth trends

It is difficult to comment on the turnover and the number of hotel spas / resort spas and day spas because of the following two reasons: Market is changing very fast both for resort and hotel spas and day spas. Almost all the new 3 star and above category hotels that are coming have spa facility for additional income. ―Before Commonwealth Youth Games 2008, Pune 13 star category hotels were planned. All of them are provisioning spa facilities.‖ - Leading Spa Consultant based in Pune

 There is no documented information or standards that differentiate Spa from simply one-man/woman operated massage parlours. Based on the several expert interviews with leading Spa chain owners and consultants, the Spa and Wellness market would be to the tune of US $ 34 – 36 million (INR 150 – 175 crores). This includes the revenues from all segments of spas and wellness industry. For Resort spas, accommodation, food and beverage cost is not included in the turnover value. The following trends came in the forefront after several interviews: Market is largely dominated with ayurveda based spa therapies especially in Bangalore when compared with Mumbai and Delhi. The split between ―preventive‖ lifestyle diseases (where Global and Thai massage can be positioned) and ―curative‖ diseases is shown as under:-

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Ayurveda based treatments market
30%

70%

Preventive and lifestyle diseases Curative Diseases (eg. Diabetes, Arthiritis etc)

Figure 16: Distribution of Ayurveda based treatment in preventive and curative diseases

 The resort and hotel spas account for 70% of the industry revenues today. The difference in the revenues between resort and hotel spa and day spas would come down in next 3 – 4 years due to rapid increase in the supply of day and medi spas. Significant growth is also expected in the resort and hotel spa segment as new star properties are coming up with Spas. In addition, existing properties are also extending service offerings to Spa treatments ―Earlier the trend was to have swimming pool as additional facility in the resort or hotels. Then it changed to Gym with modern equipments. Now from last 1 year the trend is to have Spa center in leisure resorts and business hotels.‖ - Leading Pune based Spa Consultant

 It is estimated that put together there are 1200 – 1500 spa rooms currently in India. With the expansion plans of many day spas and resort/hotel spas, the sparooms figure is set to double in next 1 – 2 years.

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 As per industry thumb rule, on an average, one spa room accounts for INR 1 lacs per month. This figure however varies as per the positioning, city and location of spa within that city (due to variation in operational expenses).  Between day and medi spa segment, medi spas are fewer in number as they require technical expertise and relatively larger capital investment in set up. Bangalore city accounts for a fifth of the total spa and wellness market today. For Ayurveda based treatment, growth in South India is much more than it is in the North India as awareness of functional benefits offered by Ayurveda treatment is limited in the Northern region. The growth rate however is slated to be much higher than the present rate due to the emerging ayurveda and non-ayurveda day spa chains in the country. The industry expects that spa and wellness industry would touch US $ 0.8 billion (US $ 800 million) in next 8 – 10 years. ―Bangalore is biggest ayurveda based treatment market (city). The next in line would be Mumbai and Delhi NCR.. Kerala has greater awareness about ayurveda therapies; it is high volume low value market.‖ - Owner of Ayurveda based therapy center chain in Bangalore

Some players in the growing market are growing at the rate of 25 – 30% because of the increasing point of presence. The organized segment spa and wellness market is largely confined to top 6 – 8 cities in addition to the presence of two major players in the Kerala state. Other than the top 3 cities, the other major cities for spa and wellness therapy market are Hyderabad, Pune, Chennai and Kolkata. The awareness about preventive and curative aspects of these spa therapies has been the largest impediment in the market growth. Now with the greater mobilization of the upper income segments, they are being exposed to these newer concepts of relaxation and rejuvenation.

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Looking the market by ayurveda and non-ayurveda based treatments, ayurveda based treatments commands more than 90% of the market. The trend of aromatic based massage therapies could be 3 – 4 years old. Prior to this period the foreign aroma based therapies were largely confined to luxury resorts. As of now, around 70 per cent of the spa business is run by local brands, while the rest is taken over by international spa firms. The Swedish massage, German body treatment and Thai massage are the most popular therapies across all spa centres. The spa industry is expecting a cut in customs duty on various products required for spa therapy. The same is expected to boost the growth of this segment. ―As of now day spa industry is at small with only one pan-India player (i.e. LeverAyush) in true sense. With the change in the macro economic factors and the plans laid down by regional players, more than 200 additional day spa point of presence can be forecasted in next 3 – 4 years.‖ - Owner of the budding day spa chain in West India

3.1.5

Major Players

Global players like MSpa International from Thailand, Aman Resorts from Singapore, XpresSpa from the US and South America-based Acqua Hotels are all set to enter India, either as standalone players or through tie-ups with various star hotels. The Pune based Sahil group forged a tie-up with MSpa International of Thailand to open Spa therapy center on Thai concept at their 5 star hotel property. The Thailandbased firm runs centres under Anantara and Mandara brands. In the similar manner, Uday Samudra, Kovalam resort has forged a tie-up with Thai based spa company to provide traditional Thai massage, holistic treatments and rejuvenation options. The Indian realty major DLF plans to set up a chain of spa treatment centres across the country with Aman Resorts-Singapore. DLF acquire Aman Resorts – Singapore that has
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18 spa properties in the Asia Pacific region. DLF has signed an agreement with FIH (Franchise India Holding) - the organization acting as a platform to bring franchise and investors closer, to set up 120 ‘Spa – Siam’ brand centers across India. XpresSpa is exploring the possibilities to set up a centre each at all the international airports in the country. The Pune-based CMYK Health Boutique has drawn a plan to set up 300 spa treatment centres under the brand name ―Four Fountains Spa‖ across the country. The major day spa and wellness treatment centers across major cities in India are shown in the table below:Spa Chains City Number of Outlets
Close to 50

Business Model
Franchising model – Unilever has tie up with Coimbatore based ayurveda firm for training and procuring oils 4 company owned ayurveda hospitals, franchise in Banglore operating 4 centers Owning some outlets; expansion through franchise

Growth rate / Future Plans
More than 20%

Lever Ayush

6 – 8 cities

Kottakal Ayurveda – Arya Vaidshala

3 cities in Kerala state, Delhi, Bangalore

Close to 10

Growth rate 15 – 20%

6 Pune, Mumbai

Four Fountain Spa

Spa Siam

Yet to open in Delhi and Banglore

Franchise Model (tie up between realty major DLF and FIH) Starting with company owned. Major focus on airport spa Owning some outlets, growing through franchising Company owned hospitals. Focus on foreign tourist interested in alternate medicine and therapies

Xpress Spa Floriana – Lambency Chandan Sparsh Sree Sankara Ayurveda Hospital

Yet to open at major airports Delhi, Bangalore 4 cities in Kerala, Delhi, Mumbai 10 - 15

Around 15 outlets by mid 2009; 300 outlets in next 2 – 3 years across major cities Plans to open 120 ―Spa-siam‘ across major cities Airports across major cities Plans to grow to major cities No information

6 up-market ayurveda hospitals

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MediSpa

Yet to open in Delhi

14 in next 2 – 3 years

Holistic spa, skin and beauty treatment centers spending around Rs 30 crores per center Company owned outlets in Hyderabad, growing through franchising

Ayur Care

Hyderabad, Bangalore, Pune, Delhi, Chennai Delhi NCR

24 (including 12 in Hyderabad and 5 in Pune)

2

Jiva Ayurveda Body Spa Ayurveda Nature Health Center Pvt. Ltd. Heathway Ayurveda

2 Delhi 4 centers on various beaches 4 – 5 centes Bangalore 3 clinics (1 in Delhi), 1 ayurveda treatment wellness facility with accommodation near Bangalore Currently 1 – 2

Goa

Company owned ayurveda based therapy centers Singapore based company; Franchise model Company owned ayurveda treatment day spas for leisure tourists especially foreign tourists Ayurveda clinics with doctors and massage therapy rooms Company owned. Also manufacturing medicines in Kerala

Major cities; also looking to expand in European countries Expand more centers in Delhi, Bangalore and other major cities No expansion plans yet To expand to other major cities

Ayurveda Gram

Banglore, Delhi (1 center)

Wellness Water Spa

Mumbai 2

Ashtang Ayurveda

Delhi, Ludhiana 9 – 10

Oushadhi

Kerala state

Company owned centers, looking to expand through franchise mode Company owned; company largely into ayurveda medicine marketing Owned by Government of Kerala, famous for Ayurveda based full treatment

Planning 2 wellness treatment facilities with accommodation including 1 in Delhi. May expand to other major cities. May expand to other major cities May expand to more centers in Delhi and other cities May expand only in Kerala state

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2

Sawadee

Bangalore

Pure Thai massage day spa. Brain child of NRI (Non-Resident Indian) family based in Bankok. Tie up with local entrepreneur

2

The 5th Element

Bangalore

2

Spa.ces

Bangalore

Started by young entrepreneurs. Upmarket, non-ayurveda, aromatic oil massage on Thai concept. Claims to employ Thai therapists (deeper probe identified North-east staff trained by Thai therapists). Positioned as day spa, owned by foreign entrepreneurs running service apartments

May expand at other location in Bangalore. Willing to expand in other cities with collaboration / tie ups Expanding to Pune and Mysore with 1 center each. Tie up with Mainpal Medical Center for expansion Expansion plans in Bangalore. Didn‘t comment much

Other Day Spas with 1 - 2 centers; may open up more centers with regional presence:  LeoJuventa (Hyderabad),  Shahnaz Spa (Hyderabad),  Serena Spa (Mangalore),  Oryza spa (Chennai)  Myras – Thai massage (Mumbai)  Rudra Spa (Mumbai)  Antara Spa (Mumbai)  Wellness water Spa (Mumbai)  Chisel India (Bangalore)  Heavenly Spa (Delhi NCR)  Hibiscus Spa (Delhi NCR)  Other stand alone ayurveda based therapy centers across major cities In addition, there are some training centers providing training to spa therapists. These are: Oushadhi (Ayurveda Therapy Training, Government of Kerala)  Spa Academy for Ayurvedic and Global massages, Jaipur (In collaboration with Orient Spa Academy, Bankok, Thailand)  Kottakal Ayurveda (Kerala)  Dhanvantri Institute of Ayurveda (Mumbai)  Core Wellness - Spa & Wellness Association of India (Mumbai)
Table 10: Major Players in Spa chains and training therapists

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Resort spa / Spa in 4 – 5 star hotels Ananda in the Himalayas

City

Group / Business House
Owned by Delhi based entrepreneur

Positioning
Super premium – oriented towards elite foreigners. Selling medium to long packages 5 star luxury resort with affordable world class spa. Modern spa (5 story separate building) with almost all pure spa treatment – largest in Asia 5 star luxury resort. Positioned similar to Golden Palm; spa center smaller than Golden palm 5 star luxury hotel with Spa offerings – claimed to be biggest spa in Asia. Positioned towards business traveler

Rishikesh

Owned by Mr. Sanjay Khan – bollywood celebrity

Golden Plam

Banglore

Angasana Resort spa Kaya Kalp Spa, ITC – Sheraton,

Banglore

Owned by entrepreneur; managed by Hilton group

Agra

ITC Welcome Major Hotel Groups – Around 5 – 6 Spa per city

Major 5 star hotels across Delhi, Bangalore, Mumbai,

Table 11: Major Resort and Hotel Spas in India

3.1.6

Demand – Supply Scenario

The ayurveda based sp treatment though being ancient treatment of science from India has not grown to its full potential because of lack of awareness. The other spa and wellness therapies e.g. Thai, Swedish, Turkish etc are at nascent stage. The growth prospects seem promising across major city clusters as the supply of these genuine aroma therapies is limited. ―Ayurveda massage therapy is expected to grow at 15 – 20% whereas non-ayurveda based aroma massages with different specialties can grow by as high as 50% for the next few years. It is largely because of the expansion plans of major day spa chains.‖ - Owner of Bangalore based budding spa chain

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3.2 Hospitality Segment
3.2.1 Introduction one of the most

India's hotel industry has grown in an unprecedented manner during the last few years because of healthy corporate and economic performance. India is

magnificent tourist destinations in the world with an assortment of experiences to satisfy any domestic or international traveler. Indian hotel industry is witnessing unprecedented opportunities for growth.

International hotel companies are looking at India positively. As a market, India offers immense opportunities for hotel companies vying for a considerable share of this emerging market. The revenues of Hotel and Restaurant industry in India during the financial year 2006-07 was USD 12.85 billion, a growth of 21.27% over the previous year, primarily driven by foreign tourist arrivals, which increased by 14.17%. Currently, there are some 1,980 hotels approved and classified by the Ministry of Tourism, Government of India, with a total capacity of about 110,000 hotel rooms. With tourism industry showing excellent performance in terms of foreign tourist arrivals and demand outpacing supply, the hospitality industry is poised to grow at a faster rate and reach INR 17.6 billion by 2010. It is estimated that over the next two years, 70,000-80,000 rooms will be added across different categories throughout the country. Though there is temporary blip in the demand in the roomnites across star properties especially in Mumbai, Delhi and Bangalore, analysts assume this dip would get ironed out over a period of 2 – 3 years. This sudden reduction in the demand due to global economic meltdown and terror attacks has resulted in the correction of roomnite rates in major cities. The graph below shows that tourism sector would grow in tandem with arrival of foreign tourists in India:-

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Figure 17: Size of organized hospitality sector vis-à-vis growth in tourist arrivals Source: Secondary search

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3.2.2

Industry Structure & Segments

The figure below identifies the segments within tourism industry:-

Segments within Tourism Industry

Tourism & Allied Industry

Hospitality Industry

Travel Industry

Agents & Tour Operators

Lodging Operations

Food & Beverage Operations

Non-star category / unapproved rooms

Approved Rooms

- Five Star Deluxe - Five Star - Four Star - Three Star - Two Star - One Star and - Heritage
Figure 18: Segmentation of overall tourism industry in India

The Lodging Operations in the hospitality industry can be categorized into non-star category or unapproved rooms and Approved rooms. The Ministry of Tourism, Government of India, grants approval to hotels at the project stage and then classifies into one of the star categories. In terms of numbers, unapproved segment constitutes around 25% followed by three star (23%), approved (22%), two star (10%) four star (6%), five star deluxe (4%), five star

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(4%) heritage (4%) and one star (2%) in 2006. The share of these segments is estimated to be roughly the same as in 2005.

Figure 19: Distribution of hotel room across various categories in India Source: HVS International

3.2.3

Transition in Hotel Industry in India

The growth of hotel industry in India can be attributed to the recent growth in the service industry and economy as a whole. The graph below shows that growth till year 2000 was demand dominated. There wasn‘t significant addition of star room between 2000 till 2005. Due to disproportionate growth in the demand and limited supply of star category rooms in major metros, the roomnite rack rates peaked out in the year 2007. The early foot prints of recent global meltdown and terror attacks are visible on the hospitality industry. As per media reports, the demand of star category roomnites has reduced up to 40% across major metros in the recent months. A slight cooling-off effect can be forecasted for the hospitality industry in the next couple of years. Due to strong economy fundamentals and the presence of suitable factors for service and business growth, the demand for hospitality industry can be expected to grow from as the global economy stabilizes.

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Supply Dominance

Projections Strong economy Global Crisis Dominance Key: REVPAR: Revenue per available room REVPAC: Revenue per available customer

Business Transformation

Demand Dominance

plo Ex

r Se ive s

e vic

c se

to

r rG

th ow

(Measure: REVPAR & REVPAC)

2000

2004 Path of Paradigm Shift

2008

2012

Figure 20: Transition in the hotel industry in India

3.2.4

Revenue Generation Models in the Hospitality Industry
Revenue Sharing Models in Hotel Industry

Owner Operator model

Franchise model

Global Hotel Industry

Leasehold model

Management Contract

Figure 21: Revenue sharing models in the hotel industry

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As far as revenue generation business models are concerned, the hospitality industry operates on one of the following business models:1. Owner operator model – In this model, the hospitality group owns and operates the hotel property 2. Franchise model – Under this model, the global hospitality groups franchise their brands to the local entrepreneurs. In return, the local entrepreneurs pay royalty on the revenue generated from the hotel brand. The hospitality group also audits various services in the comprehensive manner before providing the franchise of their brand name to any hotel / resort property. 3. Leasehold basis – This involves long term leasing of the hotel property or the heritage property or palace converted to the hotel property. Under this arrangement, the lessor could either be an individual entrepreneur or the family or Government that owns the property. 4. Management Contract – This involves managing and operating the property. Quite often three entities are involved in the management contract operating basis of the hotel property. These are: - the developer, the hotel brand and the party managing and operating the property. The value chain of Indian hotel industry has three broad components—asset ownership, management of hotels and branding and franchising. Indian hotel industry is trying to diversify by filling the gaps in price (for instance service apartments, budget hotels) and service value chains (for instance health spas).

3.2.5

Industry Turnover and growth trends

As per the table below, overall travel and tourism consumption including domestic and foreign travel is estimated to be US $ 65.88 billion in the calendar year 2008. The consumption figures have grown 23% and 26% in 2007 and 2008 respectively.

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Travel and Tourism Industry India’s Turnover

Table 12: Turnover of India’s Travel and Tourism Industry till 2008 Source: WTTC

According to industry structure as shown in industry structure section of this report, the estimated market turnover of Hotel Industry, Domestic Tour Industry and Travel Industry is the calendar year 2010 is show in the graph below:Total US $ 90.1 Bn
100

Market Turnover (In US $ Bn)
Total US $ 65.9 Bn

Market Turnover

11.5

80 60 40 20

8.7
CAGR Hotel Industry = 20% Tour Industry = 16% Travel Industry = 15%

54.2

40.3 16.9

24.3

0

2008 Indian Hotel Industry Indian Tour Industry

2010 Indian Travel Industry

Figure 22: Turnover of India’s Travel and Tourism Industry till 2008 Source: WTTC and various industry report

Room revenues as a percentage of the total operating income of the Indian hotel industry constituted 57.3% in 2005-06 as against 55% in 2001-02. The increase in the
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room revenues of the industry as a percentage of the operating income can be attributed to the increase in the Average Room Rates. The Average Room Rate in the Indian hotel industry was INR 3,227 in FY2006 compared with INR 2,400 in FY2003. The rise in the room revenues was also mainly due to increasing demand and increasing operating costs, which were passed on to the consumer. The net operating margins for players in the industry have been in the range of 21–42%, with higher net margins for high-end hotels.

3.2.6
2005-06.

Major Players

The table below provides a list of top five listed hotels based on their turnover in the FY

S.No 1 2 3 4 5

Company

Turnover (INRm) Growth 2004-05 2005-06 Rate %
8,476.3 5,872.3 3,413.9 2,579.0 2,566.9 22,908.4 426,240 5.37 10,842.6 7,563.9 3,557.9 3,284.8 3,269.5 28,518.70 498,310 5.72 27.92 28.81 4.23 27.37 27.37 24.49 21.57 113.54

Net Profit (INRm) Growth 2004-05 2005-06 Rate %
1,058.6 331.2 101.21 254.9 447.6 2,193.51 1,837.8 1,888.0 390.34 567.0 731.7 5,414.84 73.61 470.05 285.67 122.44 63.47 146.86 -

Indian Hotels Co EIH Ltd. ITDC Asian Hotels Ltd Hotel Leela Ventures Top Five Indian H&R Industry % Share of Top Five

Table 13: Turnover of major players in Indian hotel industry

Indian hotel industry is currently dominated by the above players including Indian Hotels Company Ltd, the largest with 20% market share, India Tourism Development Corporation (15% market share) and East India Hotels (12% market share). Other players include ITC Hotels (linked with the Sheraton chain), Hotel Leela Venture, Asian Hotels and Jaypee Hotels. The foreign hotel giants like Accor, Marriott Hotels, and Hilton Hotels and

International,

InterContinental Hotels, Starwood

Shangri-La etc along with the industry leader Indian Hotels are planning to build 100 economy hotels over next three to five years. A few years ago, India was a seven-eight
brand hotel market. By 2010, it will be metamorphosed into 40-brand hotel market, redefining both the personality and structure of the hospitality industry as it stands today.
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3.2.7

Demand – Supply Scenario

Demand-supply mismatch will continue to drive growth in India's hospitality sector, which sees a major boost from inbound tourists. While we expect demand for premium rooms to rise at 8.8% CAGR over 2008-2010, according to World Travel and Tourism Council (WTTC), India will continue to be the fastest growing tourist destination registering 9.4% growth over the next 10 years (vs 4% growth globally). Although oversupply concerns in the industry persist, incumbent players will benefit in the medium-term from a supply shortfall, more so on account of expected delays in the announced projects. We gather while the estimated number of required hotel rooms is around 250,000, the current availability is just about 110,000, leaving a shortfall of 140,000 rooms to be provided. According to joint study of FHRAI, hospitality association of India, and HVS International, global hospitality consultants, only 58% of the announced 102,000 rooms are under active development and are expected to be completed over the next five years. The domestic guests continue to be the most important segment for the Indian hotel industry, accounting for 69.7% of all guests in 2006-07, though this has been steadily declining from 76.9% in 2002-03. By 2010 when the Commonwealth Games are scheduled to happen in India, the demand of classified rooms in India can be estimated to be around 2,50,000. It would increase to 3,00,000 rooms by 2012. Out of approximately 110,000 rooms only 35,000 are branded; ie fewer rooms than most major global cities. While Singapore has 70,000 higher-end hotel rooms, India only has around 12,000. When compared with India, China has ten times as many and the United States has 40 times as many. Growth rate of foreign tourists‘ visit to India is very high compared to the growth in availability of hotels where these foreign guests can stay. Due to the supply – demand mismatch, not only have domestic hotel chains announced new hotels, but international chains entering India have also tied up with domestic real estate players so as to manage hotels in India. After assessing this evident supply – demand mismatch, more than 50 international budget hotel chains are moving into India.
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This demand-supply mismatch has led to Indian cities posting unusual growth in Average Room Rates (ARRs). In recent times, key Indian markets like Mumbai, Delhi & Bangalore have featured among the top 10 of various compilations by global consulting firms. The overall hospitality industry in India has seen 11.9% growth in average room rates in 2007-2008 as opposed to 30.0% growth in the previous year. The ARRs will skyrocket in 2010, when Delhi hosts the Commonwealth Games. Almost 62–68% of the operating costs of a hotel are fixed in nature, thus requiring a high level of revenues to break-even. However, the cost structures of different hotel companies are a function of guest profiles, business strategies, management quality and property characteristics and would vary from company to company.

3.3 Foreign Direct Investment (FDI) flow – Spa and Hotel Segment
100% Foreign Direct Investment (FDI) is allowed in the hospitality (hotel) sector and spa and wellness industry. Though Indian Government has been actively promoting the hospitality industry, the industry has attracted merely USD500m FDI during FY2007. The foreign investment in the spa and wellness segment has been very low. With the awareness about day spas and the presence of these services near their door steps, the spa and wellness industry has promising future

―As of now day spa industry is at small with only one pan-India player (i.e. LeverAyush) in true sense. With the change in the macro economic factors and the plans laid down by regional players, more than 200 additional day spa point of presence can be forecasted in next 3 – 4 years.‖ - Owner of the budding day spa chain in West India

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The cumulative FDI inflows (excluding FDI equity inflows and reinvested earnings) into India during 1991-2005 (up to December, 2005) were USD37.05 billion. FDI statistics (annual statistics from 2002 to 2005) and trends are given in the table below:-

FDI 2002 2003 4,585 5,627 1) Inward 1,325 1,679 2) Outward 3,260 3,948 3) Net (1-2) -17.43 4) Net Growth rate % Note: Excluding FDI equity inflows and reinvested earnings
Table 14 : FDI flows (USDm): India 2002-2005 Source: WIR

2004
5,474 2,024 3,450 5.83

2005
6,598 1,364 5,234 51.71

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4 NATURE OF HOTEL AND SPA INDUSTRY BUSINESS
4.1 Key Operating Characteristics
There is strong correlation between F&B revenue and room revenue and even with rising RevPAR, the overall F&B contribution to total revenue has remained at consistent levels due to price increase in the F&B outlets. The room revenues as a percentage of the total operating income of the Indian Hotel Industry constituted 57.3% in the year 2005-06 as against 55% in the year 2001-02. The increase in the room revenues of the industry as a percentage of the operating income can be attributed to the increase in the Average Room Rates. The Average Room Rate in the Indian hotel industry rose from INR2,400 in the year 2002-03 and to INR3,227 in FY2006. The rise in the room revenues was also mainly due to increasing demand and increasing operating costs, which were passed on to the consumer. The table given below presents aggregate financials for the Indian hotel industry FY2003 through FY2007. 4.1.1 Cost Structure

Spa and Wellness Industry The treatment cost across resort and day spas vary according to their positioning, point of presence (locality) especially for day spas. In the 5 star resort spas, average per 60 minutes sitting prices vary from INR 2,000 to INR 4,000. For day spas, the price variation is more and it depends upon the variety of factor such as positioning of spas, offerings, uniqueness of offering etc. The treatment cost for various therapies varies between INR 700 to INR 3,000. The cost structure of one of the upcoming Thai day-spa in Bangalore is shown in the annexure of this report.

Hotel Industry Around 62–68% of the operating costs of a hotel are fixed in nature, thus requiring a high level of sales to break even. Again, the cost structures of different hotel companies are a
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function of guest profiles, business strategies, and management quality and property characteristics and would vary from company to company. However, the following trends are break up of common:  General Administrative & Operating Cost is the largest cost head for players in the hotel industry in India, accounting for up to 25% of operating cost.  Employee costs account for 15–20% of the operating cost.  Power and fuel costs range 6–10% of operating cost and are on the higher side due to high consumption of power as well as due to the required power backup facilities in the light of erratic and unreliable power availability in the country.  Repair and Maintenance accounts for 5–10% of the operating cost for the industry (renovation is a major cost head under this classification).  Marketing and selling expenses account for about 5% of operating cost for the industry 4.1.2 Cost Structure Profitability

The occupancy rates and average room realisations, primarily, drive profitability in the hotel sector. The hotel companies function at a very high operating leverage. Thus, any incremental changes in occupancy rates affect the bottom-line significantly. Net margins for players in the industry have been in the range of 21–42%, with higher net margins for high-end hotels. The players in this industry have historically enjoyed very high operating margins in the range of 30–45%.

4.2 Seasonality
Spa and Wellenss Industry In a calendar year, the seasonality influence can be gauged in the rainy season when the demand is relatively less than rest of the seasons. It is especially true in the Western
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region clusters like Mumbai and Pune. Another seasonality impact comes during the weekends i.e. during Saturdays and Sundays when the service class has ample time for Spa and Wellness therapies. Due to this excess weekend demand, some day spa chains offer discounts for the treatments during week-days i.e. from Monday till Friday. In some residential clusters in Pune, the weekend demand for these therapies is more than two times the average week day demand. Hotel Industry The hotel business is cyclical and sensitive to changes in the economy in general. The sector may be unfavorably affected by such factors as changes in the global and domestic economies, changes in local market conditions, excess hotel supply or reduced demand for hotel rooms and associated services, competition in the industry, changes in interest rates, the availability of finance and other natural and social factors. Since demand for hotels is affected by economic growth in India as well as world over, a global or domestic recession could lead to a downturn in the hotel industry. Such adverse developments in the hotel industry in India or in the cities where the hotels are located would have a negative impact on the profitability and financial condition.

4.3 Operating Risks
Revenues are generally higher during the second half (October to March) of each a fiscal year compared to the first half (April to September). Any disturbances / disruptions during this period may lead to reduction in the revenues and can have a material adverse impact on the financial performance. As a result of this, the quarter to quarter comparison of historical results may not be accurate or a meaningful indicator of future performance. Financial results are affected by occupancy and room rate achieved by a hotel. Management‘s ability to control cost of developing and running additional rooms, the success of their food/beverage and catering

operations, have a significant impact on the financials. Further, the operating margins would be adversely affected by increase in electricity, insurance and environmental
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compliance expenses. Moreover, hotels would have to be renovated periodically to keep up with the changing trends and such renovation may involve significant development and maintenance costs. The inability to manage the above operating risk would have a negative impact on the profitability and financial position of a hotel group.

4.4 Regulations / Standards
Spa and Wellness Industry There aren‘t any specific regulations or standards controlling the quality standards of service. However, there are laws and regulations governing relationships with employees in such areas as minimum wage and maximum working hours, overtime, working conditions, hiring and terminating of employees and work permits.

Hotel Industry The hotel industry is subject to numerous laws and regulations, including those relating to the preparation and sale of food and beverages, such as health and liquor licensing laws. The hoteliers‘ properties are also subject to laws and regulations governing relationships with employees in such areas as minimum wage and maximum working hours, overtime, working conditions, hiring and terminating of employees and work permits. Furthermore, in order to expand its existing properties, acquire new properties or to open newly-constructed properties receipt of all required licenses, permits and authorizations including local land use permits, building and zoning permits, environmental, health and safety permits and liquor licenses. The changes or concessions required by regulatory authorities could also involve significant costs and delay or prevent completion of the construction or opening of a project or could result in the loss of an existing license.

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Project approval and Star Classification of hotels from the Department of Tourism, Government of India Under the Tourism Policy of the Government of India, any project seeking to establish a hotel in India has an option to seek the classification of the proposed hotel in a star category. The classification in category is issued based on an application made to the Department of Tourism, Government of India. The Hotel & Restaurant Approval & Classification Committee (HRACC) inspects and assesses the hotel based on the facilities and services offered against a fixed marks sheet, including the assessment of quality of facilities provided. Upon the hotel obtaining a qualifying mark prescribed for the particular status of star classification, and based on a recommendation of the HRACC, the hotel is conferred the status of a Star hotel by the Department of Tourism, Government of India. The Government of India, Department of Tourism approves projects of two types: (i) (ii) approvals for starting a Star hotel without apartment facilities and approval for starting a Star Apartment Hotel.

Both these types of approvals involve the same procedure in the following 2 stages: (i) (ii) 4.4.1 the approval of the Project Report and the classification of the hotel as a star hotel Central Excise Act, 1944

The Central Excise Act, 1944 provides that a person who is engaged in production or any process of production of any specified goods including liquor shall get himself registered with the proper officer as per the procedure / documentation laid down. 4.4.2 Prevention of Food Adulteration Act, 1954

The Prevention of Food Adulteration Act is a Central legislation and provides provisions for the prevention of adulteration of food. The Gujarat State Government has adopted the

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Central Act, which requires any person/ entity manufacturing / storing / selling food articles to be registered under the provisions of the Act. 4.4.3 Environmental Laws, Rules & Regulations

The three major statutes in India that seek to regulate and protect the environment against pollution-related activities in India are the Environment Protection Act, 1986, the Water (Prevention and Control of Pollution) Act 1974 and the Air (Prevention and Control of Pollution) Act, 1981. The basic purpose of these statutes is to control, abate and prevent pollution. In order to achieve these objectives, Pollution Control Boards, or PCBs, which are vested with diverse powers to deal with water and air pollution, have been set up in each state. The PCBs are responsible for setting the standards for maintenance of clean air and water, directing the installation of pollution control devices in industries and undertaking investigations to ensure that industries are functioning in compliance with the standards prescribed. These authorities also have the power of search, seizure and investigation if the authorities are aware of or suspect pollution. All industries and factories are required to obtain consent orders from the PCBs, which are indicative of the fact that the factory or industry in question is functioning in compliance with the pollution control norms laid down. These are required to be renewed annually. The issue of management, storage and disposal of hazardous waste is regulated by the Hazardous Waste Management Rules, 1989 made under the Environment Protection Act. Under these rules, the PCBs are empowered to grant authorisation for collection, treatment, storage and disposal of hazardous waste, either to the occupier or the operator of the facility. In addition, the Ministry of Environment and Forests looks into Environment Impact Assessment (EIA). The Ministry receives proposals for expansion, modernisation and setting up of projects and the impact which such projects would have on the environment is assessed by the Ministry before granting clearances for the proposed projects.

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4.5 Government Policy
4.5.1 Trade Measures influencing investments

The role of the Central and state governments in the Indian economy with reference to producers, consumers and regulators has remained significant over the years. Since 1991, the Government of India has pursued policies of economic liberalisation, including significantly relaxing restrictions on the private sector. The Congress-led UPA Government, which was formed in May 2004, has continued the policies and initiatives that support the economic liberalisation policies pursued by the previous governments. However, one cannot be confident that these liberalisation policies will continue in the future. The protests against privatisation could slow down the pace of liberalisation and deregulation. The rate of economic liberalisation could change, and specific laws and policies affecting hotels, foreign investment, currency exchange rates and other matters affecting investment in a hotel company‘s securities could change as well. A significant change in India‘s economic liberalisation and deregulation policies could disrupt business and economic conditions in India and thereby affect its business. 4.5.2 Incentives for attracting investments

Due to eminent gap between the supply and demand in the star category rooms in Delhi NCR that might result in the shortage of star category rooms during the Commonwealth Games 2010, the Government of India has provided incentive to entrepreneurs / hotel groups for creating the supply in and around New Delhi. The long-term tax holiday for two-star, three-star and four-star hotels and convention centres to be built in and around New Delhi from April 1, 2007, to March 31, 2010, to boost capacity for the 2010 Commonwealth Games. The Central Sales Tax reduction of 100 basis points from 4% to 3% would be provided to entrepreneurs. In addition, there has been an increase in allocation towards development of tourism infrastructure from INR4.23 billion to INR5.2 billion, rise of 23%.

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5 CHANNEL INSIGHTS
5.1 Major Cities and Towns for Spa and Hotel segments
Spa and Wellness segment The spa and wellness segment has promising future across Bangalore and Delhi NCR region followed by Mumbai, Pune and Hyderabad. The other cities where demand for spa and wellness segment would be present are Chennai and Kolkata.

Hospitality segment The industry performance is indicated by average occupancy and average room rate. The Indian hotel industry‘s performance across major tourist destinations is given in the following table:-

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Indian Hotel Industry Performance (Average Occupany in percentage)

Table 15: Average room occupancy of Indian hotels across various cities Source: IBEF

The table above shows the average occupancy rate for all the registered hotels. However, considering the occupancy rates for 5 star category rooms, the major Indian cities are Bangalore, Delhi and Mumbai.

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5.2 Value Chain
The value chain has three broad components in the hotel industry. First is ownership of hotels, second is management and the third s branding and franchising. In highly developed markets like the US, some players who operate only in one component of the value chain, whereas others operate across the value chain. Linkages between value chain segments vary internationally. In the luxury segment, the linkage between branding and management is very strong. Thus, luxury hotels don‘t distinguish between these components and insist on a strong management role along with the brand. From the Indian perspective, the companies are moving up the value chain from asset owning to branding and distribution. For example, Indian Hotels Company Limited as a part of its Asset Light Strategy is partnering with PIEM Hotels, Oriental Hotels and Taj GVK Hotels domestically. Internationally, the company partners with Taj Asia, which owns hotels in Sri Lanka and Maldives. The companies operating in the Indian hotel industry are also going in for co-branding exercises with international hotel chains in order increase their visibility and revenues. For example, EIH Limited that owns the Trident and Oberoi brands has entered into a co-branding pact with Hilton for its nine existing ―Trident‖ h otels at Agra, Kochi, Chennai, Bhubaneshwar, Jaipur, Udaipur and proposed hotels at Gurgaon and North Mumbai. With this, the existing Trident hotels in the above-mentioned cities will be re-branded as Trident Hilton.

5.3 Filling gaps in Price & Service Value Chain
The Indian hotel industry is trying to diversify by filling the gaps in price (for instance service apartments, budget hotels). In the spa and wellness segment, a lot more refinement in service offering and awareness about spa therapies as a mode of relaxation and rejuvenation is required. The day spas expected to come up would fill the gap between the luxury resort spa and unhygienic and unscientific home massage.

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5.3.1

Service Apartments

The service apartments are fully furnished and well equipped apartments specifically designed for experts with short stays in the country to give them and their family the comforts and the privacy of home. The ITeS and software business boom have a catalytic effect on the growth of all hues of accommodation business along with serviced apartments. The services offered combine luxury and comfort:  Air-conditioned and furnished flat  Attach bath  Fully-equipped kitchen  Colour TV, fridge, washing machine, locker  Telephone connection, net connectivity  100% power back-up  24-hours security  Fire safety  Private parking Service Apartments - Market scenario The concept is relatively new in India, but considering the increasing disposable incomes, new job market dynamics and changing lifestyle, it won‘t take long before it becomes a common phenomenon. The prices of real estate have grown by about 40% in certain parts of the country and the growth is expected to continue in the coming years. However, the size of the extended stay industry is quite limited at present because service apartments have only been offered in a few cities of India. Indian cities can be compared to other major markets around Asia. Major cities like Los Angeles, Singapore, and Bangkok support 3,000-5,000 serviced flats. The secondary cities support several hundred apartments. The service apartment sector is quite unregulated, with no industry
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association, operating norms or standards. The rents for service apartments vary from INR 7,000 a month for a small studio apartment to over INR 0.1m a month for a plush three bedroom apartment. With demand strongly emerging, this may be the right time and opportunity to enter the extended stay segment in India, and fill in the void for quality branded accommodation in India. Currently, serviced apartments are coming up in cities like Gurgaon and Noida in the National Capital Region (NCR) due to availability of large land and active demand from multinationals. Along with Gurgaon and Noida, The Bangalore and Hyderabad cities have served as major markets for serviced apartments. 5.3.2 Resort spas / Hotel Spas

The hotels in India are concentrating on spa segment as a tool of de-risking towards new revenue sources in an effort to have greater stability. The spas are making a splash in hotels after being tested in leisure destinations as major corporates send their overworked executives to such centres so that they feel revitalized and cope with the stress of building profit centres and creating brands in a madly competitive market. While the hotel industry seems confident of its success, growing competition in the spa business may have the hotel companies getting stressed out. The players are waking up to this opportunity, and hotels and resorts in the South, especially in Kerala and some in UP, have been cashing in on the trend. The luxury hotel chains in India like the Taj, Oberoi, The Renaissance and the JWT Marriott are setting up spa centres that offer the latest world-class facilities. While specialized treatments at the different spas are aimed at retaining the guests in its leisure hotels, the spas in these hotels aim to tap the local crowds besides the hotel guests. For example, The Taj Group of Hotels is setting up 15 exclusive spas across its dominant hotels in over two years. Just like income from food and beverage is a major contributor to the total revenues, the revenues from the spa business are likely to be equally large over the next five years. The concepts like medical tourism and spas are still at a nascent stage in India. The capital expenditure involved is substantial and the players are yet to
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see them making money. With life becoming more and more unmanageable due to workplace stress, successes and failures, ups and downs, emotionally draining relationships and the sheer will to survive, luxury rejuvenation centres and spas seem to serve a definite purpose today. 5.3.3 Budget Hotels

Budget hotels in India witnessed tremendous growth due to strong domestic travel and positive economic and investment environment. Strong GDP growth and continued efforts towards infrastructure provided impetus to hotel industry, reflected in both occupancy rates and average rate. The booming economy of India inviting business traveler‘s everyday has resulted in shortage of room with room rates sharply rising, giving birth to new range of budget hotels in India. Definition The minimum expectation of any budget traveler is a clean and comfortable room (airconditioned) with a refrigerator, a 17-inch flat-screen television, tea and coffee makers at the bedside, in-house gym, cyber café, ATM machine, 24-hour automatic check-in kiosk and wi-fi facilities. This is the new definition that budget hotels have given to the hotel industry by satisfying the value for money concept. 5.3.4 Spa & Wellness Centers

As the industry is growing, new niches is the Spa & Wellness Industry are emerging e.g. for Medi Spa market is small now but it has promising future. Medi Spa and medical tourism would emerge as new niche areas in the next few years. In a few years, medical tourism will become a multibillion-dollar industry fueled by hundreds of millions of European and American patients streaming to such exotic locals as China, India, and Thailand in search of affordable quality health care. Medical tourism is growing rapidly, triggered by lower costs of air transport and the use of the Internet facilitating relations between patients and physicians (anywhere in the world). The need for solitude, space and peace to recharge has been instrumental in mushrooming of spas in the country. A spa offers relaxation and rejuvenation to its clients. They are
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designed to be sanctuaries for the inner self, to refresh and rejuvenate one‘s spirit as well as physical being. The luxuries at these spas include facials, baths, body therapies ranging from international procedures to Thai or Indian classics, customized packages to deal with specific problems, beauty advice and therapies and immaculately planned diets. Indian market for luxury spas is at nascent stage but is growing at a phenomenal speed.

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6 GROWTH DRIVERS AND CHALLENGES
6.1 Spa & Wellness Segment
6.1.1 Growth Drivers

The growth drivers for spa and wellness are shown in the figure below:

Spa and Wellness Industry Growth Drivers

Overseas Exposure Exposure to SE Asian, EU experiences leading to similar experience demand Increase in disposable income Service industry growth leading to increasing incomes Availability & Proximity Supply creates Demand - Indian consumers willing to try out these facilities

Growth Drivers

Education Awareness and education on ―health conscious‖ functional platform - most important reason

Affordability Services not just confined to superriches. Affordability factor instrument in increasing demand

Figure 23: Growth drivers for Spa and wellness industry in India

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The other trends that are visible in the spa and wellness industry, according to industry players are: Consumers want results. Whether they are looking for stress reduction, relief from chronic pain or want to look younger, people continue to embrace the spa lifestyle because they are aware of, and expect to see, the benefits that spa treatments bring.  Spa visits are seen as necessary and an entitlement. This is particularly true among baby boomers. They feel entitled to spa experiences rather than viewing them as a treat or only reserved for special occasions.  The evolution of men as spa-goers is boosting demand for products and services designed with men in mind.  Spa-goers want experiences that are customized to their personal needs and desires.  Real estate developers are adding residential spas to the gated communities and high-end condominiums they are building.  The medical industry in general and the plastic surgery sector in particular, are beginning to incorporate spa treatments such as naturotherapy and acupuncture into their service structure.  ‗Team‘ or synchronized treatments that use two or more therapists are seen as being on the rise.  Spa-going moms desire products and experiences designed for them and their babies.‖ There is huge opportunity for new Spas as there is very less penetration of these rejuvenation therapies. As more people are becoming aware of such therapies, the number of people availing Spa services is increasing every day. More Indians are availing
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spa experiences as overseas travel is increasing due to increasing business opportunities. It is resulting in these people looking for similar experience back home. Many International Spa operators are incorporating Ayurvedic treatments in the Spas they are operating, creating greater scope for the Therapists & the Practitioners.

6.1.2

Challenges

There is a huge scope of association between India and Thailand. The spa and wellness industry in Thailand is around 5 – 7 years ahead of India‘s spa and wellness industry. The huge scope between two countries is offset by the import duty structure for spa products and equipments. ―Higher excise duties have been the impediment in importing spa oils and equipments from Thailand. Spa products are treated as cosmetics, command 35% excise duties. Similarly Spa tables are furniture, command 32% excise due. The landing cost of product worth INR 500/Kg purchased in Bankok is INR 1200 - 1400/Kg in India‖ - Delhi based major Spa products and equipments importer from Thailand

The main problems spa and wellness industry is facing are:  Lack of Standards – there are no organizations currently  Lack of Accredited Training Institutes  Lack of Accredited Spa‘s  Lack of Uniformity in Traditional Treatments - Every Spa one visits in India do the Traditional Treatments differently, simple therapy like Ayurvedic Massage is done in different manner in different places, for example, Shirodhara is done at any time of the day, where as it is strictly contra indicated in the afternoons.

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 No Association to Address Issues & Grievances of the Industry.  Lack of Government support in promotion of industry except in few cases  Lack of Awareness in all strata‘s of the society  Shady places working under the name of Massage joints giving a bad name to the profession & Industry.  People not choosing the Spa Industry as a profession as they would choose any other off course due to the bad name acquired by the Industry due to wrong doings by few.  Non-sharing, discreet & Orthodox attitude of some Ayurvedic Practitioners not wanting Ayurveda to be used in Spa Industry.  Many Practitioners looking at Ayurveda as a Therapeutic Modality rather than Lifestyle Management Modality.  Non Standardized products  Spa word being misused for any thing & every thing from a changing Room with just a Showers, Steam & a Whirlpool / Plunge pool in a Gym to a small salon with a Massage Facility in a small cramped room

6.2 Hotel Segment
6.2.1 Growth Drivers

The hotel industry has profited from the fast growing economy of India. This has been possible owing to the ever increasing tourist arrivals (domestic and foreign). The compounded growth in tourist inflow over the past ten years (FY1996–FY2005) has been 8.2%, while in the past five years, growth stands at 9.1% per annum.  Major growth drivers for the hotel industry include:
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 General economic and business conditions in India and other countries;  Geo-political stability within India and in other countries;  Changes in laws and regulations that apply to hotel, tourism and hospitality industry; Discovering/expanding new/niche markets; and  Effectiveness of distribution channels. 6.2.2 General economic and business conditions in India and other countries

The general security, economic and business conditions have a significant impact on the number of tourists visiting the country/traveling within the country for business purposes. The vulnerability of hospitality industry to general security conditions was recently exposed during the Mumbai terror attacks (26/11 attacks). All the major conferences, delegates and group visits scheduled to happen in the coming 2 months are now cancelled leading the hospitality industry into a temporary jittery situation. The foreign business tourists‘ inflow to India depends on the state of civil aviation industry. The open skies policy has spurred demand by increasing the number of

commercial flights coming into and out of India. The entry of low-cost airlines has provided a fillip to tourism. 6.2.3 Discovering New Niches: Case Study – Medical Tourism

Medical Tourism India or Health Tourism India is a new concept in which people from across the world are visiting India for their medical and relaxation needs. Most common treatments include heart surgery, knee transplant, cosmetic surgery and dental care. India is a favourable destination since it is at par with the developed countries in terms of infrastructure and technology. India has some of the best hospitals and treatment centres in the world with the latest facilities. Moreover, India enjoys the advantage of a skilled and international standard medical workforce fluent in English. All medical procedures including hospitalisation and recovery costs in India are much less as compared to that in the USA and Europe. Indian hospitals adhere to global quality standards for treatment and surgery.
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Treatment: Cost benefits A dental implant will cost at least 75% less in India as compared to that in the USA. An MRI will cost about USD60 in India as compared to USD700 in the USA. An open-heart surgery that costs USD18,000 in the USA will cost just USD4,500 in India. The cranofacial surgery or a hip replacement costs about USD4,300 in an Indian hospital, while it may cost more than USD13,000 in America. The treatment cost for various surgeries is economical in India when compared with Thailand. The table below indicates the cost comparison between Thailand and India:Surgery Bone marrow transplant Liver transplant Open heart surgery (CABG) Hip transplant Knee surgery Hysterectomy Gall bladder removal Thailand
62,500 75,000 14,250 6,900 7,000 2,012 1,755

India
30,000 40,000 4,400 4,500 4,500 511 555

Table 16 : Cost comparison with Thailand (USD) Source: IBE;, E&Y

The graph below shows medical expenses for the same surgeries in the western countries far exceed the Indian medical expenses:-

Figure 24: Medical cost comparison of India with US and UK

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6.2.4

Challenges

The hotel industry globally is engulfed with largely the same issues that local hotel industry and hospitality industry is facing.

Challenges faced by Indian Hospitality Segment

The structure of ownership / management results in under-investment Performance is heavily dependent on uncontrollable, macroeconomic factors
· Demand is highly correlated · Hotel ownership, management and

by internal environment, GDP & consumer confidence · Supply is rigid, driven by real interest rates, past demand and GDP forecasts · Profitability forecasting models are very unreliable

brand may belong to different parties resulting in complex relationships · Management companies must offer capabilities for 100% of managed Hotels, but only control small fraction of revenue resulting in under-investment
·

Under-investment in poor technical infrastructure and CRM capabilities
· Less attention to using technology in

hospitality sector is limiting growth
· Despite access to the customer, chains

have limited marketing and CRM capability · Few chains have a guest database, a fraction have it integrated with an executive information system. A fraction have significantly automated the loyalty program Fragmented industry supply chain and inefficient ecommerce utilization
·

Changing labour conditions and shortage of qualified labour

Hospitality Segment

· Increase in employee wages in

the last decade has increased the operating costs · With the service industry growing faster, shortage of employees with specific skill sets · Average number of people servicing an Indian hotel room is 2:1 compared to 0.5:1 overseas

Land cost, consumer proximity constraints and accurate positioning

Growing customer expectations

· Limited space availability near

· Consumer expectations increasing

airports, city centers, office clusters leading to high demand of property · Positioning of the hotel according to the target guest segment e.g. hotel positioned to business visitors have distinct facilities compared with leisure travelers

with India emerging as destination on global travel map. · True differentiation, unique and customized experience leads to loyalty and repeat purchase

3 levels of purchasing ( e.g. corporate, regional, property) with little visibility and control over 10,000 skus · In general chains have inadequate eCommerce strategies and their capabilities fall far behind other industries · Little attempt to target groups and tours

Figure 25: Challenges faced by Indian hotel industry

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7 CRITICAL SUCCESS FACTORS
7.1 Spa and Wellness Industry
The spa and wellness industry being ―niche‖ in nature, subtle aspects of services may matter when it comes to providing unmatched experience to the customers. The differentiating experience results in ―Word of Mouth‖ advertising of the brand, especially for luxury products like Thai massages. The figure below outlines factors that would play critical role in the success of ―Thai‖ spa and wellness experience. It is based on the synthesis of the information collected from primary interviews with the owners of nonayurvedic aroma spa and ayurvedic treatment centers across major cities.

Type of oil used – % of therapeutic content impacts repeat purchase and WoM advertising

Critical Success Factors

e f t o clos in Po ce – et en rg rs es to ta me o pr st cu

Courteous & attire of staff – theme specific (“Thai” experience)

Figure 26: Critical Success Factors for spa and wellness industry in India

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s H cu tain yg rta fre ien in e d e s, – w res al se ls s et , c

d d ed – in ts ” r ra is ce c Tr ap nc a a er rie he r o he r or Th xpe cto c c Ex f Ex f “E fa

Ambience – Lightening, color /shades, furniture – theme specific (Differentiator)

ar Olfa om c a tor se tou y – ns ch es ing

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7.2 Hotel Industry
According to the opinion of the industry experts, hospitality service providers need to follow these critical success factors in order to survive and grow:

7.2.1

Site & Location

This can be considered the most critical factor in determining the success of a hotel property. In addition to identifying a city, the site location within the city also assumes significance and issues like distance from the Central Business District (for metro hotels) and connectivity (access to roads, proximity to airports) assume vast importance.

7.2.2

Positioning & Guest Profile

Equally important is the positioning of the hotel according to the target guest segment. For example, business hotels set up to cater to the high-yielding corporate clientele in metro cities would have a distinct competitive advantage over facilities targeted towards leisure travellers in the same city.

7.2.3

Financial Strength

Development of hotels is a highly capital intensive activity and new hotel properties, typically, have a high break-even point. Moreover, existing players in any location enjoy an early mover advantage over newer properties and are able to adjust their tariffs in the wake of increasing competition in order to maintain occupancies. Thus, newer properties tend to command relatively low occupancies in their early years of operation. Hence, it is imperative for a hotel company to have sufficient financial muscle to sustain such losses during the early years of operation.

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7.2.4

Brand Recognition

A well-established brand name assumes great significance, especially when a hotel is targeting high-yielding business or foreign clientele. Some of the companies in the Indian hotel industry are planning to enter key gateway cities like Shanghai, London, New York etc in order to increase their visibility globally.

7.2.5

Yield Management

This is a very important tool used in industries dealing with perishable assets and hotel industry is one among them. Yield management is used in maximizing profits from the sale of perishable assets, such as hotel rooms, by controlling prices, inventory and improving services. Yield management in hotel industry is a combination of information, historical and current with policy supports, procedural support and statistical models to enhance a hotel's ability to carry out a number of common business practices and thereby increase both its revenues and its customer service capabilities. Thus, companies operating in this industry need to have proper yield management practices to enhance their revenues and profitability.

7.2.6

Differential Pricing

Hotels in India typically offer discounts on published room tariffs to many clients. As a result, though the occupancy rate of these hotels increases, the ARR does not increase proportionally. However, the magnitude of discounts varies depending on the nature of the client location and size of the hotel. Furthermore, in the dual tariff rate system, there is a domestic currency rate for local travelers and a dollar rate applying to foreign travelers. Hence, there is need for a common yardstick for tariff rates.

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8 MARKET

ATTRACTIVENESS

AND

POSSIBLE

COLLABORATION
8.1 Spa and Wellness Industry
8.1.1 Market attractiveness for various spa segments

―Demand exists in all the segments. However, I can see a clear shift among resorts and business hotels to have Spa in their property. Similarly, because of increasing awareness, more disposable income, the day spas would have better penetration in next 3 – 5 years‖ - One of the renowned Spa Consultant based in Delhi

Based on various interviews, certain segments could be classified as more attractive than the other as far as Thai investors in the spa segment is concerned. The spa industry as a whole requires the training infrastructure so that experienced professionals could be provided to the spas in all the segments. The trained manpower is required to popularize the concept. The repeat customer base that is critical to the success of day spas, is possible if the customers see the tangible benefits and feel the experience of aroma therapies and other global therapies on themselves.

―The trained manpower is critical to providing the experience. There isn‘t any reputed organized global spa therapies training institute present in India. Individual spas are forging tie-ups with foreign players.‖ -One of the renowned Spa Consultant based in Pune

The Indian market is very lucrative for Thai spa investors who want to enter India by opening the global therapies institute and certification courses are they exist in Bankok. Opening the training institute would establish their linkages with all the spa segments and
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would ensure that their expertise reaches target audiences through word of mouth. The second most attractive option after establishing Spa training academy would be contacting various upcoming resorts / hotels and the ones in the expansion mode. The opportunity exists in managing the spa businesses of these resorts. ―Many times resorts want to focus on their key business and outsource the spa management activities. Our spa consultancy company is managing spa in 2 – 3 star category resorts. The staff working there are in our payrolls.‖ -One of the renowned Spa Consultant based in Pune

Thirdly, the opportunity also exists in day spa chains that have expansion plans as most of these chains are started with small to medium entrepreneurs having regional presence.

8.1.2

Possibility of collaboration across various spa segments

Though possibility of collaboration exists across all the segments of spa offerings and training the manpower, it is suggested the Thai investors should open the academy for training global aroma therapies all alone as it requires less investment and more technical skills. Secondly, collaboration can be formed with the Indian spa consultants who are into designing the spas, providing training based on Indian therapies such as Panchkarma etc. ―Indian spa consultants would be willing to gain from Thailand‘s expertise in spa therapies….. we already have tie up with Oriental Spa academy for certification courses in the Spa training school we have come up in Jaipur.‖ -One of the renowned Spa Consultant based in Pune

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8.2 Specialty Restaurants across Business and 3 to 4 star hotel categories
8.2.1 Market attractiveness for various specialty Thai cuisine restaurant

There has been an increasing awareness about Thai cuisine among Indian consumers. As per the hotel industry, it will take some time before Thai specialty restaurant could gain popularity in the 3 - 4 star and business hotel categories. ―Minimum customer base is essential for profitability of specialty restaurant. Indians have cultivated the taste of ―indigenous Chinese‖ cuisine because of the push from FMCG companies in the last 20 years. It will take sometime before any mid segment (3 – 4 star and business class) property would come up with specialty Thai restaurant, on the lines of Chinese restaurant.‖ - Marketing head of one of the Delhi based hotel chain

It came out quite clearly that business model for any possible collaboration for Thai specialty restaurants with 3 and 4 star restaurants would not be a feasible as Thai food is considered as ―niche‖ category with few taker as far as 3 and 4 star hotels are concerned. Secondly, there has been sudden blip in the business because of terrorism and global meltdown issues. The hoteliers are planning to ensure the sustainability of their profits by providing value added offerings such as Spas that can be targeted to larger set of target audiences. ―I don‘t think the hotel industry is prepared to open Thai specialty restaurant as of now. Though there is an increasing awareness about Thai cuisine, it hasn‘t reached the critical mass where specialty restaurant can work profitably in 3 and 4 star hotels.‖ - One of the Executive Directors of Mumbai based hotel chain

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9 CONSUMER INSIGHTS – SPA AND HOTEL INDUSTRY
9.1 Spa and Wellness Industry
9.1.1 Profile of potential customers

―The consumer for these (Global) spa therapies would be people who are concerned about their health and are doing nothing about it. These guys would be from 25 – 45 year of age profile, earning more than INR 5 Lacs per annum.‖ - Managing Director of budding Aroma and Thai Spa Chain

The customer availing spa service can be described with the following common set of characteristics: They would be eating out quite often, i.e. more than 2 – 3 times a week  They would be going to malls and multiplexes a lot  Their age would typically between 25 – 40 years  Most of these guys would be first time spa goers Based on the interviews across various segments in the spa and wellness industry, patterns could be identified with respect to typical location and target customers for various Spa and Wellness therapies. The same has been summarized in the table below:-

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Spa and Wellness Segments

Typical Location
Top 10 – 12 cities. Next to customers preferred, could do well even if located at market locations. Positioned towards alternate stream of medicine where massage therapies play a part role

Target Customers
Both Male and Females, proportion of male little higher (55-60%); Age profile: 30 to 60 years age; 60+ age Mostly elderly profile but with awareness young crowd is also interested Both Business and Service class Acceptable to both Male and Female, female little higher (60%); Age Profile: Below 25 - 40 years availing these facilities more Service class working in MNCs esp. in service industry (relatively stressful environment); Business class – largely females; Housewives Young professionals working in MNCs, Traveling abroad, Educated People. Both male and female Age Profile: Below 40 years availing these services more Largely female, Relative young population Age: 16 – 30 years availing these services more Elite business / service class background,

Ayurveda based treatment centers

Preferably up-market localities across major metros.

Non-ayurveda find acceptance in the malls aroma spa centers and city centers.

However, day spa may also

Similar to aroma spa centers.

Thai spa customers (Sawadee, Bangalore Customers)

Close to elite profile / newly come-up posh localities with educated elite young customers Largely ―aware‖ class people. In city centers; may do well at city centers, shopping malls etc; Focus on very young profile customers

Saloon Spa

Table 17: Profile of Potential Spa customers

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9.1.2

Taste and preference across regions

―As one goes from South towards North, the awareness of ayurveda treatment reduces that makes the North and West Indian markets attractive for aroma and Thai therapies.‖ - Franchise of the budding Spa chain in Delhi

In South India, Ayurveda based massages have biggest market. In Western region (Mumbai and Pune), ayurveda based therapies have better presence than they are in Delhi NCR. The reason can be attributed to organized efforts put for awareness in the North and West Indian markets. As per our estimates the biggest potential for Thai Spa therapies exists in Delhi closely followed by Mumbai. The other high potential markets are Bangalore, Pune and Hyderabad. The third level of attractive markets for Thai concept based spa therapies would be Chennai and Ahmedabad. In general there is less scope of Thai Spa or any Spa business in Kolkata and eastern region in general. In smaller cities, the salon spas or beauty parlour extensions end up catering spa requirements. These tier 2 markets would be considered after successfully tying up in top 6 – 8 bigger cities.

9.1.3

Need – gaps in current service offerings

The following need-gaps were observed across the spa treatment service offerings in the Indian market: Limited supply of well trained therapist with proper communication skills ―Industry is in shortage of well-trained therapist. The customers want real spa experience. Secondly, they (therapist) should have sound English and Hindi communication skills.‖ - Franchise of the budding Spa chain in Delhi

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 There is no spa chain providing aroma and other therapies across major cities. The consumers expect the credibility of the spa outlet that is very much fulfilled by the spa chain offering standard experience across all its outlets.  There is a lack of awareness about the health benefits from Spa therapies. The customer needs to be educated about these therapies. Hence, there is a need to focus marketing activities on education platform.

9.1.4

Brand image of Thai brands in Spa

Thai Spa and Wellness experience carry positive experience among the spa owners and spa consultant who are aware of Thai and other global therapies. All have rated Thai spa industry much higher than it is in India today. The main reasons for positive brand image of Thai spa industry against Indian spa are as under: There is clear demarcation between spa and wellness industry and entertainment industry in Thailand where as in India, massages therapy carry bad name among middle and upper middle profile customers.  Thai spa industry has well documented spa standards that are lacking in Indian ―Out of 10 marks, if would give Thai Spa Industry 9 marks, I would give Indian Spa Industry 6 marks.‖ - Leading Pune based Spa Consultant

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9.2 Specialty Cuisine Restaurant
9.2.1 Consumer Taste and Preferences

The elite class segment aware of the health and nutritional benefits of Thai cuisine has cultivated the taste for Thai cuisine. The number of travelers preferring Thai cuisine is very less. These customers are willing to pay average INR 2000 or more per person per meal. That‘s the reason that some Thai specialty restaurants are present in 5 star and luxury resorts. These travelers are relatively non-existent in the mid segment hotels. It can be safely assumed that Thai cuisine needs to take the same route as Chinese cuisine has taken. The Chinese cuisine became popular because of the marketing efforts and successful product launches of ―Chinese noodles‖ and later on soups by FMCG companies in India. The case study below explains the introduction of ―Maggi Noodles‖ by Nestle India Limited. 9.2.2 Case Study: Creating New Food Category: Starting an era of Chinese cuisines Nestle India Limited (NIL) introduced the Maggi brand to Indian consumers when it launched Maggi 2 Minute Noodles, an instant food product, in 1982. At that time, Indian consumers were rather conservative in their food habits, preferring to eat traditional Indian dishes rather than canned or packaged food. In fact, NIL was trying to create an entirely new food category, instant noodles, in India. Initially, the company targeted working women on the premise that Maggi noodles were fast to cook and hence offered convenience. However, this approach failed as was evident from the fact that the sales of Maggi noodles were not picking up despite heavy media advertising. To get to the root of the problem, NIL conducted a research, which revealed that it was children who liked the taste of Maggi noodles and who were the largest consumers of the product. After this, NIL shifted its focus from working women and targeted children and their mothers through its marketing. NIL's promotions positioned the noodles as a 'convenience
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product', for mothers and as a 'fun' product for children. The noodles' tagline, 'Fast to Cook Good to Eat' was also in keeping with this positioning.

NIL aggressively promoted Maggi noodles through several schemes like distributing free samples, giving gifts on the return of empty packs, etc. NIL's advertising too played a great role in communicating the benefits of the product to target consumers. Through its ads, NIL positioned Maggi as a 'fun' food for kids which mothers could prepare easily. Taglines like 'Mummy, bhookh lagi hai' (Mom, I'm hungry), 'Bas 2Minute,' (Only 2 minutes) and 'Fast to Cook Good to Eat' effectively communicated the product's benefits to target consumers. Advertisement Strategy - Nestle started to advertise Maggi 2-minute Noodles during the ‗Hum Log‘ broadcasts on Doordarshan. In 1984-85 ‗Hum Log‘ reached 60 million TV viewers. Nestle‘s plan paid off and soon enough the volume of demand for Maggi Noodles increased from none in 1982 to 1,600 tons in 1983. It would go on to become 15,000 tons in 1998. These ads had become so popular that the tagline 'Bas 2-Minute' immediately reminded Indian consumers of Maggi noodles even several years after the ads were taken off the TV. Maggi's first product extension was Maggi instant soups launched in 1988. With the launch of Maggi soups, NIL had become a pioneer in the organized packaged soup market in India... During the 1990s, the sales of Maggi noodles declined, and this was attributed partly to the growing popularity of Top Ramen , another instant noodles product. In order to improve sales and attract more consumers, NIL changed the formulation of Maggi
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noodles in 1997. However, this proved to be a mistake, as consumers did not like the taste of the new noodles. In March 1999, NIL reintroduced the old formulation of the noodles, after which the sales revived. Over the years, NIL also introduced several other products like soups and cooking aids under the Maggi brand. However, these products were not as successful as the instant noodles. In the early 2000s, Maggi was the leader in the branded instant noodles segment, and the company faced little serious competition in this segment. In the early 2000s, NIL started introducing new 'healthy' products in accordance with the Nestlé Group's global strategy to transform itself into a health and wellness company. In July 2001, Maggi replaced Nescafé (NIL's coffee products brand) as the company's core brand. Nescafé had been NIL's core brand since 1998. Commenting on the shift, Carlo Donati (Donati), chairman and managing director, NIL, said, "The focused approach on Nescafé, which was the company's flagship brand over the last few years, has yielded rich dividends and we plan to replicate the same in case of Maggi as well." According to Donati, the new focus for the Maggi brand was to provide 'the much needed impetus' for the culinary segment as it had been lagging behind some of NIL's other product segments like milk and milk products and coffee products. In the early 2000s, the Nestlé Group had been taking measures to transform itself into a 'health and wellness' company. The company had also set up new research and development facilities with a view to improving the attributes of the existing Nestlé products to make them healthier, and to develop new health and wellness products. Since the early 2000s, the Nestlé Group had been introducing 'health and wellness' products all over the world. In India, NIL introduced new 'healthier' weaning and milk products in 2004. In March 2005, the Maggi brand too took to the health route with the launch of Vegetable Atta Noodles. NIL made use of the group's extensive research and development facilities in developing this new 'healthy' product. According to NIL, Vegetable Atta Noodles were healthier as they were made of whole wheat flour instead of maida (refined wheat) and also because they contained real vegetables. The Dal Atta Noodles were another variant
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of Maggi's healthy instant noodles proved to be a mistake, as consumers did not like the taste of the new noodles. According to the FICCI (Federation of Indian Chambers and Commerce Industry) 'Food and Beverage Survey' published in February 2006, health foods, health food supplements, convenience foods and branded foods were the 'rapidly rising' segments of the food and beverage industry. The survey also revealed that the market for branded food products was growing at a healthy rate of around 15 percent in the early 2000s. The changing lifestyles and eating habits of Indian consumers and the increasing purchasing power of the growing middle income group were thought to be the reasons behind this growth. Even though the demand for convenience food was increasing in India in the early 2000s, analysts said that most of the Indian consumers were still conservative in their food habits, and gave importance to the perceived health benefits of traditional food. Therefore, it remained to be seen whether products like Maggi Atta Noodles, despite their 'health' focus, would prevail in the long run.

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10 CONCLUSION AND RECOMMENDATIONS
10.1 Market attractiveness and opportunity matrix in Spa and Wellness business in India
Based on the analysis of investment requirements across various spa segments, the core competence of Thai investors in the spa and wellness segments, we suggest that Thai investors like Orient Spa and MSpa International should start building credibility by entering into Global and Thai Spa training institute. They would have immediate customers from Resort / Hotel spas and day spa chains. After building rapport with Hotel and Spa chains in India, they can expose them with the idea of Spa centers positioned at Business and Leisure travelers, as the case may be. We expect that in order to forge partnership in the day spa chain, more investment would be required to operate 2 – 3 company owned spa chains at higher rental places i.e. city centers across Delhi and Mumbai. We, therefore, suggest entering in day spa business after fully understanding the market dynamics in the real estate and day spa business.

Low Level of Attractiveness

High

High

Suitability to Thai Investors

Training Academy Management control Spas in hotel / resorts

Destination Spas

Day Spas

Low

Figure 27: Market Attractiveness and opportunity matrix – Spa and wellness segment

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10.2 Entry Strategy in Spa and wellness business
Across the spa segments where entry of Thai Spa investors is recommended, the positioning of Thai Spa should be based on ―functional benefits‖ rather than just ―pampering, relaxation and rejuvenation‖ plank. Sl. No. Spa Segments Recommendation for immediate entry How to Enter? / Reasons supporting recommendation Option 1: 1 – 2 centers company owned and company managed in Delhi and Mumbai. After that franchise mode. Option 2: Technical tie-up with the existing chains willing to expand. The tie-up may / may not involve capital investment. For technical tie up, a register a company in India as ―Spa Consultant‖ - Seen as close to Ayurveda - Requires technical expertise and relatively larger capital investment - Not much data on acceptance of Thai Medi Spas in India Option 1: Enter as Spa Consultant for Designing Spa on Thai concept - Register company in India as Spa Consultant, Spa products and services provider. - Contact the new hotels and the ones in expansion mode with previous expertise. - Entry would provide platform to train therapists of day spa chains - Also, help in entering day spa segment after demonstrating expertise Option 2: Enter as Spa expert controlling Hotel Spas - Possible after entering as Spa Consultant since hotels want to focus on their primary activity. They don‘t
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Day Spas

- Go ahead

2.

Medi Spa

- Do not enter

For Resort / Hotel Spas 3. - Go ahead

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have expertise, they would be willing to form alliance where in the management control, décor‘, trained staff is from Thai Spa Consultant
- High level understanding of leisure

4.

Destination Spas

- Do not enter (as of now)

5.

Thai Spa Training Institute

- Go ahead

market - Requires huge capital investment even after tie-up with Indian entrepreneurs - Form equity partnership with Spa consultants for opening Spa training academy as less capital investment is required. - Open the company in India and register it as Thai Spa trainer with Ministry of Tourism, India - Help in getting business from all Spa segments as business in exploding with less skilled therapists

Table 18: Recommendation for entry in various spa segments

We propose that the Thai investors from Spa industry should enter in India as spa consultants. They can start training academy for training therapist in Thai and aroma treatments. Their presence would also provide a base for importing Spa furniture and other products from Thailand. Within 1 year of their entry, while they have established themselves as ―Spa Management Gurus‖, major hotels would be will to provide them management control for running the spa based on Thai and aroma therapies in their resort and hotels. In the 1 – 2 years time when they have understood the dynamics of Indian spa industry, they can plan to launch 1- 2 company owned day spas in Delhi and Mumbai and can offer the franchises across other cities on revenue sharing basis.

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Immediate Entry Spa Consultant and Training Academy Horizon – Within 1 year ―Resort / Hotel Spa‖ Management Control

Horizon – 1– 2 Years ―Day Spa‖ Chain

Figure 28: Entry across various spa segments across time horizon

The figure above pictorially shows the entry for Thai investors from spa and wellness industry across various spa segments over the period of time.

*****

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11 Annexure
Spa menu for newly opened Thai Spa with 2 centers in the Bangalore city

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Brochure showing positioning of Ayurveda based Spa chain in Bangalore

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12 List of Tables
Table 1: Turnover of India‘s Travel and Tourism Industry till 2008 ............................... 15 Table 2 : FDI flows (USDm): India 2002-2005................................................................ 17 Table 3: Recommendation for entry in various spa segments .......................................... 20 Table 4 : Rank of Top 10 hotels globally in 2006 ............................................................ 28 Table 5: Top 20 brands with number of hotels and rooms globally ................................. 29 Table 6 : Top five hotel companies in India .................................................................... 30 Table 7 : World Travel & Tourism spending (USDbn): 2001-06 ................................... 30 Table 8: World Travel & Tourism Spending (USDbn) Vs Global GDP: 2001-06 ......... 31 Table 9 : Performance of global hotel markets – 2006 versus 2005 ................................. 31 Table 10: Major Players in Spa chains and training therapists ......................................... 41 Table 11: Major Resort and Hotel Spas in India............................................................... 42 Table 12: Turnover of India‘s Travel and Tourism Industry till 2008 ............................. 49 Table 13: Turnover of major players in Indian hotel industry .......................................... 50 Table 14 : FDI flows (USDm): India 2002-2005.............................................................. 53 Table 15: Average room occupancy of Indian hotels across various cities ...................... 62 Table 16 : Cost comparison with Thailand (USD) ........................................................... 73 Table 17: Profile of Potential Spa customers .................................................................... 82 Table 18: Recommendation for entry in various spa segments ........................................ 91

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13 List of Figures
Figure 1: Segmentation of Massage and Spa therapy market ............................................. 9 Figure 2: Market Analysis of Thai spa treatment offering in India .................................. 10 Figure 3: Growth drivers for Spa and wellness industry in India ..................................... 12 Figure 4: Critical Success Factors for spa and wellness industry in India........................ 13 Figure 5: Turnover of India‘s Travel and Tourism Industry till 2008 .............................. 15 Figure 6: Transition in the hotel industry in India ........................................................... 16 Figure 7: Revenue sharing models in the hotel industry................................................... 16 Figure 8: Market Attractiveness and opportunity matrix – Spa and wellness segment .... 19 Figure 9: Entry across various spa segments across time horizon .................................... 21 Figure 10: Segmentation of Spa and Wellness Market ..................................................... 22 Figure 11: Definition of various star categories ............................................................... 25 Figure 12: Hotel classification by target market ............................................................... 26 Figure 13: Overlap between Hotel and Spa Industry ........................................................ 32 Figure 14: Segmentation of Massage and Spa therapy market ......................................... 33 Figure 15: Market Analysis of Thai spa treatment offering in India ................................ 34 Figure 16: Distribution of Ayurveda based treatment in preventive and curative diseases ........................................................................................................................................... 36 Figure 17: Size of organized hospitality sector vis-à-vis growth in tourist arrivals ......... 44 Figure 18: Segmentation of overall tourism industry in India .......................................... 45 Figure 19: Distribution of hotel room across various categories in India......................... 46 Figure 20: Transition in the hotel industry in India ......................................................... 47 Figure 21: Revenue sharing models in the hotel industry................................................. 47 Figure 22: Turnover of India‘s Travel and Tourism Industry till 2008 ............................ 49 Figure 23: Growth drivers for Spa and wellness industry in India ................................... 68 Figure 24: Medical cost comparison of India with US and UK ....................................... 73 Figure 25: Challenges faced by Indian hotel industry ...................................................... 74 Figure 26: Critical Success Factors for spa and wellness industry in India...................... 75 Figure 27: Market Attractiveness and opportunity matrix – Spa and wellness segment .. 89 Figure 28: Entry across various spa segments across time horizon .................................. 92

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14 References
Primary Research – Expert Interviews The expert interviews were conducted with the following organizations. More than one interview per organization was conducted to gauge the holistic view of information collectibles. Spa Consultants Spa Consultants, Pune Spa Consultants, Delhi Spa Equipment Importers and Suppliers Radhey Mohan International, Delhi Steam and Sauna Paradise, Delhi Kranzler, Pune Spa Resorts Golden Palms Hotels and Spa, Bangaluru Angasana Resort & Spa, Bangaluru Day and Destination Spas VLCC Spa, Delhi Ayush Center, Delhi Lambency Chandan Sparsh, Delhi The Four Fountains, Pune Body Mind Soul, Mumbai

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Ayush Center, Bangaluru Sawadee – Thai Refexology Spa, Bangaluru Healthway, Bangaluru The 5th Element, Bangaluru Chisel India, Bangaluru Arya Vaidsala Agency, Bangaluru Ayurveda Gram, Bangaluru Hotel Groups Lemon Tree Hotels, Delhi Prestige Hotels, Mumbai

Secondary Research Sources / Databases

ISI Emerging Markets Datatbase: Compilation of news articles, news snippets and various secondary data reports Internet Search for validation of various data points

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