Prabhu Le Meridien Sec B

Assignment on Services Marketing Gaps Analysis onServices in Le Meridien

Submitted by Prabhu.k (08BS0001336) Sec B.

Submitted to Prof. Ashwini Sovani On 06-07-2009

Industry Overview: Past Scenario: The hotel industry in India was going through an interesting phase. One of the major reasons for the increase in demand for hotel rooms in the country was high growth in sectors like information technology, telecom, retail and real estate. New business opportunities were also attracting foreign investors and international corporate travelers to look for business opportunities in the country

Present Scenario: The Indian hotels sector was adversely affected by the global economic crisis and the terrorist attack in Mumbai on November 26, 2008. The sector has witnessed a crash in average room rents and occupancy rates. The players in the sector reported a fall in profits in the quarter ended March 2009, despite this quarter generally being the peak season for the hotel business. The foreign tourist arrivals and foreign exchange earnings fell on a y-o-y basis in the first four months of the current financial year. The former fell by 12 per cent to 18.32 lakhs (1.83 million), while the latter fell by 9 per cent to Rs 17,643 crore (Rs 176.43 billion) during the above period. But once the normalcy in business conditions resume, the foreign tourist arrivals can reach 10 million while domestic tourists (demand) will soar to 500 million in the medium term. As this materializes, there will be shortage of 150,000 rooms in India, considering the current capacity of 110,000 rooms. That means the demand is going to exceed the current supply by 100 per cent over next 3-4 years. For adding 150,000 rooms, the industry needs an investment of Rs 50,000 crore (Rs 500 billion) and the additional inventory would lead to a huge opportunity of employment.

Considering the huge employment potential, and also due to the need to scale up supplies to meet the demand, the hotel sector expects the following fiscal benefits/incentives to be bestowed in the ensuing Union Budget 2009-10.

Future Scenario: Five-star hotels in metro cities allot same room, more than once a day to different guests, receiving almost 24-hour rates from both guests against 6-8 hours usage. With demand-supply disparity, hotel rates in India are likely to rise by 25% annually and occupancy by 80%, over the next two years. This will affect the competitiveness of India as a cost-effective tourist destination. To overcome, this shortage Indian hotel industry is adding about 60,000 quality rooms, currently in different stages of planning and development, which should be ready by 2012. Hotel Industry in India is also set to get a fillip with Delhi hosting 2010 Commonwealth Games. Government has approved 300 hotel projects, nearly half of which are in the luxury range. The future scenario of Indian hotel industry looks extremely rosy. Moreover, the government’s decision to substantially upgrade 28 regional airports in smaller towns and privatization and expansion of Delhi and Mumbai airport will improve the business prospects of hotel industry in India. Substantial investment in tourism infrastructure is essential for Indian hotel industry to achieve its potential. It is expected that the luxury segment will witness growth and perform extremely well over the next few years .

Constraints for the Industry Growth: While the potential of hotel industry is great, there are several constraints for the industry to grow. High cost of land in the country often discourages an investor to put in money in

construction of new hotels. Construction of hotels is highly capital intensive and it is estimated that to construct a single five-star room it costs around Rs 1.25 crore. As a result there is no incentive to construct new hotel properties and there is a mismatch between demand and supply leading to higher occupancy rates and increasing prices. In fact, average rate of hotel rooms in five-stars has gone up from Rs 4,000 five years ago to Rs 16,000 now. Though this rate can be affordable for business travelers, it is very difficult for leisure travelers to pay such exorbitant rates Across the country there is no rationalization of taxes as states charge different rates. Secondly, multiplicity of taxes like value added tax and service tax further compound the problem. Tax holidays are available only to hotels at heritage sites and so this measure is restrictive for the growth of the hotel industry. In order to increase the stock of hotel rooms, the Federation of Hotel and Restaurant Associations of India suggested to the government that the floor area ration of the existing hotels should be increased. This was a couple of years before and will help create additional rooms in the existing properties and ease the burden of shortage of hotel rooms in the country. The proposal is yet to be implemented.

Industry expectations: Rationalize tax structure In order to remain competitive with other destinations in Asia like Malaysia, Indonesia, etc, which has a low level of taxation, hotels in India need to be subjected to a rational tax structure.

Infrastructure status for the hotel industry In the list of infrastructure projects, hotels may be included just like airports, seaports, and railways, etc. Infact under Section 10 (23) g of the Income Tax Act, hotels were added to the infrastructure list so that the interest received by financial institutions and banks for loans extended to hotels were tax

exempted. However, the section itself was discontinued with effective from April 1, 2007.

VAT/Sales tax and other taxes Vat/Sales tax on food & beverage are different for each state and it should be uniform over the country. It will help in many hotel projects coming up all over the country which leads to lowering hotel tariffs and generating employment.

Deemed export benefits Implementation of government granting “deemed export status” would enable hotels and restaurants to import the required inputs without paying any duty fee and assist guests to get the best from the world over.

Political View (In Maharashtra): “Delicensing is the need of the hour. I don’t believe in controlling. Mumbai requires more infrastructures to make it a world-class city and an international financial centre. We ought to have more (hotel) rooms in the city. We will keep the requirements of the industry in mind. We will meet hoteliers and representatives of the tourism industry soon to formulate policies for the growth of this sector. We need good infrastructure and hotels are a part of it. We talk about making Mumbai an international financial centre. BKC (Bandra Kurla Complex) and the international airport are all growing. Soon, we will have a new airport in Mumbai. There is a scope to improve this further”. Such a confident statement from Maharashtra Chief Minister Ashok Chavan was delivered during the inauguration of the Imperial Palace Hotel.

Le Meridien: Starwood Hotels & Resorts is a major international player in the luxury upscale hotel, resort and timeshare markets. It was founded in 1995 when Barry Sternlicht acquired the struggling Hotel Investors Trust, which was then valued at less than $10m (£5.3b). By 2005, he had built Starwood into a company worth

$15b. The group owns, leases or franchises more than 850 properties in 95 countries across eight brands. They are: 1. Sheraton Hotels and Resorts 2.Le Méridien Hotels and Resorts 3.Westin Hotels and Resorts 4.St Regis Hotels & Resorts 5.W Hotels (a boutique business brand) 6.Four Points by Sheraton (a mid-scale brand) 7.Aloft 8.The Luxury Collection.

Timeline of Le Meridien: •

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1972: Air France found Le Méridien in 1972 to provide accommodation for its customers. Its first hotel is the 1,000bedroom Le Méridien Etoile in Paris. Within two years, it has grown to 10 hotels in Europe and Africa. 1978: The group now has 21 hotels in Europe, Africa, the Caribbean, Canada, South America, the Middle East and Mauritius. 1991: The portfolio has grown to 58 hotels. September 1994: UK hospitality giant Forte buys the 85strong Le Méridien chain, which becomes its focus for international growth. 1996-2001: Granada Group buys Forte and subsequently merges with contract caterer Compass (in 2000) and then de-merges in February 2001, leaving Compass with the Forte hotel, restaurant and contract catering businesses. April 2000: The 125-strong Le Méridien group signs a strategic alliance with Nikko Hotels International, which is owned by Japan Airlines and has 22 properties. Within a year, Le Méridien records a 30% increase in business from Japan, its third revenue-generating market.

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May 2001: Nomura International’s Principal Finance Group buys Le Meridien from Compass for £1.9b following Marriott’s withdrawal from the auction after dropping its bid from £2.2b to £1.7b. Le Meridien merges with the 15 Principal Hotels acquired by Nomura in February 2001, adding 12 UK properties to its existing eight along with two hotels in Copenhagen and one in Amsterdam. June 2001: The Royal Bank of Scotland (RBoS) enters into a £1.25b sale-and-leaseback deal with Le Meridien in 2001. This involves 11 UK hotels, including London properties Grosvenor House and the Waldorf (for £440m) and the Cumberland. August 2001: Le Meridien extends its marketing alliance with Nikko to include another 22 hotels. September 2001: The group announces Art+Tech, its new design and technology upgrade for bedrooms. May 2002: The group announces plans to sell six former Principal hotels, which would leave it with 17 hotels in UK and Ireland. In April, it sells two properties to Quintessential Hotels for £40m and another to the Feathers Group for around £6m. It offloads another two hotels in July 2003 for £7.5m. January 2003: Le Meridien kick-starts a six-hotel sale-and leaseback drive to raise £1.25b with the sale of the Le Meridien Barcelona in Germany. In April, it sells the five-star Le Méridien Ritz in Barcelona. April 2003: The group’s key senior bank lenders (including RBoS and US investment bank Lehman Brothers) take control after poor trading leaves Le Meridien unable to keep up with its rent payments. The group, which made a loss of £225.8 in the year to June 2002, sees its value drop to £700m and its debt soar to £1b. July 2003: The group faces administration as rescue bids from Guy Hands (who masterminded the Nomura takeover)

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and Lehman Brothers come to nothing. RBoS takes control of its 11 hotels. By December, it has sold the leases to the Waldorf (to Hilton) and Grosvenor House and the Shelbourne in Dublin (to Marriott). In January 2004, Tony Troy (former Principal boss and managing director of the UK and Ireland for Le Meridien from July 2001 to January 2003) takes leases on four former Principal hotels in London, Manchester, Leeds and York. In October, the Cumberland reopens under Thistle’s management. November 2003: Takeover talks between Lehman Brothers (which has a £200m stake in Le Meridien) and Hyatt Financial Corporation collapse. January 2004: Lehman Brothers announces plans to assume Le Meridien’s outstanding debt of $1.3b (£725m) in partnership with Starwood Capital of the US. April 2005: Starwood Capital and Lehman Brothers make a £700m rescue offer for the struggling, 130-strong four-star Le Meridien chain. In a separate deal, Starwood Hotels and Resorts is to assume the Le Meridien brand, along its management and franchise business, and operate the hotels. Late November 2005: Starwood Hotels and Resorts completes the acquisition of the Le Meridien brand, management and franchise business for $225m (£130m) while a joint venture between Starwood Capital and Lehmann Brothers buys the 32 owned and leased Le Meridien hotels.

Le Meridien Group Of Hotels: Le Meridien Ahmedabad Le Meridien Bangalore Le Royal Meridien Chennai

Le Meridien Cochin Resort & Convention Center Le Meridien Jaipur Le Royal Meridien Mumbai Le Meridien New Delhi Le Meridien Pune

Company Profile: LE MERIDIEN - Pune, Maharashtra, India.

Products: Le Meridien Pune is located in the heart of the business district, five kilometers from the airport. The hotel provides state-of-the-art facilities and 176 superb, spacious bedrooms with a unique view of Pune. A Royal Club, swimming pool and health club, three restaurants and three bars makes it a perfect place for leisure.

Operating Data: Starwood has around 850 properties in more than 95 countries, of which the majority are managed or franchised. Le Méridien: 130 hotels The Le Méridien business acquired in November 2005 includes 43 hotels in Europe, 47 in Africa and the Middle East, 28 in Asia Pacific and India, and 12 in the Americas.

Meetings & Events: Seven conference halls can accommodate all types of conferences, meetings, seminars, workshops, and product launches. The largest room, The Majestic, is pillar less and therefore able to accommodate up to 1,000 people. In addition, we offer two, well-equipped business centers with the latest facilities.

Number of Guest Rooms :

177

Number of Meeting Spaces:

7

Identified Service Gaps In the Current Service Design and appropriate suggestions to eliminate them: Gap 1: Between Customer’s expectations & Service Company’s Understanding Of these expectations. 1. Does not have a great view from roof top. No pleasant

scenery. 2. Location – Near Railway station. Continuous disturbing and irritating noise.

Suggestions: This gap is definitely due to inadequate market research in attempting to know the customer’s preference of location. Since an establishment is done shifting the place could not be a feasible solution. So care should be taken that the rooms are sound proof and some artificial artistic views should be created from within.

Gap 2 : Between Service Company’s Understanding Of Customer’s expectations & Standards set by the Company. 1. Rooms had blankets instead of comforter – Giving old fashion style 2. No proper and convenient car parking facility. 3. Slow internet connections in some rooms.

Suggestions:

This gap has occurred since the company has not taken utmost care in setting the standards after understanding customers’ expectations. Ambience and decorum is very much expected in luxury hotels. So the hotel should stick on to using things which are more attractive and much preferred by the customers. Customer’s purpose of staying should be studied and accordingly rooms should be allotted to cater to his requirements. Parking responsibility could be taken by the hotel authorities.

Gap 3 : Between Standards set by the Company & the actual Delivery. 1. Some of lower level staffs had poor English speaking skills. 2. Very time consuming for Currency conversion and accepting credit cards. 3. Requires booking in very much advance in peak seasons.

Suggestions: This gap is due to lack of properly trained people, lack of proper awareness in their role of delivery and lack of supervision. This gap can be easily eliminated by time to time training conducting workshops and updating employees with latest technologies and proper communication with employees and among employees.

Gap 4: Between Communication.

actual

Delivery

&

External

1. Mediterranean food not available – Could not get Emmental Cheese Tartes. 2. Travel desk Overpriced – in comparison with other luxury hotels with same standards in the city.

3. At times the order gets delayed leaving the customer in frustration. 4. Rooms have DVD players but no movie channels.

Suggestions: This gap is mainly due to improper co-ordination between the marketing and the service departments. It should be ensured that there is no any false communication. Instantaneous Customization to certain extent should be made available. Incase of people who make advance bookings their preference could be considered and appropriate arrangements could be made (could be based on their geographical background or taste preferences).

Gap 5: The Overall Gap. 1. All the above mentioned gaps combine to form an impression in the minds of customer that Le Meridien is suitable only for Business purposes and that too when no other option is available in the city. 2. There are many chances for missing out casual visitors and others who come for vacation trips.

Suggestions: If all the above mentioned suggestions are considered, the satisfaction level among customers will be improved and could be welcoming for all people preferring stay in luxury hotels.