Marriott Plans India Hotel Expansion

INDIA – Marriott International (MAR 35.14, -.00, -0.01%) Inc. on Wednesday will announce a plan to introduce its Fairfield Inn brand in India, part of a broader move by midtier U.S. hotel brands to try to tap into the country’s growing middle class.

The hotel operator, based in Bethesda, Md., will form a joint venture with Samhi Hotels Pvt. Ltd., a hotel investment fund, to build a Fairfield by Marriott brand in India. Construction is expected to start around year-end.

Marriott also is doing something unusual for the hotel behemoth: investing its own money. The company typically lends its names and manages hotels but generally doesn’t own them.

The move comes as limited-service U.S. hotel brands are being lured to India by its burgeoning middle class and a deficit of big-brand hotels. Hilton Worldwide is working on sending its Hampton Inn brand to India, and Starwood Hotels & Resorts Worldwide (HOT 57.34, -0.05, -0.09%) Inc. has opened two Aloft hotels with a partner and has more in the works.

The hoteliers believe India is an ideal fit for modest brands, which typically guarantee a clean room and breakfast but not much more, when growth opportunities in the U.S. are slim.

“More and more cities are coming on the horizon and they need more economy hotels,” said Ashish Jakhanwala, managing director of Samhi Hotels, which is based in India. “You cannot ignore this country.”

U.S. hotel companies in India so far have focused on introducing high-tier brands, such as W which Starwood is planning and JW Marriott from Marriott. Such high-end rooms typically start at $200 a night, while Fairfield’s rooms are likely to run around $80 to just over $100.

The midtier push marks a renewed attempt to crack a market that as historically has proved difficult for some U.S. brands. Recently, though, several U.S. hotel companies have established a stronger presence in India with in-country development and operations teams. They are also managing the hotels themselves, instead of entrusting operations to an outside party under a franchise agreement, as they had in the past.

Marriott opened its first office in India in 2006. It also will take a more active role in managing the hotels than it usually would for Fairfield. “We are very careful,” said Navjit Ahluwalia, Marriott’s senior vice president of development for India.

Marriott initially will hold a 30% stake in the venture, which will decrease to 10% over time, Mr. Ahluwalia said. The venture is expected to operate around 15 midtier hotels in India by 2015.

Mr. Ahluwalia said that for the first time in its history, Marriott has redesigned a brand specifically for a foreign market. The new line follows a year-long research and design operation run by India-based employees.

The result includes a full restaurant, expansive lobby and meeting space, none of which exist in Fairfield hotels in the U.S. The chain also has created a palette based on saffron, turmeric and Indian embroidered textiles.

The brand’s first few hotels will be in fairly central locations in major cities such, as Chennai, Hyderabad and Bangalore.

Eventually Mr. Ahluwalia said, the franchise will expand into India’s tertiary cities, which are less expensive. At that point, Marriott will likely franchise the brand, as it does in the U.S.

For chains such as Fairfield, which in the U.S. are inexpensive and easy to build but don’t fetch high room rates, operating many hotels is is important to establishing brand recognition and making the venture worthwhile. That’s a challenge in India, where land is expensive and hotel construction takes much longer than in the U.S. because of permitting and other bureaucratic issues.

“The key challenge is getting the sites, getting the development and executing in time and getting this going,” Mr. Ahluwalia said.

The Samhi partnership should help on that score since the group has expertise in a variety of India markets and financial backing. Samhi was formed last year by Steve Rushmore, founder of hotel consulting group HVS; Ashish Jakhanwala, who has developed hotels in India for Accor India/InterGlobe Hotels, and Manav Thadani, who has studied India markets for HVS.

The group is raising around $150 million in a first round of financing from GTI Capital Group, an India-focused private-investment and advisory firm and expects to raise up to $250 million by 2012 or 2013, Mr. Jakhanwala said.

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