The recent Supreme Court (SC) order banning sale of alcohol within 500 metres of national or state highways is expected to severely impact the revenues of the hospitality sector in 12 major cities, according to a report by Crisil. Apart from hurting the food and beverages segment, the SC order will also impact room demand of premium hotels across the country. Revenues of premium hotels are likely to be impacted in the range of 25 per cent-30 per cent, the report said.
Impact across cities
Over 100 (or 27 per cent) of the 384 premium hotels assessed by Crisil in the National Capital Region (NCR), Mumbai, Kolkata, Chennai, Hyderabad, Goa, Pune, Agra, Jaipur, Ahmedabad, Bengaluru and Kerala would be compelled to stop liquor sales.
Pune is the worst-hit, as 71 per cent of hotels are along the highways that cross the city. These hotels are expected to see severe dip in demand in the near-term as customers would shift towards other hotels located away from highways.
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With most premium hotels in Kolkata located along the NH-12 near the airport, the ban impacts almost 69 per cent of hotels. Agra also witnesses a major impact, as 67 per cent of hotels are located along SH-62. The hotels on the outskirts of Chennai are mostly located along highways. As a result, 48 per cent premium hotels will be hurt by the SC order. In Jaipur, most premium hotels are situated inside the city. As a result, just 26 per cent of the city’s premium hotels will be affected.
The NCR market covers premium hotels in Delhi, Gurugram and Noida. Delhi constitutes 69 per cent of the premium segment rooms in the NCR region, followed by Gurugram (25 per cent) and Noida (6 per cent). The hotels lying on NH-8 have been majorly impacted due to the ban. Around 25 per cent premium hotels in NCR have been impacted by the March 31 judgment.
“In key locations like Cyber Hub, the footfalls have dropped 50-60 per cent. People will go where they get to drink as well. In our hotels, we have seen 15 cancellations. Our bookings have slowed down. We can bear it for 2-3 months, but beyond a point, we will have to find a solution,” said Arjun Sharma, chairman of Select Group.
Mumbai and Goa seem to have escaped the ban largely as no major state or national highway pass through the areas where most premium segment hotels are located.
Business hit across segments
Liquor sale alone accounts for 10-30 per cent share of the total food and beverage revenue. This forms about 5 per cent to 15 per cent of overall revenue. But the impact is expected to be higher, as it will also impact the revenue from the meetings, incentives, conferences and exhibitions (MICE) segment, and the room demand segment.
“The judgment is expected to lead to shift of MICE events and weddings from the hotels situated along highways to hotels that continue to serve liquor,” the report said. It added: “Demand for rooms is also expected to witness an impact especially in locations that have higher MICE demand and foreign travellers.”
All these factors together will have a major impact on revenue for hotels on highways and will also result in decline in profitability for the players, the report said.
The report further notes that hotels within cities will now pose a major competition to premium-segment hotels on the highway. “The competition will not only be restricted to premium segment hotels but will trickle down to the 4-star and 3-star category as well.”
As a result of the ban, the booking window period is also expected to shorten, thus building the pressure,” the report said.
The hospitality industry being a major employment generator, the apex court order will also hit jobs growth in the country. According to India Brand Equity Foundation, the travel and tourism sector in India is estimated to account for 9 per cent of the total employment opportunities generated in the country in 2016, providing employment to around 38.4 million people during the same year. The number is expected to rise 2 per cent a year to 46.42 million jobs by 2026.
“A million jobs are under threat. No questions about it. This figure is coming from all the bars and restaurants and hotels that won’t be able to serve alcohol in the foreseeable future. Beyond a point, a lot of these business plans will not be able to last for more than a month or two to carry stuff. Then they will soon start downsizing and reducing people from their system,” said Sharma, who is also co-chair, tourism committee, CII. “This is an industry which is growing. So, also, look at the potential job losses. If about 1 lakh people were going to join the industry over the next 2 months. They will not be hired as people will be downsizing their businesses,” he added.
Strategies to escape the impact
Many hotels have been trying to find out ways to escape the ban. Hotels and restaurants are trying various ways to increase the actual distance one would have to traverse to reach their premise. The methods involve changing entrances, adding hardscape/landscapes to increase the distance, etc. Many states are also in the process of de-notifying state highways to reduce the impact in cities.
“I think at the moment, everybody is trying to work their way around the order. SC has pushed the hearing on the de-notification of highways to beyond the recess to July. I think this gives a window for whatever the state governments need to do to fix the problem. We are all grappling in the dark. If it takes one or two weeks then obviously, there won’t be any sacking, but if it carries on further, then job losses are imminent,” Sharma said.
Industry experts are in the process of evaluating the losses and the possible legal course they will take in future. “We have sent a circular to our members who are affected by the ban to disclose and give us accurate figures. In about a week or 10 days we will have accurate figures. We will seek legal remedies, and we are working on it. We don’t want to be in a situation where we go with a half-baked proposal. It has to be well thought out, because it is such a huge issue and affects our industry completely,” said Amitabh Devendra, secretary, the Federation of Hotel and Restaurant Associations of India.
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