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  • Only happy employees can make customers king - An interview with Patu Keswani, CMD, Lemon Tree Hotels. (Posted on 5/06/2007)

You cannot have happy customers when you have unhappy employees, says Patu Keswani, CMD of the Gurgaon based Lemon Tree Hotels. His passion for the hotel industry drew Mr.Keswani, to set up Lemon Tree and Red Fox hotels in early 2002. In the first few years of operations, private equity giant Warburg Pincus has picked up a 27% stake in both the hotels.

You seem to sell Lemon Tree as a refreshingly different brand through shock-the-conservative management style. For instance, your site shows a couple of four-legged creatures on the management team?
It tells a lot about our culture. We genuinely believe in the fun element in our workplace. When a customer logs in he gets an immediate feel of Lemon Tree Hotels. The challenge is in ensuring that the culture does not decay. Our dogs do what we say they do.

Will Lemon Tree move away from its current upscale budget branding to set up five-star hotels?
Never. Today we have a clear advantage. The market may change after seven years and we may have to change tack accordingly. Currently, we are eating into five-star hotel sales. Around 75% of our guests are five-star users. We are offering a good product at a good price. Currently, we are price followers but soon we will be price drivers. There is an over supply of five-star hotels. The hotel business in India will grow. Budget and mid-priced hotels will expand the market and push five-star culture in hotels to the brink.

What role will acquisitions play in your overall strategy?
Our strategy is to stay in the mid-priced and economy hotels. After having set up new properties across the country, we will look at existing hotel properties in the domestic market. We have been approached by TFCI (Tourism Finance Corporation of India) to buy 12 hotel properties, which are not money-spinners. We will make acquisitions but not at top of the cycle because then the yields are low. We will buy hotels and design and operate them accordingly. I will not make any distress acquisitions. I do not believe in paying a premium for someone else's mistakes.

Hotel is all about consumers and management issues. You seem to tackle the issue well.
If I keep my employees happy and motivated, they will keep customers happy. It makes good business sense for me. I have seen that large organisations have pockets without soul and that occasionally affects people. We do not live to work. There has to be a clear work-life balance. I strongly believe that you cannot have happy customers if you have unhappy employees. We have high customer return ratios and our shareholders are happy. Around 30% of our customers are repeat customers, who are willing to pay a premium to stay in our hotels.

Has the wealth-sharing concept given adequate returns?
Absolutely, our attrition rates are the lowest. Employees gain from ESOPs and we are using this as a wealth creating opportunity and as a retention tool. Currently, 17 employees are millionaires due to ESOPs and this number is set to increase in the next few years. It is not only about wealth sharing but also about tapping different pools of talent. We plan to empower the disposed and disabled.

Is hospitality in India and the developed markets comparable in branding and service?
As markets, India and he US are completely different. There is a heavy demand for service in India. The three-star hotels in the US give half the service of five-star hotels, but three-star hotels in India give 90% of the service in India. Product is cheap in the US but that is not true in India. Service is cheap here, but land and project costs are huge. Therefore, a typically global model will not work in India. It has to be localized around the demands of the Indian consumer. By cutting out the extravaganza, you can offer the product at 50-60% of the five-star cost.

What are the major challenges before Indian hospitality industry?
The steep land costs, restrictive government regulations and rising wage costs. I am quite sure that at least half the promised 120,000 rooms may not be built. I feel conversion rate will be as low as 40%. Real estate prices have shot up and land price accounts for 60% of the cost as against 20% of a hotel project cost till a couple of years ago. This will push up the price point for rooms across the board. A correction of at least 20-25% in room rates is expected. Courtesy Economic Times

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