News: Here come the malls

(EH 09/06/2006) Mumbai - India is witnessing an invasion of malls but the question to consider is whether this radical boom presents more opportunities for hospitality businesses to chart the goldmine course. Savio Rodrigues investigates

It's a new India with an economy growing at a rate of nearly seven per cent. If (even by a modest estimate) a mere 10 per cent of the nearly 1.2 billion people in India have money to shop in malls, it would represent nearly 120 million people. This is a huge market by any standard and a reason for the emergence of so many malls in the country.

Paco Underhill vividly captures this mall phenomenon in India in his book Call of the Mall (Simon & Schuster) where he writes, "The mall is the venue where the young have their first taste of social freedom and the rest of us compare notes." He further elaborates, "Malls are very much like television. Another totally fake environment that attempts to pass itself off as a true reflection of who we are and what we want. We disdain it, and yet we can't stop watching. Or shopping."

But putting aside this psychobabble, it is evident that this is a golden opportunity for businesses in hospitality. Cashing in on this is McDonalds, which has earmarked Rs 2.5 crore towards acquisition of mall space for each of its outlet. Also encouraged by the boom in malls in cities across the country, Yum! Restaurant International's Kentucky Fried Chicken (KFC), has drawn up plans to branch out into other parts of the country. On a similar path are many hospitality companies both Indian and international.

Mall haul

The great Indian mall boom has arrived and it's bustling with activity both in metros and two-tier cities. Estimates indicate that over 280 malls are expected to come across the country by the end of 2006, a number expected to more than double by 2010 according to a recent survey conducted by KSA Technopak that predicts India to be home for up to 600 malls. In fact, according to Mohammad Ali Alabbar, chairman of Middle East-based Emaar Properties, the company is planning over 100 malls in India already.

So who are the real drivers of this boom? Anshuman Magazine, MD of CB Richard Ellis, feels that the apparel and F&B sectors are responsible for this rapid expansion. KFC director of marketing, Sharanita Keswani, says, "Our business is very real estate-oriented. We have to be present in a prime location or in a mall where turnouts are good." Mall construction in the country is expected to grow at a frenetic pace in Mumbai, Bangalore, New Delhi, National Capital Region (NCR) and particularly, Hyderabad and Pune. Popular tourist destinations like Goa and Jaipur too are expected to witness this development.

Industry sources observe that close to 100 million square feet of retail space is expected to come up in India within the next four years. And with the infusion of entertainment and F&B outlets, these malls are rewriting the rules and converting the fundamental activity of shopping into a lifestyle statement. A notable trend in the market is the development of integrated retail-cum-entertainment centres.

Will the future shock or rock?

Rising disposable incomes of Indian consumers and large investments ushered in by real estate companies are prime indicators to the fact that hotel and restaurant companies need to ride the mall boom. Either through the popular tried or tested modus operandi of an F&B outlet or through the 'Mall-O-Tel' concept, which is still at a nascent stage.

To some within the industry the opportunity is a goldmine, to some a landmine and to many an option that needs to be treaded with caution. Voicing a pessimistic tone, yet logical in his rationale, Vikram Bakshi, promoter of McDonald's (North India), predicts that if all the planned malls do come up, close to 70 per cent of these projects are most likely to fail. So while McDonald's will certainly expand further, it won't be per cent in 70 per cent of the malls."

Asserting himself further, Bakshi elaborates that the core problem facing malls is that it certainly experiences a lot of footfalls but not too many convert into actual business because consumers view it as an attraction and would not necessarily want to spend money. The most frequent visitor to a mall is the middle-class Indian and while disposable incomes might be at hand, many are still hesitant about spending at an F&B outlet in malls as they perceive prices to be high. While in most cases the perception is true, food outlets deliberately play the lifestyle card in order to ensure profits owing to the huge costs of acquiring a good retail space within a mall, feels H A Mishra, MD of Foodesign Systems.

Optimistically speaking

Delhi-based DLF Universal is very optimistic. It plans to build over 20 malls in North India over the next few years, according to Pia Singh, its director. "Stores in DLF malls, be it F&B outlets or apparels, have been doing considerably well. This positive feedback from companies keen to explore business opportunities in malls indicates that there is growing interest and related demand for malls within the country," she adds. Dharmesh Jain, MD, Nirmal Lifestyles, too is optimistic and predicts that the bulk of the country's retail business will move into malls within the next few years. He opines that more Indians are starting to buy and eat at malls, contrary to some beliefs.

As a recent India Retail Review Report by Knight Frank India points out, the success of large malls has encouraged a number of developers to join the bandwagon. The government too has taken an active interest in fostering mall development in India through its recent FDI allotment in the construction business particularly aimed at malls, multiplexes and hotels. Moreover, industry sources reveal that requisite government permissions to develop malls in the country are easier to procure than other real estate related projects. Though in most cases, the government has been friendly in its efforts to fuel the development of malls, introduction of a property tax system based on the market value of the property as against the earlier practice of calculation based on the age of the property, may lead to high rate of property taxes. This, says Amitabh Devendra, of Chesterton Meghraj, will discourage parties to take up space in malls and multiplexes. "Rationalisation of levies and taxes should be taken up on priority basis to encourage the development of retail properties," he adds.

Selecting a mall

Hospitality players eager to reap a harvest using malls as playing fields are poised to make good of the opportunity knocking at their door, with real estate developers out on frenzy with mall development plans. For hospitality businesses eager to set up shop in malls, the choices will be enormous with 600 malls in the offing by 2010. At most times it would seem cumbersome with 'too much to choose from' ringing at the back of your head.

However, the selection process can be simplified by taking into account these three vital parameters while selecting a mall for retail business:

• Potential of the location
• Consumer demographics
• Property developers' market reputation
• Property costs

According to Chanakya Chakravarti, joint MD at Cushman & Wakefield India, "Not all mall operators are likely to benefit equally. Only the ones in favourable locations and having the right format and suitable strategies are likely to remain long-term players." Speaking on the subject, Anand Sundaram, GM, Inorbit Malls, Mumbai says, "The feasibility of malls require to be analysed in great depth and would include factors like the nature of the catchment area, demographics and psychographics of prospective consumers, infrastructure of the city in that particular area and certainly the retail business itself."

After just a few years of operating in the Indian market, malls have touched the second phase of the category lifecycle. The novelty of the air-conditioned shopping and dining experience is now becoming the norm as more and more urban families drive out in their private transport to these hubs of activity. The next set of malls that will come up will be destination malls, specialty malls and leisure malls. Does this present an opportunity to the hospitality business? It sure does!

Mall-O-Tels: The next big thing

Touted as the next big thing after specialty and destination malls in India, mall-o-tels or mall hotels are inspired by Dubai and Thailand. For hoteliers, it's the best opportunity to be present at a premium location at relatively lower costs and have assured footfalls even on leaner days. It's the perfect synergy of components in terms of lease rates, occupancy levels and client profile.

Says K B Kachru, executive VP of Carlson Worldwide, "People are looking for better ways to spend their weekends. So if you were to go to a shopping mall, which is located far from your home and you don't want to come home that night, you can even check into a hotel in the same complex. It gives you a feeling of comfort and you can have a perfect entertainment option without having to rush back home."

The Clarion Group and Anumod Sharma's Galaxy Towers is also coming up with a five-star boutique hotel with a fashion-lifestyle shopping arcade, a few minutes from M G Road, Gurgaon. Spread over 1.6 lakh square feet in four levels, it's a grand construction with a glass curtain, a spacious atrium and multi-layered parking.

In Saket, South Delhi, three realtors are developing mall hotels on 51 acres set aside for commercial development. The Rs 350-crore Select City Walk project being developed by Select Infrastructure will be designed on the lines of New York's Time Square and will house a shopping mall, a business centre, a multiplex and a 100-room hotel. Barely miles away, DLF Retail Developers, is planning two projects called South Court and The Courtyard that will have hotels with 60 and 100 rooms each.

In Greater Noida, Omaxe Construction is building a mall called Omaxe Connaught Place covering an area of 14-lakh square feet. It will have a hotel to cater to corporate houses in the vicinity. "There is a demand in India and our first mall hotel should be ready in two years," says Kunal Banerjee, senior VP (Marketing), Omaxe Group. Not lagging far behind are Nirmal Lifestyles and Ruia Group that are coming up with hotels in their mall projects.

The profitability of the business model is not lost on the hotel industry either. While Sarovar Park Plaza is looking for mall space in East Delhi and Chandigarh, Choice Hospitality is considering upcoming projects. The mall-hotel arrangement suits both hoteliers and developers. For malls, hotels spice up the viability of commercial and retail space and add to the footfalls. Hoteliers can, on the other hand, leave the worry of getting approvals to the developers, avail ready space and above all enjoy a cost benefit of up to 25 per cent. Are we ready then for this new trend in realty?