Venturing a Budget Hotel in Sri Lanka - Assignment Example

Business Plan for Budget Hotel Sri Lanka Executive Summary The proposed business is all about venturing a budget hotel in Sri Lanka. The country has been provided with abundant opportunities for the growth and development in tourism industry. It is evident from the tourism history of the country that tourism has become one of the major sources of foreign exchange earner. To be specific, it has become the fourth largest source of foreign exchange earner with US $384.4 million revenue in 2007(Appendix 2). At this juncture, setting up a budget hotel to suit the needs of middle class and lower class travelers is found to be viable and prosperous in future. The introduction and popularity of budget holiday package in the country is a great fillip to venture budget hotels as an indispensable element of tourism industry. A budget holiday package allows travelers to plan and book their own itineraries in conformity to their needs and preferences. An official source estimates that in the UK there were 22.5 million budget holiday makers in the year 2000 (Mintel). This business plan covers almost all aspects of the proposed business - both qualitative and quantitative information- incorporated to substantiate the viability of the proposed project and business prospects. The Hotel is proposed to be started in a six storied building at Narahenpita, Colombo-05, Sri Lanka. The location is found favourable for a budget hotel as the property has all basic amenities such as three phase electricity, passenger lift and AC rooms (Appendix 3). The hotel will be set up as a joint partnership business venture by Mr. I.T.H. Gamage and Mr. E. Bojang with equal share and it is proposed to be named as 'Budget Hotel Sri Lanka'. The business opportunity was identified after an extensive research into the market to venture a small budget hotel in Colombo City, Sri Lanka. It has been decided as part of the strategy that the hotel will offer simple but comfort, safe and secure place for an exceptional experience to customers. The hotel will be targeting both domestic and international tourists who visit and plans to stay in Colombo. This region is the most sought after place for night stay as one of the official sources report that there were 982362 foreign and 380251 local guests who had opted this region for their night stay in 2007(Appendix 04). The hotel is mainly targeting low profile business travellers as well as those who visit the country for purposes like leisure, sport, and sightseeing (Appendix 13). The SWOT and PEST analysis affirm that though there are enough number of hotels and other locally generated accommodation in the city, the competition can, to a great extent, be mitigated through the cost leadership strategy (Appendix 9 and 10). Furthermore, the Porter's Five Forces Model (Appendix 11) reaffirms the approach as the city is seriously lagging behind in meeting the travellers' needs in an economical manner. Though the country has faced a decline in tourist arrival during 2006 and 2007 period owing to the internal political hardships (LTTE problem and probability of outbreak of a war), it is estimated that an annual increase of 20% is expected (Appendix 15), once the problem is solved. Mintel's Forecast report also reiterates this estimate (Appendix 17). All these pin point the possibilities for the successful operations of the hotel and the opportunities to flourish in future. 2. MISSION STATEMENT The mission of the venture is to become the leader in the budget hotel industry in Sri Lanka, while ensuring growth in the business and its profits. This will be met through the achievement of the following objectives. 2.1. Objectives To be the leader in the budget hotel industry in Sri Lanka by providing standard, safe and comfortable accommodation to customers at affordable prices. Promoting responsible and sustainable tourism by pursuing environmentally friendly operational policies. Expanding the marketing and advertising campaign within Sri Lanka and our major international source markets. Ensuring fair treatments to members of staff through adequate training and better remunerations to ensure quality service delivery To ensure effective cost monitoring systems to enhance considerable profit margins. 2.2. Ownership of the Business Venture The 'Budget Hotel', Sri Lanka will be a joint business venture owned and run by Isuru Thushantha Henpita Gamage and Edrisa Bojang. The owners invest $30,000 each with an expected return 30% per year. 2.3. Legal Structure The business will be launched and traded under the name of 'Budget Hotel Sri Lanka'. The venture will abide by all government legislations in Sri Lanka, regarding standard accommodation, alcohol licensing, health and safety, fire safety and food and hygiene. The 'Budget Hotel Sri Lanka' will be registering as a registered accommodation provider in the Sri Lankan tourist Board. 3. INDUSTRY PROFILE In Sri Lanka tourism is the 4th largest source of foreign exchange (see appendix 5). According to Sri Lankan Tourist Board Statistics, 2007 tourist nights recorded in all types of accommodation establishments in Sri Lanka were 49,40080, (refer appendix 06) out of this over 27.5% tourist nights have been recorded in the Colombo city region Supplementary and unclassified hotel establishments (See appendix 04) where the 'Budget Hotel', Sri Lanka will be located. Further supply of supplementary accommodation units (namely Motels, Inns, Guest houses) increased by 5 units in 2007 and unclassified establishments increased by 4 units in 2007 where graded accommodation (star class hotels) units increased only by 3 units in 2007 (See appendix-07). According to Sri Lankan Tourist Board annual report statistics (2007) overall annual room occupancy rate in Supplementary and Unclassified units were 49.1%, and 39.8% in 2007 (See appendix 08). It is therefore clear that there is a demand for our budget hotel. 4. BUSINESS START-UP STRATEGY In the preliminary research itself, the entrepreneurs have identified a gap for a budget hotel, which can meet the local as well as international needs of travellers hailing from different parts of the world. The start-up strategies have been formulated in conformity to the target customers' needs and preferences. The hotel's target customers comprise mainly of tourists who prefer supplementary and unclassified boarding and lodging, for which relatively low amount is to be paid. Based on the SWOT and PEST analysis (Appendix 9 and 10), it has been found that cost leadership is the most appropriate start-up strategy for the hotel. The Porter's Five Forces Model also support this strategy by analysing forces such as threat of new entrants and substitute products, bargaining power of suppliers and consumers, and rivalry among existing firms (Appendix 11). 5. PRODUCTS AND SERVICES The hotel will comprise 40 bed rooms with en suites with AC, Television, telephone etc. Check in time 2pm onwards and checkout time will be 11am. The hotel will provide accommodation for a maximum of two persons in a room, two towel, cotton sheets, blankets and pillows will be provided. Self serviced snack and beverage vending machines (see appendix 19 to 21) will be located in the premises for the convenience of our customers and on call taxi's service will be available free of charge. TV with satellite connection, telephone with local and IDD calls will be available on a standard tariff rate. 6. MARKET STRATEGY The market strategy will comprise market analysis, analysis of rivals, target market and trend of the market, analysis of the location, pricing, promotions, advertising and operational plans. A thorough understanding of the customers is very essential in order to provide services in accordance with their desires which will help in attracting more customers. 6.1. Market Analysis As evident in the landing/disembarking cards of Sri Lanka, UK and USA there is no indication of social classes of tourist to these destinations. All it shows is occupational category of tourists (Refer appendix 12). The landing/disembarking cards are the main source of gathering tourist characteristics. Therefore the proposed venture will be using the occupation to identify various categories of the target market, which comprise businessmen, retired persons, educationist, other occupation category, and no occupations categories. According to Sri Lankan tourist board statistics in 2007, total international tourist arrivals were 494008 (Refer appendix 06). Out of the total arrivals 80523 (16.3%) were businessman, 135358 (27.4%) people were other occupation category, 25194 (5.1%) were retired people, 28158 (5.7%) were educationist and 88922 (18%) were in no occupation category. This totals to 358156 (72.5%) as our target market according to occupation category (Refer appendix 13). 6.2. Competitor Analysis Competitor analysis is an important strategy for a business to identify their competitors to gain competitive advantage over rivals. Some of our competitors are Hotel Sansu, Renuka Hotel, Colombo City and Hotel Janaki (see appendix 14 & 28). 6.3. Present Status of the Market As it is indicated in the appendix 15, the market for the proposed 'Budget HOTEL', Sri Lanka, as at 2006 and 2007 shows a decline. The reason for this decline is attributed to the war that affected the country for the past decades. However the reason for going into a declining market is due to resent prospects of final end to the war (see appendix 16). With the return of peace in Sri Lanka, tourist arrivals in general are expected to increase in high figures. This assumption is based and supported by Mintel's forecast Report (See appendix 17) on the trend of tourist arrivals in Sri Lanka during 2001 to 2005. These facts coupled with the current global financial crises, the demand, for low budget accommodations worldwide are expected to rise (Refer appendix-18). According to Sri Lanka Tourist Board Statistics in 2007, a total of 494008 tourists visited Sri Lanka (Refer appendix 06) and total foreign guest nights recorded in all tourist hotels, supplementary and other accommodation establishments were around 3376530 nights and the total local guest nights were recorded as 1548398 in 2007 see appendix 4 and 5 for details. (Annual statistical report of Sri Lanka Tourism 2007) The total number of supplementary/unclassified hotels in Sri Lanka up to 2007 was 695(See appendix 22). Out of this, 45 units are located in Colombo City Region (Where the 'Budget Hotel', Sri Lanka will be located (see appendix 04). That is about 6% of the total supplementary and unclassified hotels in Sri Lanka. Total number of foreign guest nights recorded in supplementary & unclassified hotels in Sri Lanka in 2007, was 1911485 (see appendix-22). Out of this total, 982362 foreign guest nights have been recorded in the Colombo city region. This is about 51% of the total foreign guest nights. Furthermore, during 2007, 1079631 local guest nights have been recorded in these types of accommodation establishments. Out of this 380251 guest nights have been recorded in Colombo City Region and this is about 35% of the total local guest nights in 2007 (see appendix-04). 6.4. Target Market & Customer Profile The target markets for the business comprise mainly but not limited to the business travellers (mainly low profile traders from neighbouring Asian countries, especially India). Other target markets will include pleasure travellers, People visiting Colombo for Convention and Meetings, sports travellers (especially cricket fans). (Refer appendices 23 and 24 for BMICH visitor number and Colombo Museum and attractions local visitor number in 2007 respectively). The age group that the hotel focuses upon ranges from 15- 70, male and female. According to Sri Lankan Tourist Board statistics this markets constitute over 80% of the total arrivals in 2007. (See appendix 25). Furthermore, the hotel will target tourists who stay between 1 to 10 nights which comprise over 53% of the total market. (See appendix 26) Sri Lanka and India enjoys a free trade agreement (ISFTA) in which case the people of these two countries can move and trade freely without any form of tax imposition. As indicated below, India is therefore the biggest market for tourist visitors to Sri Lanka. A majority of these comprise business travellers. For instance, in 2007 India alone accounted for 106,067 tourists to Sri Lanka, about 21.4% of the total arrivals. (Refer appendix 27) Also the most talked about 2011 Cricket World Cup to be co- hosted by Sri Lanka and India with over 14 countries to participate. This will increase the tourist floors in to Sri Lanka and most of them would prefer to stay in Budget hotels as they spend their day time watching matchers. 6.5. Pricing According to declarations made in the immigration cards 76.9% of the tourists were gainfully occupied & average tourist spending per day in Sri Lanka is recorded as $79.1. (Refer appendix 16, 17&18). We will use the low cost pricing strategy focusing on overall cost leadership strategy of porter's generic strategy to become the low cost accommodation provider in the region. In the first three months of the operations, price per night for a single room would be $15 and double room would be $19. Prices will be changed during the mid peak and the peak seasons (see appendix 35). 6.6. Location Analysis The hotel will be opened in a newly built building which is located in the centre of Colombo City Region (see appendix 29,30,31). 6.7. Advertising and Promotion To gain the market share and to retain in the market, this must be done aggressively to achieve the business goal and objectives. A healthy budget for marketing and advertising will be allocated (see appendix-32). 6.8 .Operational Plans The hotel will operate throughout the year. Check in time will be 2pm onwards and checkout time will be before 11am. 6.9 Porter's Five Forces Model (Appendix 11) It has been observed from the analysis that the industry is prone to attract new entrepreneurs as there are relatively few restrictions as to entrance as well as exist. In addition to that, the analysis observes that the hotel will be facing threats from similar hotels, star hotels and private rented rooms and bungalows. The customers' bargaining power will be more as there are plenty of options to select for their stay and comfort. 7. MANAGEMENT The business partners Mr. I.T.H. Gamage and Mr. Edrisa Bojang will be managing the business. Mr. I.T.H. Gamage will mainly look after the back office duties while Mr. Edrisa Bojang will look after the front office duties. The business partners will be always in alert about the competition in the market and will adopt strategies accordingly to sustain the market share in the industry. 7.1. Personal Team The personal team at the hotel will be as in (appendix 34). The cleaners & porters will be multi skilled. For every hour of operation there would be a minimum of 8 staff. 7.2. Salaries & Incentives Salaries will be paid according to the industry standards and labour laws in Sri Lanka. All staff will be entitled to paid holidays (See appendix 34). 9. CONCLUSION With the country moving towards sustainable economic growth and development, the opportunities for entrepreneurs and businesses are also increasing. Since tourism is one of the largest foreign exchange earners for the country and a reliable backbone of the economy in future, any business that promotes and facilitates the tourism and tourism related aspects will be having wonderful opportunities to grow and flourish. As Hotel industry and similar accommodation arrangements are an indispensable part of tourism industry, setting up a budget hotel in a country like Sri Lanka is worth investing. The preliminary research and feasibility study reveal that budget hotel in the City Region of Colombo will be performing comfortably with chances of further development. The forecast reveals that the venture will be having good net profit, positive cash balance, strong ratios and a good breakeven point. All these favourable points lead to the conclusion that the proposed venture will be successful in all respects and there are possibilities to flourish in future. Read More