Rising Demand Fuels Growth of Mid-Market and Economy Hotels in India, ETHospitalityWorld

Historically in India value-based accommodation with select services established by family owned and Independent hotel firms created the unorganised lodging sector from the 70’s.

This volume business in the structured unorganised sector attracted many family business houses to venture into this budget hotel and economy hotels with limited food and service across the suburban low-cost locations of metros, small cities and towns connected. The exponential growth of MSME sector family-owned small hotels in the 70’s, 80’s and 90’s virtually dominated the space where no branded hotel companies were willing to invest or operate. Most of the owning families had the advantage of inheriting legacy land in which they could build moderate size hotels restaurants and resorts at low project cost with part self-financing and debt.

Let me reiterate with my own experience of launching two iconic Indian brands that the Mid-Market and economy segments not only offer huge scope but are essential for inclusive travel and affordable accommodation for the price sensitive middle class market in India.

To quote a 2023 data point, India had around 1.70 million rooms in the unbranded sector which were essentially owned by private individuals/families, many of them for generations. This constituted nearly 70 percent of the country’s accommodation inventory. The fact that branded hotel rooms capacity is only around 30 percent reflects the hospitality majors’ (domestic and multinational) preference to invest and grow primarily in the luxury and premium segments in the closed economy era. Historically therefore the organised sector capacity continued to lag the MSME sector.

One must distinguish the phase between the pre and post liberalisation scenario to drive home the point that Mid-Market and the economy segments were a new phenomenon in the branded space even up to the pre covid era. Companies like IHCL, ITC, Park hotels, lemon tree, ventured into the Mid-Market segment in select metro locations to test the concept and the market. It is noteworthy to mention that new Mid-Market brands like the Gateway Hotels and Resorts, Fortune were the early entrants creating a buzz in the industry.

Meanwhile, the major domestic players were already re-strategising their existing brand architecture to address the emerging segments triggered by the economic boom in the country. This unparalleled demand in accommodation across the metro semi urban and rural areas literally boosted the fortunes of the unorganised MSME hotel sector. However, the travel trade and the customer’s expectations of safe and predictable accommodation created a huge gap. It took a couple of decades and the black swan phenomenon of covid which debilitated the luxury and premium segment business as much shifting the traditional customer base to green pastures (value-based quality accommodation) for the big players to step-in. It is significant to mention here that the post covid economic revival in India triggered a new wave of capacity build in the Mid-Market and economy segment by the major branded players and their investors.

In this rapidly growing landscape, mid-market and economy hotels have emerged as high-potential segments. Consequently, these segments are witnessing a beehive of activity – M&As, restructuring JVs and fee-based management contracts.
In my view, these two segments have historically been the backbone of any large developing economy given the attractiveness for all the stakeholders. Both are relatively low risk investments, replicable, scalable, healthy returns, quick asset appreciation, lower cost of operations, affordable, design and style centric which is attractive for all age groups.

Fast-forward
With rising demand from both leisure and business travellers, expanding opportunities in non-metro cities and strong support from digital platforms and government initiatives, this sector presents a robust growth opportunity in tier 2,3 cities, air, road, rail & port transport hubs.

The author, Mohankumar P K is a hospitality veteran and CEO & founder, Turnstone Hospitality Consultancy. The views expressed in this article are those of the author and do not necessarily represent those of ET HospitalityWorld.

• Published On Aug 20, 2025 at 01:00 PM IST

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