Bare bones luxury

In 19th-century south India, George Brunton’s business was a well recognised landmark in Fort Cochin. The Dutch shipbuilder ran his business from a sprawling colonial-style building with its characteristic lime-washed walls, sloping tiled roof and terracotta floor. As the decades passed, the business faded and then died out, with the empty shell of the building a mute witness. Cut to the present. Brunton Boatyard has been rebuilt, complete with central courtyard, two-feet thick walls and enormous, wooden doorways. But it’s no longer a godown or a commercial building — instead, it’s a luxury hotel where four poster beds and little stools to climb into them dominate every room, and all windows open to breathtaking views of the sea. The brief to the architect in 1998 was to reproduce the original design and use materials in keeping with the original construction. The result is a property that’s got rave reviews from travel magazines and where rooms are booked months in advance. “But we paid a heavy price for this — the layout allows us just 26 rooms on a 1.5-acre property,” says Jose Dominic wryly. The chairman and managing director of the Kochi-based CGH Earth isn’t really complaining — most of his company’s 13 properties have just about 30 rooms; there’s even one that has room for only a single guest.

That’s what sets CGH apart from other luxury boutique hotels — it’s growing through innovative formats. Nearly six decades after it started with a single restaurant on Willingdon Island catering to sailors and dock workers, the 421-room chain has positioned itself firmly in the eco-luxury and heritage tourism space. In 2003, the group changed its name from Casino to CGH Earth to emphasise its green bent — CGH stands for clean, green and healthy. Now, it has ambitions of venturing into the north and Himalayan regions and even overseas. Can CGH’s formula be replicated on a larger scale?

 Going green

The Casino group was the brainchild of Dominic’s father, who started the restaurant and then expanded in 1967 with a capital of Rs 6.5 lakh to a 32-room hotel. A chartered accountant by training, Dominic was a reluctant recruit in the hotel business, joining it a decade later. “Initially, I thought I would help in the business till my brothers were older. But life never follows the straight and narrow path,” he muses. 

The original Casino hotel in Kochi was a regular, if upscale offering. The turning point came in 1988 when the government decided to privatise Bangaram Island Resort in the Lakshadweep Islands after then-prime minister Rajiv Gandhi holidayed there. Most competing hotels suggested aggressive investments of Rs 15-16 crore with timelines running into months, if not years. “We said we intend to remove the sprucing-up done for the PM’s visit and put coconut thatch roofs on the cottages to return the resort to a pristine state in keeping with the surroundings,” says Dominic. Casino won the contract in October 1988, undertaking to commission it by December. The Bangaram Island luxury resort stood out for all it didn’t offer: no air-conditioning, room service, hot water, phones, swimming pool or multi-cuisine restaurants; even the employees were local fishermen who were trained to serve in the hotel. The staunchly no-frills accommodation notwithstanding, Bangaram charged premium rates — $180 a night — and it was an instant hit. 

One of a kind- Graphic

That set the tone for future projects. Casino extended the responsible tourism experiment to its upcoming properties, Spice Village at Thekkady, Coconut Lagoon at Kumarakom and Kalari Kovilakom in Palakkad (all in Kerala). The emphasis everywhere was on back-to-nature buildings and furnishings, traditional pursuits such as ayurvedic treatments and local cuisine — all at luxury prices, of course. Over the years, the focus on minimalist amenities has remained unchanged, and the company’s earned renown not just for putting Kerala on the international tourism map but also for its unique concepts in properties (see: One of a kind). “Luxury is not about ostentation but rather the experience of a truly memorable vacation. Spice Village proved me right — customers are willing to shell out Rs 10,000 a night for a room without a TV or AC,” says Dominic. 

"Luxury is not about ostentation but rather the experience of a truly memorable vacation" - Jose Dominic, CMD, CGH Earth

Actually, they’re paying much more. A guest at Chittoor Kottaram, for instance, would spend around Rs 25,000 a night while the tab at Brunton Boatyard would be upward of Rs 30,000. Dominic declines to share revenue figures but back of the envelope calculations suggest that at an average rack rate of Rs 13,600 a night and occupancy rates of 85% in the October-March peak season (50% between April and September), CGH Earth is earning in the region of Rs 140 crore every year. If its expansion goes as planned, that figure is likely to go up significantly in the coming years.

Due north

In the next five years, CGH plans to open properties across India and overseas. It has already acquired properties at Venad in north Kerala, and Thanjavur and Rameshwaram in coastal Tamil Nadu. In Karnataka, the company has signed a memorandum of understanding with the state government to build hotels at Hampi, Biddar and Kalarickal. One 30-room and four 15-room hotels are planned here at a total cost of Rs 28 crore and the project is expected to be completed by early 2015. Negotiations are also on for acquiring property in the Andamans, while areas for potential hotels have been identified in Gujarat, Rajasthan, Assam, Sikkim and the Himalayan states. Next on the agenda is partnerships with hotel chains in the Saarc region and even South American countries such as Costa Rica and Belize. “We are not looking at competing with bigger, more established players but at creating a niche space for ourselves. Our business model is sound enough to see us through,” points out Dominic. 

Certainly, the market for boutique eco-friendly hotels in India is growing rapidly. Kaushik Vardharajan, MD, consulting and valuation services, HVS India, points out this is the fastest-growing segment in hospitality services — 15% a year compared with 8-10% for regular hotels. “It’s a smaller business and there is scope for expansion. Since these hotels are usually located in exotic, non-regular locations, they make for attractive holidays,” he adds.

But it doesn’t come cheap, or easy. “The initial capex for eco-friendly hotels is very high — about 30% higher than a regular hotel,” points out Paul P John, founder and CMD of The Paul Group, a 138-room luxury boutique hotel chain in Kerala and Karnataka. “Technology has not evolved enough to offer cheap green products and maintenance costs, too, are significantly steeper initially,” he adds. For instance, solar power for a 30-room resort would cost around Rs 30 lakh; eco-friendly LED lighting is about three times more expensive than regular, CFL options. Setting up a biogas plant means investing Rs 5 lakh (LPG would be cheaper at Rs 24,000 a month). 

"The initial capex for eco-friendly hotels is very high — about 30% higher than a regular hotel" - Paul P John, founder and CMD, The Paul Group

Vardharajan points to some more hurdles: these hotels are typically smaller than regular hotels, so they tend to price their offerings higher. Then, getting licences and permits for setting up properties can be arduous since such properties are usually in ecologically sensitive areas far away from cities. “Funding is also a constraint since these groups don’t enjoy the brand equity of a Taj or an ITC,” he points out.

Dominic is all too aware of that. And he’s planned accordingly. Over the coming years, CGH will transition from being a completely family-owned enterprise to a public limited company. Right now, though, it is seeking a private equity investor to pump in capital in “tranches of Rs 500 crore”. Media reports say that CGH is negotiating with Warburg Pincus. Dominic declines to confirm the report, only saying that the partner is yet to be finalised and the process could take another six to eight months. “We will also leverage ourselves,” he adds. “For every Rs 500 crore raised through equity, we will raise an equal amount of debt.” At present, CGH has a total debt of around Rs 30 crore.

On average, a new resort will cost CGH around Rs 50-60 lakh a room, excluding the cost of land — which, as it happens, isn’t as high since most properties are located in rural areas. Cash break-even takes about two years and financial break-even, four. “Interest costs are our biggest expenditure,” says Dominic. Despite that, the company refuses to become a venue for conferences and meets, although that’s a lucrative option, especially during the lean months. “We want to keep the holiday ambience intact,” he points out.

"CGH has mastered the art of remaining real to the local flavour, thus keeping decor investments low" - Kaushik Vardharajan, MD, consulting and valuation services, HVS India

If it gets the funding tied up, CGH’s plans to expand should work out well. John points out that a huge advantage is that foreign travellers are increasingly more conscious and demanding of eco-friendly practices. “Going green makes a lot of sense as a marketing strategy,” he says. Adds Vardharajan: “CGH has mastered the art of remaining real to the local flavour, thus keeping investments in decor and furnishings low.” And delighting guests. Dominic recounts how a stockbroker from New York on his visit to Coconut Lagoon was appalled to find the lawns overrun with Vechoor cows, a rare breed the group is working to save. By the end of his stay, he was smitten with the creatures and wrote to Dominic on his return, asking “Has Parvati’s calf been born yet?” People like him will be the best advertisement for CGH as it grows out of Kerala.