Club Mahindra: Trip or a Trap?

22 Dec 2021  Read 2216 Views

As a little girl, I loved the ice cream wale bhaiya who would come to sell ice-creams to us on our doorsteps. I would buy a ₹10 ice cream almost every day and felt personally connected to him. But one day, he said, “You give me ₹1000 today, and I’ll give you free ice creams for the next ten years;” the supporting argument being, “today what costs you ₹10 might be ₹25 in the next ten years because prices rise every year.”  

What could have I done? 

In today’s story, there will be a lot of numbers. They are all very important for they are to reveal a secret. The secret is of Club Mahindra, of, of course, Mahindra and Mahindra. 

The story is how a decades-old Indian company is taking lakhs of dough from you, to make you pay another few lakhs over the next 25 long years. 

The natural question - Who in their right mind would do something so dumb?! Answer - Over 2,58,000 people as of 2020.

Suppose you are a family of four - two parents and two children. You decide to stay in a 3 or 4-star hotel for a week-long vacation in any destination in India. Let’s take the average room cost to be ₹4,000 a night. So, for the week, you will be paying ₹28,000 for your stay. If you go on to calculate this for the next 25 years, it will add up to ₹7,00,000. Plus, the necessary evil - inflation, at the rate of 6%. The amount you will end up paying at the end of 25 years will be somewhere around ₹16,56,378 for your stays. Do you follow?

Enter Club Mahindra.

Club Mahindra offers you a lock-in membership of 25 years, in which, after paying an upfront amount, you get all your vacation stays for the next 25 years for free

The membership cost of the most basic plan of Club Mahindra, the Blue Studio, is approximately ₹3 lakhs. Plus, the total of Annual Subscription Fees (ASF) by the end of 25 years would be roughly ₹4,25,000. Then the inflation. The total would be somewhere close to ₹13,44,000

It means, for a person, it would cost 18.86% less to holiday with Club Mahindra than going with any other hotel chain.

This is what the marketing executives explain to you when they sell their holiday packages. And this does look like a good deal, no? 

Basically, Club Mahindra promises future holidays at present prices. 

Now tell me, wouldn’t you actually consider buying the package? Yes?

But there are layers to it. So, let’s take the layers off, one at a time. 

 

Building cost

Let us begin with the location. The location of any hotel is kind of the most important factor to draw traffic into it. It gives the owner the power to influence the price of rooms in the open market. The owners try to build a hotel that is in a posh area, near the airport, near tourists attractions, industrial parks, etc. You get it, right? Because that is what draws people in. 

Now, what if a hotel already has customers, paid for their vacation rooms 25 years well in advance? Would they care for the location so much? 

Any Indian, on any given day, would choose a free stay in a haunted house over a paid stay in a 5-star hotel.  

Which brings me to my point - when other hotels’ owners are paying 25 crores out of 50 crores budget just for the land (50%), Club Mahindra chooses a piece of land that is far-far away from the city lights and crowd, thus cheap!

The land they buy would be for like 25 lakhs. Smart enough? Their whole building is standing tall at half the cost of what any other hotel would have needed. 

Peeled off the first layer. Let’s move on. 

Meal costs

Now that you have built a hotel, you need cash inflow for maintenance and expenses. But, people have already paid the one-time amount for their stay, so how are the expenses gonna be taken care of? The meals! 🤷‍♂️ 

Below is a quotation from 2017.

Source: Trip advisor

 

So a 3-meal offer is for ₹1,990, and a 2-meal offer is for ₹1695, FOR ONE PERSON. If a family of four chooses the 3-meal option, they would be billed ₹5,970 for the day. And mind you, this amount is of 2017.

In a 5-star hotel, say Hilton Mumbai, a room is charged ₹5,320 for one day in 2021. 

So the meal cost ≅ a room’s charge. Not pointing fingers; just stating facts.

Let’s consider this the break-even point for Club Mahindra, and going forward, the rest will be an addition to this.

Annual Subscription Fees

“You just pay 7 lakhs to us now, and for the next 25 years, all your stays will be free.” Will it be, though? 

Let’s dig a little deeper.

So, Club Mahindra asks its customers to pay a not-so-chullu-bhar Annual Subscription Fees for the next 25 years. That maintenance charge starts from ₹17,000 and goes up to ₹34,000.

What was Hilton’s cost per room again? ₹5,320. For a week, it would have cost you ₹37,240.

If you default the ASF, your subscription would be suspended. Now a person who has already paid ₹7 lakh would obviously think that it’s better to pay the ASF rather than the benefit totally collapse. So this way, considering the least ASF - ₹17,000, you paid another ₹4,25,000 to Club Mahindra in the next 25 years. But this ASF increases every year. So the amount has to be much-much bigger than this figure. With me so far?

The Bakraas

Next is finding the leads. Where would they find a client who can pay lakhs of rupees for vacation and would also be interested to go on vacation every year? 

Allegedly, they have joined forces with car showrooms and jewellery outlets. So their whole network is set such that whenever a family buys a car or a jewellery piece, they would receive a call from Club Mahindra saying they can holiday for 2 days free of cost with them. 

Why would any sane person turn down the offer? So they go to the resort, and Club Mahindra ensures those two days are heaven on earth for them. That is when they start pitching their package plans. 

And rest becomes history…

Mausam aur unke rang 

Now you are pitched 4 types of package plans called- Seasons, with each having three variations of rooms. So there are 12 types of packages from which you can choose. 

Going by the seasons, the Purple one is the most expensive, then the Red, then White, and finally, the most basic package is the Blue one. 

Suppose I buy the Blue package. In this, I am only allowed to go to resorts in off-peak seasons. It means I would have the option of booking a resort in Rajasthan in the month of April- May, and the option of booking a resort in a hill station in the rainy season! So for me, 10 out of 12 months a year, a resort won't be available. You get the picture, right? 

But, BUT, when I proceed to book rooms a month before my trip, ‘Sorry for your inconvenience, but all rooms are booked.’ 

I think the algorithm is designed such that the Blue or White season members will always be shown ‘no availability.’

This happens for a year or two, and  I realize that my holiday days are going unused. This is when I will be pitched an upgrade for which, I pay another ₹5,00,000.

But what if, even after that, it shows me the room’s ‘not available’? 

Out of curiosity, I go and check Goibibo and see Club Mahindra’s room listed.  It shows - ‘Available.’ Oh oh, the betrayal! And the blood’s burning hot in my veins!

I choose to be extra-smart and book six months in advance rather than one. But a holiday that is booked 6 months in advance is very likely to get cancelled. 

And oh! I forgot to mention, you can cancel your booking 14 (or less, & in some cases 30) days prior to your date of arrival, and if you do after that, your days will lapse. 

Not to grumble, but don’t our holidays get cancelled just the week before our plans?

Members as unpaid Salesmen

Club Mahindra has so beautifully established their network that every member is a salesman, working for free and selling the packages to their family members, widening Mahindra’s client base. How?  

Word of mouth, my pal! Word of mouth. And their referral program too. 

Families that holiday together, holiday more together.

If one family has a subscription to Club Mahindra, naturally he/she would suggest the other one to buy it as well so they can go on vacations together. Even if they don’t buy the membership, they will check-in in Club Mahindra’s resorts as Guest, and that will be an additional earning from rooms, meals and activities. 

Activities? What activities? 

So Club Mahindra planned its whole business so superbly that they curated a lot of activities and their infrastructure inside the resort's campus, such that their guests wouldn't want to leave the resort and neither do they want it.

To name a few activities - Yacht sail, paragliding, river rafting, cultural immersion activities, adventure activities, plantation walk, pottery class, trek in nature, puppet show, spa etc., etc. 

For every activity, there is a certain fee per person, say ₹250 for a puppet show. So, ₹1,000 from a family per activity. 

Source: Club Mahindra

Would you like to look at spa prices?

Source: Trip Advisor

See the pattern? 

In July 2020, when everything was just opening up after the blow of the Covid wave, all other hotels were at 20% occupancy; every Mahindra resort was houseful!

These are great businessmen with a greater business idea, who were patient enough to wait for returns of a business whose gestation period was 10 years. 

People are paying them lakhs of rupees to get into a trap; and then to maintain that trap, they pay another few lakhs. Such geniuses!

Bad for customers, great for investors. 

So, my friend, this is where you and I part our ways. Till then, happy holidays, with or without Club Mahindra. 

From one Mahindra to another, here is the story of the Company's generational success. 

Disclaimer: The views expressed in this blog are not those of Finology Ventures Pvt. Ltd. The information has been collected from various sources and are not direct allegations against any person(s) mentioned.

About the Author: Rishika Mukherjee | 13 Post(s)

Rishika is an MBA aspirant. She is an avid reader and loves to write as much as read. As Hazel Grace stated, she could read a good author's grocery list and so would Mukherjee. 

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