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Hospitality industry goes along with trends

By Ding Qingfen (China Daily)
Updated: 2008-05-19 11:35

Most hotels copied from each other's designs and services and were so busy trying to grab guests by lowering room rates that beginning in 1996, the hotels' occupancy rate and profits on average nationwide began dropping and fell to the bottom in 1998, before rising a little in 2000.

Budget hotels, which originated in the US in the 1940s also showed up during that period.

China's first budget hotel brand was Jin Jiang Inn, which was created in 1997 by Shanghai Jin Jiang International (Group) Company Ltd, a Chinese leading hotel group.

In April 1998, another brand, New Asia Star, was launched, also in the eastern city, which was followed by East Ravel in 1999 and Home Inn in 2002. In 2000, the budget hotels numbered 60,000 with 3 million rooms.

The budget hotel concept came at a time when the local tourism industry was taking shape in the late 1990s, stimulated by the rising individual incomes and the policy of the three golden-week holidays in May, October and the Spring Festival issued by the Chinese government 1999.

During the 1999-2005 period, the number of domestic travelers had risen from 40 million to 110 million. Compared with four- and five-star hotels, budget hotels are cheaper and no less comfortable.

Since 2000, foreign players such as Super 8 and Ibis also joined the wave. The powerful sales networks, management techniques and plentiful funds helped them quickly gain an upper hand.

This pressed the local players to partner the venture capitals (VCs) or get listed for faster expansion and better corporate governance. In October 2006, Home Inn took the lead in listing itself overseas in NASDAQ, and it is now China's top player by having 400-odd hotels. Home Inn and a number of other brands including Jinjiang Inn, 7 Days Inn and Hanting also raised handsome funds from the international VCs in the past few years.

The local budget hotel industry grew almost overnight. By 2007, it is estimated there were 100 budget hotel brands that owned 1,000 locations nationwide.

But such volume was still not enough and there was a huge potential to tap, given that the ratio of budget hotels to the posh hotels as a whole in China, at below 10 percent, is far less than that of the developed nations, usually around 70 percent.

A booming industry

The past seven years witnessed a "genuinely healthy and prosperous hospitality market" in the mainland, which is expected to continue for the next decade, says Michael Issenberg, chairman and chief operating officer of Accor Asia-Pacific, the French hotel giant which has launched six brands in China.

By the end of 2007, there were 13,378 hotels in China, a minority of which were four- and five-stars with fairly high occupancy rates ranging from 70 to 75 percent in major cities.

All the international hotel management leaders have piled in and play the major roles. They not only brought in a package of brands tailored to all levels of guests, from four- and five-star to economy and business apartments, but also aggressively expanded the local network, from the key gateway cities to the secondary- and third-tier cities.

Take Accor. Its six brands in China, include upscale Sofitel, and Pullman, midlevel Novotel, apartment brands Mercure and Suithotel and budget brand Ibis. Its plan is to obtain a portfolio of 180 properties around China by 2010, says Issenberg.

"China's hotel industry is probably the most exciting worldwide, and in 2011, it will become our largest around Asia," he says.

Accor's view is typical of its global peers. Many attribute it to the Beijing Olympics in August, Shanghai World Expo and the Guangzhou Asia Games for 2010. But the players don't take it for granted. "Accor's strategy is never based on the Olympics," Issenberg says.

It was the increase in frequent business traveling resulting from China's entry into the WTO in 2001 and the nation's rising economy, which give them the confidence.

The past three decades has also seen the growth of 180 domestic hotel management groups, but except for Jin Jiang, Beijing Tourism Group and Home Inn, few can boast of being qualified enough to compete against their foreign peers.

"Few have the patience to develop the brand from a long-term perspective," says Lu. And Issenberg adds, "language is their biggest problem".

For both domestic and foreign brands, "a talent shortage" is now the biggest challenge ahead. "Ten years ago, people are proud of working in the hotels because of the higher salary, but it is misery now. Hotel jobs are more demanding but less competitive in pay," Lu says.

Many international hotel groups including Shangri-La and IHG have set up the training academies in the mainland to make up for the crunch. Issenberg says Accor is also working on this because "training is the crucial thing".

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