EDITS ON OUR SEPTEMBER 2007 HOTEL PACKAGE. JUST A TASTE OF 2/5 ARTICLES.
BUSINESS
Extending Their Stay
By Courtney Woo (Beijing)
With China’s incessant tourist influx set to withstand post-Olympic fervor, there’s no rest in sight for those who wish to provide the best night’s sleep.
In 2005, Beijing’s Financial Street resembled a ghost town more than the cosmopolitan financial district its creators envisioned when they started building in 2000. “People used to laugh and say to me ‘Oh, you’re on the West side? It’s going to be tough,’” says Charlie Dang, general manager of The Westin Beijing Financial Street, one of the pioneer hotels in the area. “We’d walk to work and see almost no one on the street.”
Today, however, that same walk reveals a very different picture. At lunch, an international mix of businesspeople flock to the area’s cafes, restaurants and shopping malls. Just down the street from The Westin Beijing is the city’s first Ritz Carlton, and nearby, Metropark Beijing is going up. These stand among a burgeoning wealth of hotel chains waiting to cash in on business flowing in from international heavyweights such as Royal Bank of Canada, JP Morgan Chase, Bank of America and Goldman Sachs, which have been rapidly setting up in the area during the past year and a half. Not everyone here is talking about the 2008 Olympics, but gold is on everyone’s minds.
To hoteliers, Beijing 2008 is only the beginning. According to the UN World Tourism Organization, by 2010 China may surpass Spain and the U.S. to become the world’s second most popular destination, rivaled only by France. By 2020, it may rise to number one.
Driven by such predictions and major upcoming events, the number of major airports around the country will rise from 150 to 220 or 240 by 2020. In time for the Olympics, Beijing Capital International Airport’s Terminal 3 and the third runway will hold 60 million passengers annually. Down south, Guangzhou’s phase 2 of New Baiyun International Airport will open before the city hosts the 2010 16th Asian Games. And in Shanghai, Hongqiao will have a new runway and terminal in time for 2010’s World Expo.
Along with airplane seats, beds are burgeoning. According to the global investment firm Jones Lang LaSalle Hotels, Beijing will have more than 11,000 new rooms by the start of the 2008 Olympics, and experts predict the industry will thrive long after the events close. Shanghai, riding on economic growth and the 2010 World Expo, will likely surpass 6,982 new rooms between April 2007 and 2009, adds Jones Lang LaSalle Hotels. Hotels are exploring new areas in these old cities. In Beijing, look to Financial Street, Xidan and Zhongguancun for lucrative developments rather than old-timers CBD and Wangfujing; in Shanghai, big names are spreading their nets beyond The Bund and Huangpu district and into up-and-coming business districts like Zhangjiang, Changning and Zhabei.
But worries of a saturated four- and five-star market circulate in cities like Beijing where construction sounds are reaching a fervent pitch. And once the Olympics are over, some fear occupancy will drop.
“Hotels on the outer ring roads, close to the Olympic grounds, may be most hurt once the games are over,” says Westin’s Charlie Dang. These hotels, which are further from the city center and tourist sites, could drive down the market price by dropping room rates and offering overly discount packages to travel agents bringing tour groups from abroad. “Both the city and the hotel industry would suffer from this. Tourists disappointed at their location on the outskirts of the city would leave with a negative image of Beijing.”
Lily Ng, Vice President of Jones Lang LaSalle Hotels, however, disagrees. “But if you look at the history of other Olympic host cities, none of those cities were experiencing the double-digit growth that China is now,” she says. “Demand in 2009 may experience some compression, but the market won’t tank. China’s is a sustained growth, not a one-year blip.”
The World Tourism Organization Mega-Trends of Tourism report supports that China’s business travel market will grow faster than the leisure market, so industry experts expect that business travelers will absorb much of the added multi-star rooms. As foreign direct investment in China grows and more multinationals move in, so too will demand for four and five stars equipped to handle the MICE (meetings, incentives, conferences and exhibitions) sector. Ng is confident that the MICE market, which “normally picks up after Olympics,” will consume new supply.
In preparation for the MICE surge, brands like Westin and Hyatt, Marriott are ready to pounce. Across the street from Guomao in Beijing, the city’s second Hyatt, the Park Hyatt, is going up, making it the tallest skyscraper on Chang’an Avenue. Management expects the majority of its guests to be business travelers. Every room will boast WIFI, DVD players and flat screen televisions. The city’s highest new restaurant will be located on Level 66.
The Westin, likewise, is spreading its wings for new heights, confident that brand awareness will keep it airborne. Although Starwood Group, of which the Westin brand is a part, has 32 hotels in mainland China, Westin’s presence has been low key to date, with only three hotels. But a second Westin in Beijing (Chaoyang) will open in June 2008, and Westin will expand to five more mainland locations into 2008 and 2009, including Tianjin, Zhejiang, Nanjing, Xi’an and Hainan. The Zhejiang resort will have a 21-hole golf course and marina with boats.
In order to beat growing competition, those that arrived earlier are buffing and polishing their image. “Before 2006 we had only three main luxury competitors. Now we find ourselves in a more competitive market,” says Julia Tao, public relations manager of the newly refurbished Peninsula Beijing. “But challenge is good. It encourages us to constantly improve facilities and service.” The Peninsula Beijing receives a 50/50 mix of international and local business and leisure travelers. Walking through the hotel, one hears a mix of Spanish and English peppered with Russian and Chinese. In order to remain competitive, the hotel’s new Hong Kong owners decided to dump the circa-1990s Chinese decor.
Renovations began in 2002, not coincidentally one year after Beijing won the Olympic bid. The final phase was completed in 2006. Hardware was a focus. The Peninsula expects to woo both leisure and business guests with high technology such as 42″ plasma TVs, LCD TVs in most bathrooms, personal fax machines and free DVDs. A new spa and fitness center is scheduled to open in May 2008.
Some brands, such as Hyatt International are also hedging their bets on the domestic market. “As domestic travelers become more seasoned and inbound traffic continues to expand, given China’s economic growth, we believe the demand for high-end hotels will continue to grow and is sustainable in the long run,” says Edward Tai, Hyatt International’s Vice President-China. Over the next three years, Hyatt will open 10 hotels in China, including Guangzhou, Shenzhen, Chongqing, Chengdu, Nanjing and Ningbo.
For Western hotels, the boogeyman under the bed now is brand awareness. “The majority of our customers both normally and during the Olympics are U.S. corporations. We sell easily with them because Westin is an American brand and guests feel good knowing what they’ll be getting,” says Dang. The bigger challenge will be selling itself to Chinese consumers, who aren’t familiar with the name.
And there are other worries keeping the multi-stars awake at night. Recruitment is a universal worry as more hotels means less qualified staff to go around. Hotels that invest time and resources in new staff must also retain them, ensuring that guests’ experience in China is the same as anywhere else. Turnover is high as competing hotels fight over experienced staff to supervise their hotels.
Compared to four and five stars, the branded economy hotel sector, though not immune to staff turnover and rate wars, has arguably the most potential for growth and for profit with the lowest risk, industry watchers say. The sector is still young–Chinese-owned JinJiang entered in 1997, followed by the like of Home Inn and Motel 168 in 2002 and 2003 respectively–but some brands already report around 85-95 % occupancy.
“There is a significant amount of demand for inexpensive but reliable rooms amongst domestic travelers,” says Ng. Moreover, as domestic corporations move inland to second- and third-tier cities, so will budget brands, which can efficiently go where four and five stars cannot. At an average of 200 RMB per night, the budget hotel is an economic choice for Chinese leisure tourists, independent entrepreneurs and larger corporations looking to save cash. Today, names like Super 8 and Home Inn report receiving anywhere from a 50/50 to 70/30 mix of business versus leisure travelers.
The challenge for economy hotels, then, will be building up brand recognition in fledgling markets where there is little differentiation between players. “Budget hotel strategies should focus on brand recognition and regional expansion. Bigger guys like Home Inn, Super 8 or Accor’s Ibis hope you’ll choose them the next time you go to small city rather than the no name next door,” says Ng.
“If you are in a little city with a population of 300,000 to 500,000 people, a branded economy hotel that enters the city will become a popular destination,” says Super 8 China CEO Mitch Presnick. Super 8, which entered in April 2004, is China’s largest foreign economy hotel operator.
As of July 2007, Super 8 had 140 hotels open or under construction in 70 Chinese cities. One of those is in Dalian, where the Super 8 name is already increasing sales. In 2004, the company took over a hotel that was suffering from occupancy rates as low as 20 percent during off-season. Now, that number is 70 percent in off season, with 85 percent average annual occupancy. “Through the brand, we established corporate accounts with a Dalian technology zone home to IBM, Dell and Sony,” says Presnick.
Chinese brand Home Inn, which launched in 2002 and has 242 hotels completed or under construction, has embraced both regional and brand expansion. Within the next three to four years, the company hopes to reach 1,000 hotels around the country in provincial capitals and small cities where commercial activity is high. The chain receives few foreign guests, but this may change as the company listed on America’s Nasdaq in 2006. “By entering the global stock market, our name will gain greater exposure among foreigners,” says Home Inn CEO Sun Jian. Home Inn could further growth by targeting a Western market that is willing to pay 60 USD a night for a three or four star rather than 20 USD for a budget room. “In the future, the new economic growth point for Home Inn may be a new product to meet higher demand of foreign guests,” says Sun.
Less certainly lies in China’s boutique and design markets, which are the newest arrivals—the successes of which are yet to be determined. In Shanghai, boutique options Pudi Suites, The Mansion, M Suites, and Hong Kong brand JIA have recently opened their doors. Next on the docket to launch November 2007, is Urbn Hotel, the first of a planned 10-hotel roll out from Scott Barrack and Jules Kwan, the designers of InnShanghai, a serviced apartment hotel that opened two years ago.
“Urbn is just an evolution of the InnShanghai concept and on a bigger scale, and we’re targeting anyone 28 to mid-40s who is style conscious and wants entertainment and creativity,” says Barrack. The design will be warm and clean, hip with Chinese accents. “This is a very modern approach but using materials that are natural to Shanghai, such as grey brick and roof shingles.”
But at $250 to $500 USD a night, newcomer Urbn, located near Jing’an Temple, will find itself in direct competition with old-kid-on-the-block Ritz Carlton just down the street, where rooms run from $300-500 USD a night. And without the power of a name like Ritz Carlton, Urbn will find it hard to attract the brand-conscious Chinese market.
“For now we are focusing primarily on the Western market because we know it better. But in the long run we hope that Chinese will find value in this kind of creative stay,” says Barrack. ” There is an awareness hurdle to get over first. As the market evolves, Chinese may see why this kind of stay is worth $200 USD a night.”
Come what will, China’s hotel market is one of evolution and potential, and any hotel that is prepared and has a clear long-term strategy will have a fair chance to succeed. “The China hotel industry has just exploded,” says Ng. “I’m traveling all over China to places I’ve never heard of before.” If predictions come to fruition, soon international and domestic travelers will be going there too. That’s something upon which hoteliers can rest easy.
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