Growth of the Global Hotel Industry
Hotel investment continued to make strong gains, to register a total of $72.5 billion in 2006. Each region in turn has posted historical highs, as real estate in general is becoming even more of a favored asset class and hotel owners are prepared to reinvest returns.
The hotel transaction market has experienced four consecutive record breaking years, with 60.9% and 62.9% year on year growth in 2005 and 2006 respectively. While the total volume of transactions is expected to slow slightly in 2007, the globalization of hotel investment will continue to fuel the rapidly growing hotel industry.
Hotel Investment
In recent months, the industry has seen large investment flowing into the budget segment in China. The rapid growth of this sector may mean a continuing trend of ambiguity in relation to the differentiation between the economy and the budget hotel.
Super 8: USD50 million
7 Days Inn: USD95 million
Motel 168: USD20 million
Hanting Hotels: USD85 million
Growth of the Hotel Industry in China
Budget Hotels: At the end of 2006, there were nearly 100 brands of chain budget hotels with more than 1,000 outlets and over 100,000 guest rooms put into operation in the lodging market, making up almost a 10 percent share of the lodging industry.
By the end of 2006, there was a total of 13,378 star rated hotels in China, which was an increase of 22.89% compared with 2004.
Hotel Rating No. of Hotels % Increase since 2004
5-star 298 23.14
4-star 1,400 44.18
3-star 4,993 27.56
2-star 6,027 18.31
1-star 660 -0.75
Economy or Budget?
The industry continues to group budget and economy hotels into a single category
Evident in statistical analyses, articles, journals, etc.
There is a pressing need to establish a clear line between budget and economy
Stiff competition in the budget hotel market from established local brands and rapidly expanding international brands has increased the appeal of the economy sector and the need to differentiate themselves from the budget sector.
The development of the budget and economy segments of the hotel industry in China are still in their infancy stage. With investment pouring into the expansion of hotel chains, the standardizing of the classification system will not only help protect the investment and future of these hotel chains, but also protect the consumer.
At present, industry statistics and publications group budget and economy hotels into the same category. As we will see from the following slides, there is considerable reason to separate them into discernable categories.
Brand Standards
Budget Hotel: Lobby
Spartan FF&E
Simple décor
Limited space
Economy Hotel: Lobby
Better quality FF&E
Contemporary décor
More spacious
Budget Hotel: Standard Twin Room
Basic furnishings
Simple décor
No/limited wallpaper, carpeting
No/limited appliances
Economy Hotel: Standard Twin Room
Better quality furnishings
Contemporary décor
Carpeting, wallpaper
Refrigerator, small appliances
Budget Hotel: Standard King Room
Basic furnishings
Simple décor
No/limited wallpaper, carpeting
No/limited appliances
Economy Hotel: Standard King Room
Better quality furnishings
Contemporary décor
Carpeting, wallpaper
Refrigerator, small appliances
Larger room size
Budget Hotel: F&B Facility
Limited dining, if any
Simple décor
Smaller dining room size
No/limited room service
Economy Hotel: F&B Facility
One good quality restaurant
Better quality furnishings
More spacious dining room
Room service
Economy Hotel: Meeting Facilities
Quality furnishings
Often multiple room size options
Business center services
Room Rate Comparisons (Beijing)
Comparing room rates of various budget brands with economy hotels in Beijing further illustrates the difference in the segments:
Budget:
JinJiang Inn (Ma Jia Pu) from 159 rmb
Motel 168 from 168 rmb
7 Days Inn from 177 rmb
Home Inn (Li Ze Qiao) from 189 rmb
Super 8 (Yin Ma) from 198 rmb
Economy:
Days Inn Joiest from 259 rmb
Motel 268 from 268 rmb
Express by Holiday Inn from 424 rmb
Airline Analogy: Differentiation
The service level of the hotel industry in China today may be compared to the airline industry. The budget hotel segment offers the guest a low-cost alternative just as budget airlines do. In looking at a standard airline, the hotel market can also be broken into different levels of service, amenities and valuation.
Brand Standards
Standard Airlines/ Hotel
Full service
Multiple levels of comfort
Full range of food & beverage options
Varied price points
Low-cost Airlines/ Budget Hotel
Limited service
1 level of comfort
Limited food & beverage
Low price point
First Class:
Shangri-La
Inter-Continental
Hilton
Four Seasons
Business class:
Traders by Shangri-La
Holiday Inn
Double Tree by Hilton
Days Hotel
Economy:
Express by Holiday Inn
Motel 268
Days Inn
The bulk of travelers are on a budget but still expect full-service amenities. The economy sector fulfills this need by providing the middle-class leisure traveler and business traveler an affordable alternative between the high-end segment and the budget segment.
Last year, 125 million travelers visited China, including over 22 million from overseas, an increase of 3.9% from a year earlier. Meanwhile, 1.39 billion Chinese traveled within the country, a jump of 15% from 2005. Although the industry is booming, room rates have dropped during this period due to increased competition.
A recent national survey of the budget hotel industry found that occupancy rates at budget inns dropped to an average of 82.4% last year compared to 89% in 2005. Meanwhile, the average price for a budget room dropped 36% last year to RMB209 (US$27.34) a night. This is a reflection of the increased competition within the segment and the growing supply of budget hotels.
With more than 100 brands of budget hotel in China with leading domestic players such as Jin Jiang Inn, Home Inns and Motel 168, as well as overseas competitors like Super 8 and Ibis, there is no doubt that heavy competition is pushing some budget hotels to offer service and accommodations that are not up to standard.
On the other hand, budget hotels realize that there are guests who want a better standard than a budget hotel but who are not willing to pay 5-star or 4-star rates. As a result, some budget brands have responded by improving their product and introduced new “branding”, e.g., Motel 168 now also offers Motel 268.
At this critical juncture in the expanding market in China, economy hotels need to stake out a very specific market segment to distinctively separate themselves from both the luxury market and the budget market. As the following slides will demonstrate, the economy segment is growing rapidly fueled by increasing international arrivals and domestic spending.
Potential for Growth of Economy Hotels in China
Average Domestic Tourism Expenditure Per Capita:
Total Population RMB436.1 (USD 57.31) per year
Urban Residents RMB737.1 (USD 96.86) per year
Rural Residents RMB227.6 (USD 29.91) per year
Average Foreign Tourism Expenditure Per Capita:
Total USD 147.72 per day
Accommodations USD 23.00 per day
Increase in domestic tourism:
1.394 billion travelers in 2006, a 15% increase from 2005
Domestic Tourism Receipts of USD78.17 billion in 2006, a 17.9% increase from 2005
Tourism industry GDP comparison:
2002 2010
5.44% 8%
Business Hotel Segment in China
Within the economy segment, there is further differentiation taking place. Business travel, both foreign and domestic, is growing at a such a pace that it warrants it’s own segment within the economy hotel market.
According to a recent survey in Beijing, business travelers spend more on average than leisure travelers in almost every category.
Business Traveler: RMB 2,772 per trip on accommodation
Leisure Traveler: RMB 828 per trip on accommodation
The average Business Traveler spends 32% more on F&B and 7% more on entertainment than the average Leisure Traveler.
China is now one of the leading international destinations for tourist travel
1978: 300,000 foreign visitors
2006: Reached 22 million (excluding arrivals from Hong Kong, Macau and Taiwan)
Of the 22 million foreign visitors almost 25% came for business or meetings
International business travel spending in China: USD 4.2 billion
Business Hotel Segment in China
Foreign Visitor Arrivals By Purpose (Jan - Dec 2006)
Total Visitors Meeting/Business % of Total
Domestic Business Travel
CNY (Billion) Growth
2006 358.4 18.3%
2017 1,233.6 10.6%
22,210,266 5,548,343 24.98%
Business Hotel Segment in China
In response to the growing demand for economy hotels in China, the surge in business travel, and the desire to customize service for the guest, Days Inn China has recently introduced a new brand: Days Inn Business Place.
Days Inn Business Place
Concept
Days Inn Business Place fills the growing need for a full service economy hotel catering exclusively to the business traveler. The hotels provide convenient locations to business centers with all of the amenities the businessman needs at an affordable price.
Amenities
Spacious work area and office chair
Easy to reach data port and electrical outlets
LCD television
Full size ironing board and iron
Free local calls, free broadband internet connection and Wi-Fi broadband internet connection in public areas
Chargers for mobile phone available at the Front Desk
24-hour Business Center services
Courier service will be available around the clock for guest convenience
Convenient locations near major business districts
Complimentary snacks
Minimum (usable) room size of 24 sqm.
Hotel Design
Days Inn Business Place has been designed from the ground up with the business traveler in mind. Incorporating a modern, uncluttered approach that provides all the service and efficiency our guests demands but without the high overhead costs that multiple F&B and entertainment facilities incur.
Hotel Room Design
Days Inn Business Place guest rooms have been developed to provide a comfortable, productive space to work and rest between business meetings. The bright, open rooms, with large work desk, comfortable office chair, and LCD television will become the new standard in business travel.
The Future of the Hotel Industry in China
China will add an “America” to its urban population in the next 20+ years:
China will add at least 342 million people to its cities by 2030, a 64% increase.
China constructs more buildings in a year than the entire European Union would add in a decade.
171 mega cities with more than 1 million people (The US has 9 cities over 1 million).
For China, Travel & Tourism activity is expected to grow by 9.6% per annum between 2008 and 2017.
In China, in 2007, Travel & Tourism is expected to post US$439.8 billion of economic activity, growing to US$1.57 trillion by 2017.
Number of Hotels:
China vs. United States
2006
No. of Star Rated Hotels Managed by Established Brands Population
United States 60,000+ 80% 300 Million
China 13,000+ 10% 1.32 Billion
The hotel industry in China is experiencing phenomenal growth and will continue to do so for the foreseeable future. As the industry expands to meet the growing need and matures into the type of market seen in more developed economies in the west, the opportunity exists for all players within the industry to develop their own niche markets and continue to flourish.
China offers a wide range of lodging choices and with future growth the industry needs to continue to refines its standards
The hotel industry can not compete solely based on price, but in innovation and customized services and amenities
Innovation, differentiation, market awareness and succinct industry standards will produce profitability and customer satisfaction for any hotel regardless of its market segment
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