“It is the worst era of Chinese hospitality industry. The stock market will last at least 50 year” said by the co-founder of Hotelpn, Shaohui Feng.
Due to the fast growing international and domestic tourism, China has been a hot investment destination since the beginning of the century. Since 2007 to 2017, there are 100,057 incremental hotels in China, representing 19.2% annual increase. However, the growing rate has started to decrease since 2015. Many investors realized that it is increasingly hard to find a property and many managers realized that it is increasingly hard to maintain a high GOP.
How can hoteliers survive and even thrive during this period?
Industry experts shared their opinions at CHIC.
1. Seize the Niche market
Millennials who are independent from brands and dislike standardization fragmented the accommodation market. Boutique hotels with a distinctive feature are getting increasingly popular among these young generations. Many entrepreneurs with the personal passion also involved into the trend. Yifei Xiao, Chairman of directors of Xunmei Ingenuity, for example, stated that “In our hotels it is important to emphasis on local culture. To run our boutique hotels efficiently we had to develop unique resources and services”. It is suggested by multiple speakers that hotels integrating exceptional elements are more competitive.
The conflicting relationship between personal passion and venture capital investment was also discussed in a panel. Venture capital is a double-edged sword. On one hand, it enables individuals with limited resource to develop the destination with unique resource into unique product. Also, the independent boutique hotel is able to scale up and develop as a brand with the capital support. On the other hand, it is detrimental to invest blindly without a proper business plan. Therefore, the success required hoteliers to establish a business model that balance the individualization from personal passion and the commercialization from capital asset.
2. Adapt the business model
“Investors should shift from asset driven to management driven” (Powerlong Hotel GM, Guoyue Xia). As the growth rate slowing down, investors should focus more on management, service and finance. The funding platform, Duocaitou, has started to adopt the change by providing not only capital service but also management consulting.
The solution of efficient management that fit the market was proposed. In light of previously discussed need for heterogeneous accommodation experience, the CEO of Bund Media, Jun Li suggested to “bring all independant hotels together like ‘Design hotels’ in Europe”. Langham Hotel Group Development SVP, Mandy Fan also proposed the alliance of independent hotels, so that they can keep their distinctive identity, in the meantime enjoy more resources.
3. Optimize the asset value
The asset value of each property is increasingly valued by owners. Compared with other industries such as shopping mall and office, Chinese hotel industry is very critical with 25-30 years of pay back period (Co-founder of Hotelpn, Shaohui Feng). Executives should find a way to deal with badly performed property. One way is to optimize space usage. In order to maximize the return of the hotel, the return of each space should be optimized. Hoteliers should have the mindset that hotel is not just about accomodation but a space gathering multiple businesses. Hoteliers should think out of the box and constantly revise the emerging revenue opportunity in the market.
To conclude, the business environment of Chinese hospitality industry has not been the same 10 years ago. Investors should adapt their strategy in term of product positioning, business model, and asset management.
Authors: Zoë Pfeiffer and Lin Shi, EHL Bachelor Students