Recent activity in the Chinese hotel industry shows it is not just the Luxury and Upscale Chinese brands, such as Wanda, who look abroad for strategic growth and tap into the increasing amount of international Chinese travellers. The Economy segment is also looking outside of China for new markets to apply their brands and business model.
Initially this was considered for South East Asia rather than Europe and the US, both Thailand and Indonesia are natural markets to look to for expansion, as well as Singapore. With the experience and pace of growth so far in China, there may be reason to believe they can also succeed in South East Asia and give existing western groups like Accor and IHG a run for their money in the Economy segment.
Economy hotel chain growth in China
By the mid-90s, Jin Jiang Inns formed the first larger scale economy chain that continues to grow, and in less than 20 years later, we now have chains with more than 2,000 hotels that keep growing at a significant pace, in some cases looking to add more than 400 hotels each year moving forward.
Home Inns grew quickly before the economic turn-down, creating a momentum and valuable economies of scale. With an operationally efficient organisation across the country, they have proven the success of their model to sustain the growth that was historically only seen by large American Economy hotel groups. Other groups in China growing fast include Huazhu Hotel Group (including their large economy brand Hanting) but also companies such as 99 Inn and 100 Inn. One of the challenges these groups will come across, with having increased growth rates, is staffing. Especially in the case of Home Inn, who plan to add 20,000 staff members in new hotels each year moving forward. This challenge may be less critical in the economy segment than for upscale and luxury classes, with bigger overhead.
The existing Chinese leasing model offers great corporate benefits as companies grow in size. Home Inns and, another of the largest hotel groups that have products in the Economy segment in China, Plateno Hotels Group with 7 Days Inn, are now looking for growth in 4th and 5th tier cities across China. This is where smaller and local groups previously saw progress, whereas both larger groups initially focused on the 1st and 2nd tier cities for fast growth.
Achieving beyond 50% in GOP at this lower average daily rate, alongside the fact that overall rates in China have taken a hit in recent years, requires diligent cost control. There is an ever-expanding need to increase margins, by optimising the right amount of centralised functions and relying heavily on nimble technology and mobile solutions, as well as ultimately increasing the franchisee base of the portfolio.
STR Global sees strong data growth in economy segment in China
The increasing need for credible and neutral data intelligence, revenue management and investment numbers in the economy segment for China means that STR Global continues to grow data participation in this segment across many Chinese markets.
This is assisting hotel groups to make data-driven market share decisions, as they grow domestically and abroad, also further enhancing the reports we make available to the wider hospitality industry on industry trends in China.