When Dennis Brown opened the first Super 8 Motel in Aberdeen, South Dakota in 1974, charging US$8.88 per night, little did he know that he had tapped the most auspicious number in Chinese culture. Call it coincidence, but the number choice seems to be working.
This year, by the time China reaches its own special set of “8s” – eight minutes after 8 o’clock on August 8 – Super 8 Hotel will have opened 89 branches in China in the last four years.
The breakneck expansion of Super 8, a budget hotel brand operated by New Jersey-based Wyndham Hotel Group International, is by no means an exception. American hotel groups across all star ratings are gaining a foothold in China in order to tap its emerging tourist market.
China will entertain 59 million foreign tourists this year, along with 1.8 billion domestic Chinese travelers, according to the China National Tourism Administration. The London-based World Travel & Tourism Council predicts China will be the world’s second-largest tourism and travel economy by 2016.
Bullish outlook
These trends, coupled with an expected business spike from marquee events like the Beijing Olympics and 2010 Shanghai Expo, give hoteliers reasons to be bullish. With an increasing number of travelers demanding accommodation at the lower- and upper-ends of the spectrum, these hoteliers are also keen to diversify.
The Wyndham group operates nine brands ranging from the economy-level Super 8 and Days Inn to the five-star Wyndham Hotel brand due to debut in Xiamen this fall. Hilton Hotels, which once targeted only the niche luxury market, now has an expanded China portfolio that incorporates seven different brands.
To cope with the managerial strain of operating several hotel lines and to facilitate rapid expansion, both Wyndham and Hilton are now franchising their hotel brands to mainland developers. The US companies’ mid- and lower-end brands are the first targets for this operation.
“[In China,] franchising has started from the budget sector up,” said Timothy Soper, Hilton’s vice president of operations for Greater China & Mongolia. “If you want to expand your brand rapidly, franchising is the fastest way to do it. But you have to do it judiciously.”
Though it does not currently have any franchised properties in China, Hilton has signed a joint venture agreement with RREEF Alternative Investments, which is owned by Deutsche Bank, and H&Q Asia Pacific to franchise 25 hotels under its mid-scale brand Hilton Garden Inn.
Master franchisees
Wyndham, the largest foreign player in China’s budget hotel sector, has licensed three of its brands – Super 8 Hotels, Days Inn and Howard Johnson – to “master franchisees,” or mainland companies that then sub-franchise these brands with independent owner-operators. Hong Kong-based Tian Rui Hotel Corp, for example, is the master franchisee responsible for the Super 8 Hotel brand. Tian Rui has expanded the brand to 72 branches in China. Wyndham either directly franchises or self-manages its other brands.
“We’ve relied pretty much on our master franchisees to do the development,” said Thomas J. Monahan, executive vice president of international development at Wyndham
At the other end of the hotel-star spectrum, few foreign hotel operators are willing to part with managerial control. Luxury hotel brands see more foreign guests than their industry peers and have to meet higher service standards. As such, they prefer to keep things in-house.
“Only by having full management rights are we able to manage properly,” said Edward Tai, area vice president of Hyatt International Hotels & Resorts, which has 11 four- and five-star properties in China. “We’re trying to emphasize quality over quantity.”
Tai says Hyatt plans to open five to six properties annually in China in the coming years and would expand even faster if there were sufficient qualified managers in the country to run operations. Staff recruitment is also held up by Hyatt’s commitment to developing and training 60-70% of core management through its own training system.
“When I hear about other hotel chains opening 50 new hotels in a year, I ask: ‘Where did you find the 50 general managers?’” Tai said.
But the problems aren’t confined to management level. There are an estimated 19 million jobs in China’s travel and tourism industry and there aren’t enough qualified workers to fill them.
As a result, stories of hotels poaching employees from rivals, as well as employees bouncing between hotels, are commonplace. Inexperienced managers, who are being developed by one hotel, may leave prematurely to fill a higher-level position elsewhere. This can lead to lowered service standards across the industry.
To cope, hotel operators have brought in long-term management training programs, which equip management hopefuls with work experience while also fostering a sense of company loyalty. Hilton’s 18-month-long “Elevator” management training program includes a personal mentor and overseas placements.
Visa troubles
No matter how many selling points different hotel chains accumulate in the retention battle, China’s hotel industry appears resigned to being troubled by human resources issues well into the future. However, there are also short-term challenges ahead. For some hotels in Beijing, 2008 thus far has not been the tourism boon they had been hoping for.
In early May, Zhang Huiguang, director of Beijing’s tourism bureau, announced that of the city’s five- and four-star hotels, only 77% and 44% of rooms were booked ahead schedule for August 8-24. Though 500,000 foreigners are expected for the games, Beijing’s tightened visa policy, which has made applying for business and tourist visas more complicated, has taken a toll on occupancy rates.
“The visa issue is what has hurt us the most in these months, because we depend on foreign business,” said Tai, who estimates that May, June and July’s occupancy rates will be down approximately 10-15% from usual.
Yet not all hotel groups are feeling the pain.
“We’ve had group cancellations, or stories of individuals who couldn’t get visas in time, but in terms of hard occupancy there’s been no impact,” said Hilton’s Soper. “Where business was cancelled, it was replaced by other types of business.”
During the games themselves, average room rates are expected to soar threefold to US$320 for four-star and US$521 for five-star. Assuming the rooms are filled – both Tai and Soper say theirs will be – these inflated room rates may help hotels recoup any previous losses.
After that comes the inevitable post-Olympics supply glut. Hoteliers accept they will suffer somewhat but they remain focused on the bigger picture – and what they hope will be a lucrative long game.
