Last week an official of Accor said that the future expansion of Accor in China will be with Ibis, the Accor budget line. And the plan is to add another 100 hotels within China in this group. Meanwhile Home Inns, probably the biggest player in the China budget market, is considering expanding outside mainland China, mostly in Asia, within two to three years.

May Wu, its chief financial officer said, ‘Our customers … are by and large domestic business travelers. They are traveling overseas. We want to be where they travel to.’

May Wu said in China Home Inns want to increase so that it has more than 30% within five years as opposed to 20 to 25% at present. It will quadruple its number of outlets to 1,000 in three to five years.

(Whether that it gives it 20% of the market now is open for debate. An informed guess would be it probably has something nearer 18% at the moment although that very much depends on how you define budget motel. In October Home Inns acquired Top Star in a RMB340 million ($45.6 million) deal. It still intends to grow organically but would not automatically reject further acquisitions.

May Wu said, ‘Top Star is one big step and a big milestone for us. We would continue on this path when the right opportunity presents itself.’

A most excellent article by Jon D. Markman analyzes the economy hotel situation in China from an investment perspective. It is totally positive. You can read the whole article by clicking on Source at the end.

He writes that there is a rising need for more hotels. Domestic tourism is growing at 10.4% per year and will amount to 8% of China’s national GDP by 2017, according to government statistics, compared with 5.4% today.

Biggest growth area is budget hotels. 90% of Chinese travelers stay at budget inns where they can find standardized rooms, comfy beds, great locations near business centers, free Internet access, hair dryers and ironing boards for the equivalent of $22 per night.

The leading brand for inexpensive hotels Home Inns and Hotels Management, which reported $95 million in revenue in the past 12 months and $5.4 million in income.

Analysts report that the number of budget hotels has grown from fewer than 100 in 2003 to around 1,300 this year.

Home Inn executives, several of whom were founders of the successful travel agency Ctrip.com International, say that they plan to add 100 hotels a year to achieve that 60% annualized growth rate.

Home Inns is believed to own about 18% of the market, a percentage point above its older but slower-growing arch-rival, the Jin Jiang Inn chain.
Accor, the French chain, has announced plans to open 20 of its Ibis budget hotels over the next year.
Motel 168, a slightly more upscale chain seen in our illustration, is backed by Morgan Stanley.
7 Days Inn is being backed by Warburg Pincus.
The Super 8 hotel chain already has 49 budget hotels in China.

These are all, perhaps, paltry numbers with an industry still in its infancy.
Source: The Street

A series of mergers and acquisitions are possible within China’s budget hotel industry. This was started off when Home Inns announced it had acquired the Top Star hotel chain for RMB340 million ($45.3 million).

According to David Sun of Home Inns this will help it work towards its goal of 330 hotels in more than 80 cities, David Sun Sun didn’t say how long it would take to reach the target.

Within the industry the talk is that the acquisition, the first of its kind in China, might indicate the beginning of mergers and acquisitions among domestic budget hotel operators.

Zhang Minghou, an official with the China Hotel Association, which now represents between 8,000 and 9,000 hotels — from deluxe hotels to budget inns — across the country said, ‘The acquisition may reflect a general trend of more frequent mergers and acquisitions in the future. However, it will still take time to see how Home Inns is going to consolidate the two brands and their cultures to make the deal a success.’

He Jianmin, a professor with Shanghai University of Finance & Economics, agrees that more mergers and acquisition deals would likely occur in the budget hotel industry. He said brands with larger operations and sound capital flows will have a competitive edge.

China’s budget inn industry started in its modern form in 1997 when Shanghai-based Jinjiang Inn opened its first inn in the city.

At present, there are already more than 1,000 budget hotels in the country, operating under some 100 brands. Jinjiang Inn, Home Inns, Motel 168 and 7 Days Inn are the major domestic brands competing with overseas rivals such as Super 8.

Major players in the industry are all very keen to expand. Thus we can expect the budget hotel numbers to go up, and the number of brands to go down.
Source: China.org.cn

Budget hotels in China are coming under tighter controls. This will be to the advantage of top players such as Home Inns (an example seen here) and Jinjiang Inn by making it somewhat more difficult for newcomers. This according to Zhang Minghou, assistant to the head of the China Hotel Association. He said, ‘The rules will help to prevent blind investment, protect consumer interests and benefit the big players.’

The rules, expected to be announced by China’s commerce ministry possibly as early as this year, will divide budget hotels into three categories and set separate quality standards for them.

Zhang Minghou said, ‘Substandard hotels are hurting the whole industry and should be eliminated. Due to absence of an industry standard, many consumers have been misled.’

China’s budget hotel industry has risen to 100,000 rooms in 2006 from almost none in 2001, spurred b rising demand from small businesses and families on holiday.

Rising competition contributed to a 45% slump in average room rates and lower occupancy rates in the industry in 2005.
Budget hotel room rates average about RMB200 in China, less than one-quarter those charged by five-star hotels.

China’s first industry set of guidelines to regulate budget inns is expected as early as the end of the year. The national standard, to be drafted by the China Hotels Association, is aimed to help regulate the industry.

At the moment there is no doubt that in the face of tough competition some budget hotels are offering service and accommodation that do not meet any standards simply because there are none.

Zhang Minghou, an official with the China Hotels Association, told Shanghai Daily, ‘It is time to work out an industry guideline as budget inns have been growing very rapidly all across the country. With national standards, everyone in the industry can improve customer service.’

The China Hotels Association now represents 8,000 to 9,000 hotels nationwide.

A recent national survey of the budget hotel industry by the Association 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 relatively young industry and teething problems are to be expected.

Shanghai-based Jin Jiang Inn — the undoubted leader in this area, the one probably the least in need of standards and the one illustrated here — did not open its first hotel in Shanghai until 1997. And the industry did not start its explosive expansion until about five years ago.

According to earlier media reports, there are probably 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 Holiday Inn Express.

Zhang Minghou said it is possible that budget hotels will be divided into three categories based on prices — RMB200 to 300 per night, RMB100 to 199 and below RMB100 yuan a night.

Last year, 125 million overseas travelers visited China, an increase of 3.9% from a year earlier. Meanwhile, 1.39 billion Chinese traveled within the country, a jump of 15% from 2005. And still the room prices and occupancy rates have dropped. Standards are plainly needed.
Source: Shanghai Daily

Jinjiang, China’s largest hotel operator, is doing pretty well in the food and drink business, not so hot in hotels. First-quarter profit jumped 13% mainly due to increased sales at its franchising food and beverage businesses.

Net income rose to RMB55.86 million ($7.25 million) in the first three months of this year while revenue climbed 13.6% to RMB196.56 million.

So where did the profit come from? Mainly what is referred to as F and B for food and beverage. The company’s 49% owned KFC ventures added eight more outlets in the first quarter, and sales were boosted by 11% to RMB413.18 million. That is a lot of chicken legs leading to a finger lickin’ good profit.

However, revenue from the company’s hotel-management business declined 1.3% to RMB23.59 million. Average occupancy rates at four hotels, in which Jinjiang holds more than 20% of each, rose by 3.7% to 72.4% while room prices fell 6% to RMB1,023.
Source: Shanghai Daily

Shanghai-based Jinjiang Inn, China’s oldest and largest budget hotel chain, will add 400 new facilities, with 200 in service by 2010. It currently has more than 200 outlets.

According to its president Xu Zurong, talking to the China Daily, East China and the Yangtze River Delta account for 62% of the company’s operations. It will expand in Beijing, Tianjin, the Bohai Bay area and the country’s provincial capitals and regional economic centers.

Under the plan, most of the $310 million raised last December through its parent company Shanghai Jin Jiang International Hotels (Group) Hong Kong listing will be used to finance the budget hotel chain’s expansion. Xu said acquisitions, leasing and franchises will be the company’s three main avenues for growth. He said, ‘In the last decade, Jinjiang Inn has successfully switched from the management of individual businesses to brand management and operation.’

But, he warned, ‘The franchise business is a double-edged sword — excessive growth might ruin the brand.’ Xu welcomed competition from domestic and overseas players in the thriving budget hotel market. He said, ‘Without competition, we cannot develop. With more competitors on the scene, our strategy is simple to do a good job with our products and market.’

Jinjiang Inn has maintained an average annual occupancy rate of over 90% since it opened its first outlet near the Jinjiang Amusement Park 10 years ago.
Source: China.org.cn

Hirsch Bedner Associates, which is probably the best known hospitality design consultancy in the world, will manage the historical restoration and adaptation of Shanghai’s landmark Peace Hotel. When renovated the hotel will be managed for Jin Jiang by Fairmont Hotels & Resorts and plans to reopen in 2010 as the Fairmont Peace Hotel Shanghai.

Michael Bedner, Chairman and CEO of HBA/Hirsch Bedner Associates, said, ‘The Peace Hotel has been a Shanghai landmark for more than a century and is the most famous hotel in China, and arguably throughout Asia. It is our intention to recreate the grandeur and majesty of this major Asian landmark, and restore it to its place as one of the world’s finest hotels.’

The press release states: ‘The Peace Hotel was first conceived by successful British trader Victor Sassoon in 1929.’ And, yes, he was a trader whose family had built its major fortune on opium and then become respectable.

Victor Sassoon, who once served in the British air force, became permanently lame as the result of a plane accident, and was know as Lame Sassoon. He was a formidable man — he opened more than 30 companies and became the king of real estate in Shanghai. The Peace was his crowning hotel achievement and opened on the Bund as the Cathay Hotel. In later years it was renamed The Peace Hotel and become the most enduring symbol of the decadent international glamor of Shanghai in the 1920s and 1930s.

How well will it be restored?

In 2003, HBA restored the Hotel Grande Bretagne in Athens, a hotel which was originally created in 1874. And they did a most wonderful job for it now looks like the original, only a lot better. The detailing throughout was inspired by the original 1843 palace, which had fluted columns, ionic capitals, mosaic floors and was generally quite the article. If they do the same with the Peace as they did with the Grande Bretagne it will be very splendid.
Source: eHotelier

Jin Jiang International Group and Fairmont Hotels & Resorts have formed a joint venture company which will renovate and reopen The Peace Hotel, a Shanghai landmark for over a century. The hotel is scheduled to close during the refurbishment period and reopen in 2010. Jin Jiang’s goal is to restore the hotel to its position as the definitive luxury hotel of Shanghai. It is doing this in partnership with Fairmont which runs, among other things, London’s Savoy and New York City’s Plaza Hotel.

The Peace Hotel is on the Bund facing the Pudong area over the Hangpu River. It was first opened in 1929 as the Cathay Hotel on the site of the Sassoon Mansion and the hotel was run by the Kadoorie brothers who went on to found The Peninsula in Hong Kong. The architectural style of the Peace was Gothic (in the Chicago style) with a copper-sheathed roof rising 77 meters above ground level.

If you went to Shanghai before the war this is where you stayed. General Marshall, Charlie Chaplin, Bernard Shaw and Noel Coward (it is alleged on very little evidence that he wrote Private Lives while in residence.)

Jin Jiang, owner of the Peace Hotel, is the largest hotel owner and operator in China and the 22nd largest in the world, with more than 300 properties in its portfolio.
Source: Hotel Online

China’s budget hotel industry has started to move forward at high speed. The two biggest budget hotel chains in China, Home Inns and Jinjiang Inns last year had excellent growth. Both are domestic brands, which more than 100 outlets across the country. Both also went public on the stock market, with Home Inns listing on the American Nasdaq and Jinjiang Inn listing on the Hong Kong Stock Exchange. Shanghai Motel Management, which runs the budget hotel brand Motel 168, also received US$20 million in investment from Morgan Stanley.

These listings have encouraged these chains to expand quickly.

Shen Han, a researcher on tourism management and the hotel industry at Hong Kong Polytechnic University, said, ‘Their good performance in the capital market reflects investors’ optimistic attitudes towards the profitability of Chinese budget hotels and the domestic tourism market.’

A study conducted by the National Development and Reform Commission (NDRC) showed that the country had about 50 registered budget hotel chains with more than 600 outlets in operation by the end of 2005. Now the figure is approaching 1,000 with major budget hotel brands expanding at an average growth rate of 74% annually.

The NDRC’s research also showed that budget hotels were most popular in East China, where 60% of the hotels are located. Shanghai, for example, is not only the base for brands like Home Inns, Jinjiang Inn and Motel 168, but also a haven for other individual economy hotels.
Source: The Star Biz China