Early this year Home Inns, a leader economy hotels in China, announced it had 26 chain hotels for RMB340 million from Shanghai Top Star. So far, it is the biggest example of merger and acquisition within China’s sector of economy hotels.

Economy chain hotels are in an era of brand integration in which purchases, mergers and acquisitions wiill become the rule rather than the exception.

As shown in the 2007 Annual Report on China’s Economic Hotel Industry, which was issued by the ministry of Commerce and the China Hotel Association, by the end of 2006, there were nearly 100 economic hotel chain brands in the market for China’s lodging industry and over 1,000 hotels with over 100,000 rooms had been set up.

In the coming few years, the result of competition is likely to be that a large number of minor brands will be merged and acquired by several major brands like Home Inns, Holiday Inn, Star of Jinjiang Group, and Super 8.

As shown in the report, the occupancy rate for economic hotels in China has fallen by nearly 7 percentage points from the annual average of 89% in 2005 to the annual average of 82.4% in 2006.

In the meantime, the average guest room price decreased from RMB328 in 2005 to RMB209.

On the other hand, the property management costs for economic hotels increased by 40% in 2007 in comparison with those in 2006.

These are the problems. Consolidation of brands is possibly the solution.
Source: China Economic Net

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

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

Chinese budget hotel chain Motel 168 has received an investment from Morgan Stanley. China Securities Journal reports it is currently planning a public listing.

The report quoted China Hotel Association assistant to the president Zhang Minghou who said China currently has 800 to 1,000 economy hotels nationwide with a total of 100,000 hotel rooms. The top two budget hotel chains in China are JinJiang Inn and Home Inn, said the report.

Guangzhou and Shenzhen based budget hotel chain 7 Days Inn received a US$10 million investment from Warburg Pincus last October and plans to have over 100 hotels by the end of this year. China’s budget hotel market only accounts for 10% of the total Chinese hotel market.
Source: Pacific Epoch