| China's budget hotel industry, which has less than 10 | | | | also down from 89% to 82.4%. |
| years' history, has again come under the limelight. On | | | | "On one hand it is the increase in hotel numbers, on the |
| one hand, it is the domestic giant Home Inn on an | | | | other hand these hotels share the same market |
| acquisition spree; on the other hand it is the rapid | | | | positioning, hence the inevitable price war between |
| expansion of international predators. In less then 4 | | | | budget hotels." said Mr Hu. He explained that the early |
| years, the number of budget hotels in China had grown | | | | type of budget hotels in China was simply a copy of |
| from 166 in 2004 to 1476 in October 2007, almost a | | | | the budget hotel models from Western countries. |
| 1000% growth. As the industry becomes more mature, | | | | Once a pilot hotel was proved successful, the same |
| many problems previously swept under the carpet are | | | | model would be duplicated in other cities by the |
| now surfacing. | | | | company. Other new comes would also the proven |
| Cost challenge | | | | model, therefore resulting in the problem of |
| Compared to ordinary hotels, cheap rent is the major | | | | homogeneous competition across the budget hotel |
| feature of budget hotels, as well as the main reason | | | | industry. When the industry was at an early stage, this |
| for the industry's fast expansion. But as the number of | | | | homogeneity problem could be covered by the strong |
| budget hotel surges in China, budget has become the | | | | market demand. But as the industry saturates, |
| biggest issue faced by budget hotels currently. | | | | consumers can now have more choice. Hotel |
| "Cost increase is a dire problem for budget hotels. | | | | operators thus have to reduce their prices to attract |
| Apart from general cost inflation, costs associated with | | | | customers. |
| expansion activities have been the chief reason for | | | | But Mr Cheng disagreed, saying that the key reason |
| cost increases in most budget hotel chains." said Mr Hu | | | | for homogeneity is rather due to unsophistication of the |
| Shengyang, CEO of Shanghai Inntie Hotel | | | | industry. He pointed out that budget hotels are also |
| Management Consulting. Hu suggested that the | | | | called "limited service hotels". In developed countries, |
| concentration of location selection by budget hotels | | | | based on differentiated demand from different target |
| and their exponential growth in numbers have resulted | | | | groups, the meaning of "limited services" can be very |
| in a reduction of potential sites. This intensifies the | | | | different. Many multinational hotel chains have |
| competition for high grade properties between hotel | | | | thousands of hotels, which would be classified into 8-12 |
| brands, directly pushing up site acquisition costs. | | | | grades according to different customer demands, such |
| Meanwhile, other costs such as personnel, building and | | | | as tourism and business travel. |
| management are also going up. | | | | "As the market matures, hotel chains will inevitably |
| "The situation of cost increase can help the budget | | | | become homogeneous." said Mr Cui Tao, an integrated |
| hotel industry become more rational." said Mr Cheng | | | | marketing expert. "The competition between budget |
| Jun, vice-CEO of Hanting Hotel Management Group. | | | | hotels in the future will no longer be on a shop-to-shop |
| Compared to a payback period of 1-2 years in the | | | | basis, but on a collective basis. In this rivalry process, all |
| past, Cheng thought that the current payback period | | | | aspects of a business, such as branding, culture, |
| of 3-5 years for budget hotels is more reasonable in a | | | | business model and cost control, would need to be |
| normal market. | | | | combined together to achieve a core competitiveness |
| Mr Hu also agreed that cost increase should make the | | | | that cannot be replicated easily." |
| whole industry more concentrated. While some small | | | | Management difficulty |
| chains may have to exit due to cost pressure, large | | | | |
| budget hotel brands could accelerate their strategic | | | | "There will be only two types of hotels that can |
| progress, in order to secure a first-mover position in | | | | survive in China: individualized hotels and systemic hotel |
| the future. | | | | chains." Mr Cheng forecast. He reckoned that |
| The withdrawal of Top Star Hotel, now acquired by | | | | individualized hotels can survive on their uncopyable, |
| Home Inn, has proved the point. Industry insiders | | | | unique features, while the advantage of hotel chains |
| commented that in order to quickly list the company on | | | | will be their scale and uniform quality. |
| stock exchange, Top Star were furiously expanding its | | | | However, Mr Cui thought that the there is a |
| hotel numbers, at an unsustainable cost of 15% higher | | | | contradictory relationship between quality control and |
| than the industry average. The failure of Top Star | | | | scale, "Larger scale may mean increasing brand risk, |
| should give the Chinese budget hotel industry a | | | | but the formation of a brand requires scale." In this |
| warning signal. | | | | sense, the standardisation of budget hotels is not only |
| Homogeneous competition | | | | an issue of individual breakthrough, but a process of |
| | | | structural superiority. "From managing a few hotels to |
| Not only costs are increasing, budget hotels in China | | | | managing scores of hotels, the methods for |
| are also facing the problem of "decreasing income". | | | | standardised management would be quite different." |
| According to a survey report in 2007, the average | | | | said Mr Cui, who has a profound background in |
| price per room had decreased from 328 yuan/day in | | | | franchise business management. |
| 2005 to 208 yuan/day in 2006, and occupancy rate | | | | |