Sally White takes a closer look at the moves of China’s budget travel brands abroad
First it was China’s major corporates - from all industries - that scooped up high-end global travel brands and assets. Now, as a burst of announcements has revealed, it is the turn of China’s budget-hotel chains to follow the country’s rush to holiday abroad. This reflects not just soaring Chinese outbound tourist numbers, but the tough conditions in the tourism industry in their home market.
Forerunners of this new international invasion have been China’s major budget group, 7 Days Inn and smaller peer GreenTree Inns. Another, Huazhu Group, has made an alliance with Accor of France to aid its international expansion.
Plateno, which owns 7 Days, has been quoted in the Financial Times as saying that its strategy is an ‘asset-light’ approach overseas, not owning hotels but operating them. However, state-run and Hong-Kong stock exchange quoted Shanghai Jin Jiang International Hotels (which has a stake in Plateno) has bought French budget chain Louvre Hotels, the second-largest budget chain in Europe.
Last year 7 Days Inn opened branches in the Austria towns Linz and Salzburg and added Vienna this month. It says more hotels are scheduled for Berlin, Munich, Leipzig and Venice. At the same time, Plateno has announced plans to take over existing hotels in Eastern Europe, including in the Czech Republic and other countries, which are popular with Chinese tourists. GreenTree Inns’ moves are mostly in the main destination region for Chinese travellers - Asia. It has announced new outlets in Thailand and Vietnam, but it is also opening outlets in the US.
Explaining its marketing confidence, Plateno is quoted by the Financial Times as saying that 75% of its Chinese customers use its online reservation system. Not only is booking easy, but trips can be paid for via Chinese social networking software WeChat which has, it says, 700 million Chinese users. This is an unknown brand to most European hotel groups.
…new hotels are pitched at giving ‘a budget-premium’ experience
And, with the advantage of its new Chinese connection, Louvre Hotels allied with China’s biggest bank card provider Union Pay last year to offer another a familiar brand name. Chinese tourists are reluctant to carry cash on French streets due to fears of insecurity. To overcome this, the French hotels are accepting Chinese Union Pay credit cards.
The new hotels are pitched at giving ‘a budget-premium’ experience, according to Plateno. This is a grade higher than budget hotels in China. (The Chinese, according to Shanghai-based Spring Group which is expanding in Asia, don’t like tiny rooms.) Nor will they feature the domestic hotel staples of convenience noodles and disposable slippers, it says. The offer will be international and more sophisticated!
The wave of entrants to new international markets is likely to make quite an impact. China’s budget hotel segment leapt from 500 to over 16,000 outlets in the ten years to 2014. In recent years ultra-competitive conditions and a weakening economy in their home market have slowed growth - 7 Days Inn has frozen new openings in the major Chinese cities because of over-capacity.
China’s budget hotel segment leapt from 500 to over 16,000 outlets in the ten years to 2014
Further pressure has come from state-owned hotel chains, which are muscling to buy out private businesses and, according to the Nikkei Asian Review, are cutting rates. BTG Hotels Group last year bought the 3,000 budget hotel group Homeinns from co-founder Shen Nanpeng and OTA Ctrip.
Helping the Chinese hotel industry to go international, Plateno is capitalising on its superior experience by rolling out, according to Forbes magazine, an international booking system for competitors to use.
Globally the budget hotel market industry has been growing rapidly, though the Chinese are by no means leaders. The US ranked first in the budget hotels segment with room supply of 874,591 in 2015, according to OrbisResearch.com in its The Global Budget Hotels Market to 2020. Following on are the UK and China, while Malaysia has been the fastest-growing market at a CAGR of 12.2%. In terms of occupancy rates, Asian countries led from the front with Hong Kong (87% in 2015) at the top, followed by Japan and Singapore. In terms of RevPAR, Hong Kong (US$117.6 in 2015) topped the list, followed by Egypt and the UK
Driving Chinese demand for budget hotels is a growing preference for independent travel rather than setting out on international trips as part of a tour group. According to research from China’s Business Intelligence Fung Centre, independent travellers, who are mainly aged 20-25, accounted in 2015 for nearly 25% of the total. But this is changing rapidly as OTAs expand their services beyond offering just flight and hotels, adding route and travel design. A China Tourism Academy survey found last year that independent travel numbers had risen by 80%.
So, while the forecasts for Chinese travellers - numbers expected by the state’s China Tourism Academy to rise from around 120 million last year to reach over 220 million by 2020 - look like a great opportunity, a lot of the business could stay with Chinese companies. The Chinese hotel groups not only understand their countrymen, but their brands are known, they have local booking systems and tech advantages, and they accept Chinese credit cards! There is a lot of money at stake - a Bank of American report on Chinese outbound tourism has put a figure of $264 billion on it by 2019.