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https://www.ft.com/content/a87defcc-e36f-11e6-8405-9e5580d6e5fb
China budget hotel brands eye overseas expansion
Companies follow Chinese outbound tourism boom as domestic market slows
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YESTERDAY by: Tom Hancock in Shanghai
Following in the footsteps of the Chinese companies that bought high-end tourism assets abroad, China’s budget hotel chains are beginning their own overseas push to serve the country’s swelling numbers of international travellers.
Anbang, the conglomerate, was among the investors making headlines in the sector when it bought New York’s Waldorf Astoria for $1.95bn in 2014. Now it is the turn of the low-cost hotel groups.
With some 2,500 hotels in China, the 7 Days Inn is a mainstay of budget travel in the country. As its home market slowed, the brand opened locations in Austria’s Linz and Salzburg last year, while a 95-room “7 Days Premium” hotel will this week open in Vienna with easy connections to the Schönbrunn Palace. Other 7 Days Premium hotels are due to open in Berlin, Munich, Leipzig and Venice in the next 12 months.
Another budget hotel chain, GreenTree Inns, has opened branches in the US, Thailand and Vietnam since 2015, while rival Huazhu Group formed an alliance with French company Accor last year aimed at international expansion.
“We started with a brand that was totally unknown in Europe,” says Tomasz Janczak director of distribution for the European office of Plateno, which owns 7 Days. When Chinese travellers “see the brand they know from the home market they are definitely going to choose that one,” he adds.
After it bought a majority stake in Plateno and acquired French budget chain Louvre Hotels, state-run and Hong Kong-listed Shanghai Jin Jiang International Hotels Group became the fifth-largest hotel chain in the world last year.
The number of budget hotels in China leapt from fewer than 500 to more than 16,000 in the decade to 2014. But the sector has become less profitable since 2011, and 7 Days put a freeze on new openings in top tier cities amid reports of overcapacity. “The explosive growth period is gone,” says Kiki Yang, a Hong Kong-based partner at consultancy Bain, with brands “looking for a hedge”.
But over the same period, Chinese outbound travel has grown, with some 40m overseas trips made last year. Plateno operates in locations in Thailand, the most popular Chinese tourist destination, and Malaysia. Jin Jiang has two budget hotels in the Philippines, and plans a dozen more.
“There’s a general feeling that it’s time for the Chinese hospitality industry to go more global,” says Mitch Presnick, a founder of Super 8 China, the only major foreign group in China’s budget hotel market.
Macy Marvel, an analyst at research group Mintel, says that expansion of Chinese budget brands overseas makes sense as outbound tourism increases. But she adds: “Asian destinations are more suitable for Chinese budget hotel expansion, because they attract higher volumes of Chinese outbound tourists.”
China’s budget hotel chains are maintaining an asset-light approach overseas. “We are using some of the experience that we developed in China,” says Roland Paar, Plateno Europe’s vice-president. “We don’t own the hotels, but we operate them ourselves.”
Chinese hotels have been leaders in online bookings. Plateno says 75 per cent of its customers use its in-house reservation system. European 7 Days branches can be booked easily on Chinese websites and paid for with social networking software WeChat, which claims 700m Chinese users. In contrast “the majority of hotels in Europe don’t know about WeChat,” Mr Paar says.
The company plans to take over existing hotels in eastern European countries such as the Czech Republic, which are hosting rising numbers of Chinese tourists. “We are much more flexible in our approach, the western brands are stricter in terms of where they can go,” says Mr Paar.
But he emphasises that the European branches are aiming for a “budget-premium” experience, a step above their domestic equivalents — where convenience noodles and bundles of disposable slippers come as standard.
“Western companies have always had problems attracting Chinese clientele. In the past, we thought you put congee on the buffet and slippers in the room, and that was it,” Mr Paar says, adding: “A lot of Chinese travellers want a hearty breakfast.”
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