Emerging hotel trends in China

In this article, Director David Wallace, looks at 10 directions the hospitality sector is taking in China as we head towards 2020.      

The first generation of hotels in China evolved from the rapid development and gentrification of under-developed cities. Branded 'full service' destination hotels were rolled out at an unprecedented rate to provide urban oases within environments undergoing extensive re-construction. These hotels offered sanctuary for guests, away from the dusty, polluted, hectic and chaotic world of awakening cities. While this trend was initially driven by a need to provide comfortable western-style lodging and amenities for foreigners, it soon evolved to cater for increasingly wealthy local customers. These local patrons use the facilities as an upscale entertainment option to impress family, friends, and business acquaintances. 

Since the first generation of hotels, the hospitality sector in China has changed significantly, and remains in a state of evolution. We have seen the sector adapt to a maturing market, increases in competition, advances in technology, and significant changes in China's economy. This article looks at 10 directions the hospitality sector is taking in China as we head towards 2020.      

1. Limited Service Hotels

The approach of developing all-inclusive, full-service flagship hotels is now slowing with changes in China's economic fortunes. A slowing economy combined with tightening tourist, business and government purse strings has caused a necessary re-think in the way the sector operates. The significant drop in government business combined with the frugal spending across all hotel patron types has caused many 5-star hotels to under-perform in recent years. Hoteliers in China are no longer in a position to offer operationally expensive services such as large-scale banqueting, a multitude of different restaurants and bars, or an extensive variety of entertainment options in new hotels. This has caused a sector-wide swing towards 3 and 4 star limited service hotels with a focus of improving operational performance.

2. Standalone Assets

Real estate costs across China has been steadily rising particularly in regards to expensive-to-build, prime site, mixed-use developments. As a result, expensive rents and asset purchase prices in large, upscale, integrated mixed-use developments are being looked at less. The preferred model now steers towards less expensive, but well-positioned, standalone developments which enable hoteliers to have significantly more operational, brand and market position control. This approach, combined with a guest-targeted limited service offer, enables significant reductions in fixed and running costs.

3. Boutique Hotels

One area that hoteliers have become especially interested in for China is the area of branded boutique hotels[1]. For this segment, a fashionable interior and façade design, combined with a well thought-through limited service model, can provide a cost-effective yet highly marketable offer. These hotels specifically target today’s fashion-conscious millennials, who look for the latest edgy lifestyle design that they can flaunt, particularly through social media[2]. These types of customers are willing to pay more for a memorable and unique experience which comes from a great location with stylish design, combined with high quality service and a signature gourmet encounter.

4. Mid-brand Hotels

Middle class domestic growth in China is driving the hospitality sector towards more mid-brand hotels. Local Chinese consumers are becoming increasingly more affluent, and, combined with the rapid development of road and rail networks, the popularity of weekend getaways, and short-stay holiday packages, is gaining momentum. In reaction to this, many hoteliers are now expanding their mid-brand portfolio's to capture this emerging domestic wealth. The development of this domestic mid-market tourism sector is also supported by the government, which is actively trying to increase domestic spending and consumption, while challenging the luxury market.

5. Experiential Travel Resorts

For the hospitality sector in China, social media, combined with increasing wealth, has worked to encourage people to travel. This has led Chinese consumers in recent years to shift their spending and aspirations from buying luxury goods towards experiential travel. The concept of luxury is moving from ‘having’ to ‘being’, with consumers now wanting to flaunt their experiences through social media platforms such as Wechat, and QQ[3]. As the shift from possessions to pleasure gains momentum, we are starting to see more demand for resorts specifically geared to offer unique and memorable activities. This has encouraged a number of branded hoteliers to pursue experiential travel market opportunities through the likes of ski, health and adventure resorts outside of the major cities. In testament to this, we have seen a roll-out of ski resorts throughout Northern China[4], and, with Beijing hosting the 2022 Winter Olympics, further attention will be given to this market segment.

6. Sustainability

Globally, people are profoundly aware of environmental issues, and have high expectations from hotels regarding their application of sustainability initiatives. Sustainability has become much more than a marketing ploy, and guests want to see sustainability initiatives being implemented. While some operators claim that sustainability solutions are costly, these costs are largely upfront expenditures related to implementation. After environmental initiatives have been applied, the operational life-cycle credits back the initial outlay, and follows on with operational savings. Operators who choose to embrace, and intelligently implement, green initiatives will benefit from significant savings and positive marketing. 

7. Asset Selection

In China, operators have become more demanding in their assessment of base building assets, and much more critical of developer-led design solutions. The market has changed from the mentality of 'you can build what you like because it will be purchased by those who are anxious to capitalize on China’s growth'. Today, most of the reputable hoteliers have already established themselves, and have gone through the China market-entry teething stage. Hoteliers are now much more market-savvy than several years ago, and, with the slowing of the Chinese economy, much more choosey about asset deals[5]. For developers in China, the “build it and they will come” mentality no longer applies. A developer needs to have smarter and more operationally informed designs that address hotelier needs throughout all levels of the planning, while embracing current trends and market influences in an enlightened way. For developers, this means understanding the market, consumer trends, and, importantly, operator expectations.         

8. Cloud Computing Services

Technology in the hospitality sector is developing at a relentless pace, helping to increase savings, improve operations and enhance the guest experience. With fierce competition between brands, it will be the tech-savvy hoteliers who will command the sharpest competitive edge. Cloud computing services, in particular, are adding considerable value to the hospitality sector by locating both hardware and software away into cloud space. The advantage of this is a low up-front investment as there is no hardware to purchase and install, less space is required for on-site servers, less in-house IT staff are required, and the updating/upgrading of hardware and software takes days rather than months. The distraction of IT is taken off-site, leaving operators to focus on what is important - guest services[6].

9. Business Management Systems

Combined with cloud services comes integrated online business management systems which provide a more comprehensive approach to management, enable faster reporting, give a better understanding of revenue, and bring together marketing and financial platforms[7]. Silos of information are eliminated, and a level of transparency is created across the complete business. This, in turn, enables changes in non-performing areas to be quickly assessed and managed to maintain profits, and minimize losses.

10. Mobile Technologies

Mobile technologies such as smartphones and tablet devices are at the forefront of hospitality sector innovation. The wireless interface has become critical, and many operators have upgraded wireless services and dispensed with charges, recognizing the importance of keeping consumers online and connected. Moving on from out-of-date plugin docking stations, which enabled guests to play their own music, will be automation apps. These apps will enable guests to wirelessly play their own music, control audio-visual systems, open and close curtains and blinds, control lighting, make bookings and reservations, send documents to be printed, and receive messages and announcements.

[1] An example is IHG’s relatively new Indigo-branded hotels, where each hotel is designed to tell a unique neighbourhood story. This brand was introduced into China in 2010, and represents the company’s entry into the branded boutique hotel market. IHG has identified this market segment as an important part of its strategic growth plan for both Asia and Greater China.

[2] Social media plays an important role in today’s hospitality sector, and is recognised by most as an extremely powerful medium. While it is already recognised as a tool for marketing and public relations, it has more importantly become one of the primary ways that people express themselves and give opinions. Smartphones have become an extension of most people’s arm, and people’s thoughts, ideas, and opinions can now be communicated at lightning speed to millions of people globally. For the hospitality sector, this has brought both Saint and Satan to the table, as customers are now the best and worst marketeers.  In China, social media has become entrenched and deeply rooted in people’s lives, arguably more than anywhere else in the world. It is estimated that, in 2014, China has 591 million netizens[2], locally known as “wangmin”, a number that is growing by one new person every 1.2 seconds[2]. With Chinese internet users online for an average of 2.7 hours per day[2], internet usage in China is substantially more than in developed western countries. Chinese consumers have fully embraced mobile technologies, using it more robustly than their American and European counterparts.  As of 2014, approximately 37% of Chinese mobile users access the net, well surpassing American usage.

[3] While in China people still prefer hard assets to flaunt their wealth and success, this is something that is changing towards enriching experiences, and it’s the “sugar generation” that is leading the way. This generation accounts for the millions of consumers who have been lucky enough to have been born into new wealth. As of 2014 they account for 13% of the market, but, by 2020, this market segment is estimated to be around 30%, with an annual growth rate of 14%[1].

[4] In 2013, IHG opened the world’s largest ski resort, a 1002-room Holiday Inn Express in the Changbai Mountain Ranges of Jilin in North China. This resort area has a mountain range that sits 1640-1820km’s above sea level and hosts downhill, freestyle, jumping, Helsinki, slalom, alpine, and cross-country skiing. It has two alpine trails, 3km in length, which snake through an ancient birch forest with a vertical drop of 130 meters. There are also cross country trails which wind through deep gorges. The snow has been cited to be on par with that of northern Italy, and, in addition to skiing, the area has a number of relaxing hot-springs.

[5] As a reference, among six major international hotel management companies in China, a total of 107 deals were signed in the first half of 2014, compared to 121 in 2013. This represents a drop of 11%, and overall room volume for these signed deals experienced a drop of 19% for the same period.

[6] Calum McIndoe, HN Hospitality Net: Six Technology Trends Revolutionizing The Hospitality Industry (www page), URL http://www.hospitalitynet.org/...

[7] Calum McIndoe, HN Hospitality Net: Six Technology Trends Revolutionising The Hospitality Industry (www page), URL http://www.hospitalitynet.org/...

About the Author

David Wallace (B.Arch. Dip. Arch, RIBA)

Director, UK and Dubai

David joined Chapman Taylor’s London studio as a Director in 2015 and leads our work in the leisure and hospitality sectors.

He has over 25 years’ experience working internationally in the cinema sector, as well as the fast-moving Chinese hospitality market.

He has an established track-record and reputation for good design with an ability to deliver projects on time and to budget.

Areas of expertise:

Leisure / Hospitality

مدير بالمملكة المتحدة ودبي

انضم ديفيد إلى استوديو تشابمان تيلور في لندن كمدير في عام 2015 ويقود عملنا في قطاعي الترفيه والفندقة.

لديه خبرة تزيد عن 25 عامًا في العمل دوليًا في قطاع السينما ، بالإضافة إلى سوق الفندقة الصيني سريع الحركة.

لديه سجل حافل وسمعة في التصميم الجيد مع القدرة على تقديم المشاريع في الوقت المحدد والميزانية.

مجالات الخبرة:

الترفيه / الفندقة

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