Chinese hotel group Jin Jiang has started to move into the neglected mid-market in China, with new brands and a focus on attracting more business customers. The impact is evident in the company’s 2013 results, which show revenues from select service hotels up by more than 10%, while full service revenues fell by a not dissimilar amount. Oversupply in the luxury sector of the Chinese market continues to have a negative impact on revpar, with room rates slipping to maintain occupancy levels in the group’s high end hotels.
During 2013, the company acquired Bestay Hotels Express, with the intention of building a presence in the mid-market business hotel space, and also started developing its Jin Jiang Metropolo brand as a select service offering. While the economy end of its business remains strong, attempts to fill the mid space are now being made.
Overall, sales revenue grew 3.2% in 2013, while operating profits were ahead 71.6%. It finished 2013 with 1,190 hotels in operation or development in China, amounting to over 165,000 rooms, and close to 400 elsewhere around the globe, predominantly in the USA. The group’s interests range from hotels, which account for around half of revenues, to travel agency and vehicles, the other half of the business.
The group has 130 full service hotels, with 40,300 rooms but during the year redesignated five of these as select service, as a result depressing full service revenues by 8%. In its core Shanghai market, five star hotels saw 65% occupancy in 2013, against 62% the year before, albeit with average rate slipping from RMB789 to RMB755. In the four star hotels, rate also slipped, while occupancy eased up from 63 to 64%.
The slip in rates was down to weakening market conditions, and oversupply in the full service market, the company reported.
In the select service sector, turnover was up 14.5% in 2013, representing just over 25% of the group’s revenues. During the year, 160 new properties were signed, with 47 managed and 113 franchised; while 136 hotels were opened in the year. The vast majority of hotels open in this sector are branded Jin Jiang Inn Budget.
During the year, Jin Jiang’s J Club loyalty scheme added 5.5 million new members, taking membership to more than 13 million. The company enables customers to earn across its other businesses such as car hire, as well as the hotels.
Jin Jiang’s overseas interests are via a 50% stake in IHR Group, which runs 382 hotels across the globe, including 302 in the USA and 43 in the UK. IHR delivered a 5.4% increase in revpar, running an average occupancy of 74%.
Looking ahead, apart from economic uncertainties, Jin Jiang sees “structural oversupply in the hotel industry and the rapid development of information technology relating to the mobile internet” as having the greatest impact on development.
Jin Jiang has also signed a deal with South Korean hotel and entertainment group Hanwa. The memorandum of understanding could develop in a number of ways, but at the outset looks set to help cross promote each other’s properties and loyalty programmes. Jin Jiang CEO Simon Zhang said the deal had “great significance”. “The Korean market is an important one to us and this opportunity is a chance to broaden our brand awareness and expand our activities into this new and exciting market.”
South Korea saw more than 4 million Chinese visitors last year, while a similar number of South Koreans made the trip in the opposite direction.
Hanwa is a leader in the South Korean hospitality industry, running hotels in Seoul and Saipan, and a 12 strong chain of Hanwa Resort properties running to 4,674 rooms. It also runs a range of visitor attractions including golf courses, theme parks and catering outlets including restaurants and banqueting halls. In addition, Hanwa has a toehold in the Japanese hospitality market.
This is not the first time Jin Jiang has looked to international partnerships to boost its brand. In 2011, the company signed a similar agreement with Spain’s Melia hotel group, in a bid to boost awareness of the Jin Jiang name in Europe.
HA Perspective [by Katherine Doggrell]: Jin Jiang has proved it can do cheap, now it must prove it can serve the ‘rising middle class’ – a favourite phrase of the global operators and one Jin Jiang will no doubt become well-practised with.
As Jin Jiang was talking about the neglected mid-market, Starwood Hotels & Resorts was leveraging its loyalty programme to attract as many high-end guests as possible, with some success.
With government officials no longer allowed to enjoy a life of luxury and Starwood working double-time to attract everyone else, the time may be ripe for a mid-market push.
Jin Jiang will not be without competition from the global operators – Starwood launched Four Points by Sheraton there four years ago – and the end of April saw Choice announce that it was taking its Quality Hotel and Clarion Hotel brands into the country.
So Jin Jiang is moving up, the global brands are moving down and they should all meet in the middle. But what will they be fighting for? Developments, certainly. Van Paasschen spoke of tighter liquidity, which had tempered the pace of real estate development. Relationships are key to success in development in China and Jin Jiang will hope that it is able to play the home advantage and secure the developments which do proceed.
And what of this rising middle class? According to the Development Research Centre, a government think-tank, for the past few years about 9 million people have been moving into cities every year. As growth in the country slows, the number is forecast to fall to 7 million in the second half of this decade and 5 million in the 2020s. But it’s still a considerable number. The World Bank forecasts that in 2030 China’s cities will be home to close to 1 billion people, or about 70% of the population, compared with 54% today. It’s all very promising to the supplier of reasonably-priced hotels.
It is rare for shareholders to be able to envisage something as fantastic as 2030. They are more concerned with the now, which is looking a bit shakier in the country. What industrialisation gives in the form of bodies in beds, it takes when those bodies are demanding higher wages. Reports suggest that a strike involving tens of thousands of workers on the Pearl river delta is currently underway (journalists are not being encouraged into the region), over the issue of pensions. Times they are a’changing and operators imagining cheap rooms propped up by cheap labour will have to rethink their sums.