What is the overall development trend of China’s hotel industry in the next five years?

View 1: Huge space

First of all, China is the largest hotel market in the world.

Some time ago, many media were hyping the topic of "oversupply of budget hotels", which made me speechless. In order to avoid suspicion, it was inconvenient to say more at that time. It is an indisputable fact that China's mass consumer market is the largest market in the world.

We can review the numbers again. The European Union has a population of 500 million, the United States has a population of 300 million, South America has a population of 400 million, India has a population of 1.2 billion, and China has a population of 1.37 billion. Even if China's current urbanization is 30%, it will still be 400 million. In the future, the urbanization rate will reach 50%, which is 600-700 million. The urbanized population of the European Union, the United States and South America cannot be compared with China. It is far behind. India's urbanization process is very difficult. Whether it is now or in the future, it will be difficult for the urbanized population to surpass China.

The huge consumer base constitutes huge consumption power, and will also create huge commercial institutions: Tencent, Alibaba, Yum, China Mobile, Industrial and Commercial Bank of China...

< p>Are budget hotels a mass consumer market? The selling price is between 100-300 yuan. I think even migrant workers in the city can afford it. Calculated based on the number of hotel rooms per capita (urban population), if it reaches the level of the United States today, China's largest hotel group should have tens of thousands of stores. This process took about 60 years in the United States, 40 years in Europe, and about 30 years in China. Subtracting the 10 years we have already spent, that is, in the next 20 years, the concentration of Chinese hotel groups should reach a New highs.

Secondly, China is the fastest growing market in the global hotel industry.

Let me tell you a little story first.

Once I went to a Bordeaux winery for vacation with my friends. We were riding bicycles on the country roads and happened to see IBIS in the nearby village. I was immediately in awe and felt that Yago was so awesome! How can we open a hotel so far into the countryside! I went in to borrow the restroom and saw the old hotel guests sitting at the old bar. I suddenly realized that Accor, just like these elders, has limited room for growth: they have already opened IBIS to such a remote village. Where to open it? How will Accor develop in Europe in the future? How much room for growth is there?

Look back at China. Let’s look at a set of GDP data first:

Although China’s growth rate has slowed down in recent years, compared with developed countries, our GDP growth rate is still far ahead of that of developed countries, and it should continue for more than 10 years. High growth brings high growth, including of course the hotel industry, which is closely related to economic growth.

Correspondingly, look at the growth of hotel supply in the United States:

The U.S. hotel industry has slowed down or not grown in recent years. I believe the situation in Europe is similar.

Compared with China's rapid growth, Europe and the United States are experiencing slow growth or no growth, which further reflects the high growth potential of the Chinese hotel market.

Furthermore, information flow has intensified logistics and accelerated the flow of people.

Due to the development of e-commerce, single-point to multi-point logistics has become unprecedentedly developed. From the constant flow of large trucks on the highway to the parcel drop-off points that penetrate into the community, such large-scale logistics may only be comparable to the millions of migrant workers before the Huaihai War in history. The Battle of Huaihai lasted two months, but it will be normal for such a large amount of logistics to flow across the motherland.

When the Internet first came out, with the emergence of video calls, people once thought that business trips would decrease. But in fact, with the rapid spread of information, people's pace of life and work have accelerated. It used to take a month to communicate through business letters and business faxes, but now it can be done in a day or two through email. Matters such as on-site inspections, practical experiences, meetings, etc. also accelerated the pace.

The flow of information has further accelerated the frequency of people's movement, which naturally increases the demand for hotels.

Finally, demand for vacations has risen sharply.

As the Chinese people become more affluent, they are beginning to shift from “just here” travel to “careless” vacation (hence the name of our resort brand Manxin). I traveled domestically and abroad, to Hainan and Changbai Mountain, and then traveled during the National Day and the Spring Festival. Our store in Hangzhou is always packed every weekend. The pace is fast, and people need to relax and adjust more; the pace is fast, and people earn more and have money to play.

Europe and the United States have already experienced the same situation, and it has become the norm. That is to say, China's growing vacation crowd will not become a flash in the pan, but will settle in our hotel customer base. In the future, it should be possible for the ratio of leisure and business customers to reach 45%:55% (currently 50%:50% in the United States).

With large-scale market + rapid growth + information flow promotion + the rise of the vacation market, China’s hotel industry is ushering in unprecedented benefits. This bull market will last at least 10-20 years. In 20 years, Chinese companies may have acquired some European and American hotel brands and have their own hotel networks in South America, Asia, and even Africa.

View 2: The star standard is declining and brand chains are prospering

First, the star standard has become outdated and China needs brands more.

The star standard is a set of industry standards that regulates the hardware standards and service standards of the Chinese hotel industry, modeled on the European model, and has been used for decades. It should be said that it has played a great role in the formalization of China's hotel industry. However, with the further development of the hotel industry and the continuous changes of society, it is increasingly unable to adapt to future trends.

Moreover, this government advocates simplicity and opposes extravagance. Last year's National Eight Articles made detailed provisions on high-end consumption. Food and beverage consumption in four- and five-star hotels has dropped significantly, and room occupancy rates have plummeted. Many rigid regulations in star-rated hotels, such as gyms, swimming pools, Chinese and Western restaurants, etc., have become even more outdated under the pressure of rising labor costs.

The brand is used to distinguish users and to define user groups with different business trip purposes, different aesthetic tastes, different consumption abilities, and different age levels. The star standard is too general and has been too rigid for many years. Only brands can help users segment the market.

And, compared with Europe and the United States, China needs brands more.

China’s service industry has been suppressed for a long time, and service levels vary. We must have all had the experience of being beheaded or deceived during our travels. When booking a three-star hotel, it's difficult to determine what level of product and service you're going to be dealing with.

Therefore, in China, where the service industry is not very developed, people need brands to define, guarantee and identify. What brands and chains give customers is a kind of trust and commitment.

However, in China, which needs brands more, the degree of chain hotel industry is only one-sixth of that in the United States. The number of guest rooms per person (urban population) is almost one-sixth that of the United States. If you take into account the growth of guest rooms and the concentration of chain chains, the brand chain potential of the Chinese hotel market is 36 times that of the United States!

2. Chain allows success to be copied.

If you apply the famous saying at the beginning of "Anna Karenina" to the study of success, it becomes: All failures are similar; all successes are different. . Therefore, in business, success is difficult to copy and replicate, and almost all catch-up imitations end in failure. Everyone on earth wants to learn Haidilao, which cannot be stopped by the people on earth, but Huang Tieying wrote a book called "Haidilao, you can't learn it", which makes everyone so disappointed!

Twelve years ago, I discovered the “rental + renovation” economic hotel business model. At that time, the investment cash flow of a store could be recovered in 2-3 years, which should be said to be a very good business model.

Because I was torn between franchising and direct operation, I also asked Mr. Su Jingshi, a senior in the chain industry, for advice. His simple words made me enlightened: Where can I find a business with an EBIT return rate of more than 20% in the world? ! yes! Only fools join the franchise!

However, later the development of budget hotels got out of control. Some people don't even have a model store, so they use the MLM method of high bonuses and high rebates to sell franchises; some people learn a little from the east and copy a little from the west, using crudely made products, coupled with high-tech fashionable formulas, to attract consumers at low prices. Deceiving franchisees.

There is no way. The successful formula has been parodied and widely circulated. If God does not speak out, bad money will drive out good money. We are the last hotel group to start a large-scale franchise business (two years ago), and we may also be the only brand company that always reminds franchisees to pay attention to investment risks. Therefore, in the first year of fully opening up franchising (2013), we surpassed the industry leader and became the brand with the fastest growth in franchising.

The secret recipe for success found 12 years ago is making "success can be replicated" through chain franchising! I am very gratified that more people on the road can enjoy clean and affordable modern chain hotels; that more investors can start a business through franchising and enjoy stable and considerable returns on investment!

3. In terms of chain methods, management and franchising will be the main method, with pure franchising as the supplement.

The situation is different from that in the United States. Most franchise owners in China have advantages in finding properties, smoothing out local relationships and raising investment funds, but have little interest or unprofessionalism in the daily management of the hotel. . Those owners who have little interest are happy to hand over the daily management of the franchise store, so that they can free up their energy to find more high-quality properties; they can also travel around and enjoy life. Those whose management is not professional will only be thankless if they manage themselves. In order to maintain brand consistency, struggles and conflicts between both parties are inevitable. It is better to use a professional management team to save both parties trouble. Through management and franchising, the franchisor can maintain the quality of the brand and increase some revenue and profits (albeit very thinly). But it does not rule out that there are some franchisees whose management level even exceeds the average level of chain brands. It is a good method to let them manage themselves and be informal.

However, such owners are in the minority after all. Those pure franchising companies that let franchisees run their own operations will face the risk of their brands being continuously diluted until one day they are eliminated. It is difficult to save trouble when running a chain store in China.

View 3: Mainly middle and low-end people

I compiled this "Distribution Map of China's Various Classes" based on Lu Xueyi's "Research Report on Social Classes in Contemporary China". Business people are very valuable.

It can be clearly seen from this picture: the power of China’s business in the future lies in the 6% of the top management + 16% of the middle management + 28% of the lower half = 50%, which is about 690 million people. In terms of income level, the consumption power of this group of people is still mainly medium and low-end. Luxurious consumption is conspicuous and gift-based, and is not the norm. With the promulgation of the Eight Articles of the Central Government, luxury consumption based on gift money is disappearing.

It takes time to create wealth in a country. With such a large population base and huge poverty population in our country, the growth of per capita wealth will take even longer. I estimate that in 20 years, such consumption characteristics will not Change.

Even in Europe and the United States, where the economy is quite developed, mid- to low-end hotels still account for the majority of consumption. About 70% of Accor's rooms are in mid- to low-end hotels. What's more, what about China, where we have just solved the problem of food and clothing?

High-end hotels and luxury hotels are prestigious and showy. They are liked by local tycoons and liked by the government. But what about return on investment? It's still the mid- to low-end hotels that are more reliable and more reliable.

View 4: The rise of local hotel groups

Faced with China’s huge market potential and growth space, international hotel oligarchs have long been salivating and have achieved very good results. They occupy almost all the market share of luxury brands and have an absolute advantage in high-end hotels, but in the economic brand market, they have completely failed.

Accor, InterContinental, Wyndham, etc. have all made efforts to develop their budget hotel brands in China. IBIS adopts a new model, with good products but slow speed; Intercontinental Holiday Express does not dare to compete head-on with local groups like us, which are like wolves and tigers, so it has to position itself as a mid-range brand. We followed the good example of "Holiday Inn" and borrowed their "Express" names, such as Home Express, Hanting Express, etc., so that "Express" became synonymous with budget hotels. In order to draw a clear line between them and the economy, they even changed their Chinese name, changing "Holiday Inn Express" to "Holiday Inn Express"; Wyndham is even more chaotic and opportunistic, taking advantage of state-owned enterprises and local tycoons to worship foreigners, and is confused. The weakness of the market is that mid- to low-end brands such as Howard Johnson (economic model), Tiantian (economic model), Ramada (mid-range), etc. are franchised as 4 or 5-star high-end brands. Wyndham's strategy has led to a pretty good life when he hasn't encountered a real opponent, but it's hard to say what will happen in the future.

When Comrade Xiaoping inspected Shenzhen, he said: We should have our own flagship products and create our own Chinese brand, otherwise we will be bullied by others.

Although we are not national chauvinists, we still feel indignant at the power and dominance of foreign brands towards Chinese owners. We have won the battle of budget hotels and are moving towards mid-range hotels. Mid-range hotels also need cost control and returns from owners. It is difficult for foreigners to be competitive with the approach of holding high and beating high. Many Holiday Inn Express hotels in China are high-rise buildings with bright facades, huge guest rooms, and marble-covered lobbies. I am very confident that with such products and return on investment, it will be difficult to compete with our All Seasons and Starway. Our new All Seasons room experience has gone far beyond Holiday Inn Express rooms because their product model is based on the prototype of a budget hotel. There are fewer and fewer owners who are vain, have good face, and worship foreigners. Besides, it is difficult for mid-range hotels to support the owners. If you want to save face, build a Ritz-Carlton. Holiday Inn Express is of little use, right?

To establish a firm foothold in the mid- to low-end hotel market, we will enter the high-end hotel management market without humility. I believe that with tens of millions or even hundreds of millions of loyal customers, a solid management and operation system, and a well-trained and united team, we can still compete with foreign brands in the high-end market.

With the popularity of Chinese people traveling abroad, more and more people go abroad every year. Following these groups, we can open our own chain hotels around the world. In addition to integrating into the local business district, we will also gain more Chinese customers. Just like when foreign brands brought the foreign guest market to conquer cities in China, as China becomes stronger, as China's economic power and the globalization of Chinese tourists, Chinese hotel brands have the opportunity to achieve global expansion.

Hotel groups born in China have begun to rise. Relying on the local market, international capital, and global talents, there is no suspense about becoming one of the top 10 or top 5 hotel groups in the world.

Forecast: Trends of key indicators of budget hotels

Key indicators related to hotels include: property acquisition cost; RevPAR revenue per room, which is the product of occupancy rate and average room price; labor cost.

Rents continue to rise.

Currently, most budget hotels obtain their properties through leasing. From the past 10 years, property rents have been growing steadily, but compared to housing sales prices, they are still stable and rational. In the next 20 years, property rents will grow steadily, at least offsetting the inflation rate. Regarding rent increases, my point is: don’t worry too much. On the surface, acquiring property is a competition between tenants. In fact, it is more of a competition between various business formats. Is the rent higher for a house as an office building or as a hotel? Is it better to be a hotel or a hospital or New Oriental? This factor determines the developer's value orientation. In a large mall, catering brands with high square footage efficiency crowd out brands with low square footage efficiency; in buildings with a scale of several thousand to ten thousand, the same catering brands with high square footage efficiency crowd out brands with low square footage efficiency. EBIT profit before interest and tax can roughly reflect the priority of each business type in acquiring properties. Which industry has a higher EBIT per square meter, the more advantageous it is to acquire properties.

There is pressure on the average house price to rise in the short term, but it is optimistic in the long term.

With inflation and a strong brand, it stands to reason that the average house price can gradually rise, at least to offset inflation while balancing the increase in rents. However, in the past few years, several major budget hotel chains have expanded at a world-class rate, which has kept the supply of homogeneous products high and has not given the market much breathing space. It stands to reason that China's modern budget hotel chains are still in the juvenile stage of rapid growth, and there is still room for dozens of times (the 36 times mentioned above). However, it is a bit crowded to expand rapidly in a small space in a short period of time. With the formation of several major oligarchic brand groups, coupled with a period of time and a larger space for relaxation, there is enough room for average house prices to rise.

The occupancy rate has moderated a correction.

Today, the average occupancy rate in our industry is around 90%, and some stores even exceed 100%. Such a high occupancy rate is also unusual in the world. This is related to the hourly rental housing that I proposed when I first entered this industry. In fact, hourly rentals have always been available, and many high-end hotels do not list this type of customers separately due to their reputation. But those of us who run businesses should be like Sister-in-law A Qing, all customers come and we should treat every guest equally.

The core of a budget hotel is to provide cost-effective rooms. If it can help customers save money and we can make more money, why not do it? Today, the rental ratio of all chain brands is above 10%, which makes our average occupancy rate among the highest in the world.

Hong Kong’s hotel occupancy rate has always been very high, around 80% (there is no concept of hourly rent). This occupancy rate should be said to be at an internationally advanced level. The average occupancy rate in the US hotel industry is around 60%. , less than 60% of China’s star-rated hotels. As we penetrate into third- and fourth-tier cities and further increase our chain rate, our overnight occupancy rate will gradually return to around 70% (currently 80%). Adding 15% of hourly rent, it will return to approximately 85% about.

Single room revenue RevPAR grew steadily.

The RevPAR calculated by multiplying the average house price and the occupancy rate will not disappoint everyone. There should be no problem keeping up with and exceeding the inflation rate. It is difficult for RevPAR growth to partially absorb the increase in rent, but there is no risk of the business model becoming unbalanced.

The increase in manpower is inevitable.

The originally rich demographic dividend is slowly becoming thinner. One is the decrease in the rural labor force, and the other is the country’s continuous increase in the minimum wage. Labor costs have risen very rapidly in the past few years. It is a huge challenge for the labor-intensive service industry. Compared with traditional star-rated hotels, economic chain groups have made disruptive changes in labor costs, reducing the ratio of people to rooms from 1:1 in hotels with the same star rating to 0.3 or 0.2. This ratio must be further reduced in order to maintain a competitive advantage in the future labor force growth trend. On the contrary, star-rated hotels will further lose their competitiveness, and those large and comprehensive high-end hotels will be replaced by light luxury brands.