InterContinental Hotels boasts that it’s been around in China since 1984. So why decide only now to “Sinify” its hotel product?
The main reason, the hotel chain says, is that just offering ‘international’ standards isn’t good enough anymore.
So InterContinental is not only rebranding one of its five chains in the country, it has also announced a new more Chinese formula for the design of its hotel products and services.
“This is different from the ‘Chinese-style’ imagined in the West,” explains country head Keith Barr to CBN Weekly.
In fact, the NYSE-listed group conducted extensive research to decide what it would change. One in four of the hotel rooms that InterContinental opens over the next five years globally will be in China.
So what did the hotel group find? Chinese guests, unsurprisingly, prefer tea to coffee – so new hotels will offer tearooms. They also put a premium on grand entrances (so more ornate lobbies are planned). And they like to discuss business discreetly over dinner (so more private rooms for hotel restaurants).
Another lesson learned was the importance of getting the name right. The hotel group’s offering to the middle-market, Holiday Inn Express, was perceived as low-end because it used the word ‘express’. So starting this year it’s been rebranded ‘Zhixuan Holiday Hotel’ instead.
“Rather than change after the development of 300 hotels we’d prefer to make a change when we only have 30,” explains Barr.
That may be a sound strategy but it will take more than a new name and a plushy foyer to guarantee success. Last March WiC warned that room occupancies in Beijing and Shanghai had plummeted due to a glut of hotel openings. That problem is also spreading to other cities, thanks to a nationwide hotel boom. The cause? Real-estate speculation by developers and local governments who reckon the addition of a hotel makes their projects more desirable (see issue 98). They’re less concerned about full occupancy, than selling surrounding properties.
International hotel chains have so far obliged. It’s made sense: they don’t own the buildings and are paid a management fee. The more hotels, the more fees.
But over the long run, hotels that aren’t viable in their own right will start to cause brand problems for operators like InterContinental too.
One sour experience has also taught ICH some valuable lessons on reining in over-eager local governments, Barr says. The firm was persuaded to run a hotel in a third-tier city on the promise that adjacent office and residential projects would also be built. But when the local government failed to honour its side of the bargain, InterContinental was left with an underperforming operation.
Before deciding to open a hotel, the group now does a lot more homework. “We now not only check the size of a [prospective] area’s GDP,” Barr told the magazine, “but we also pay attention to the industries that generate that GDP.”
The group also seems to be planning for the days when leaner times hit developers. Last month, it signed a deal to cooperate with real estate conglomerate Poly Group, reports the China Daily. The idea is that this is a safer bet, as the state group is reputed to have strong government connections and access to finance.
Despite the dangers, the company’s position seems to be that it can’t afford not to take part in China’s hotel boom. It already has 144 ‘Greater China’ hotels in the pipeline, on top of the 148 it’s currently operating. But Barr says he’s hopeful about the spending power he’s seen in Chinese cities, remembering how one developer had taken him to a cinema in a small Hubei city. His recollection: “I suddenly realised that I’d watched the first 3D movie in my life – and it was in Xiangfan!” Ten marks out of 10 if you can find it on a map…
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.