Beijing or bust: heartbreak hotels

This week saw the opening party of the Peninsula hotel in Shanghai. The Puli recently opened its doors. As a slew of new hotels open pre-expo, are there warnings from Beijing’s Olympic experience about providing more rooms than there are guests?

Here’s an interesting article from Laura Fitch discussing the issue…

The economic crisis and lower-than-expected tourist numbers during the 2008 Olympics combined with an overly-optimistic pre-Games hotel construction boom created an ironic twist for the world’s most populous country: too much hotel space for too few people.

Pre-Games, the number of luxury hotels opening in the city was growing at an average rate of 40 percent per year, according to Beijing government statistics. The capital is now home to more than 50 five-star hotels, up from just 20 six years ago.
But the expected guests never arrived. Whether deterred by tightened visa restrictions pre-Olympics, or cost-cutting post economic meltdown, the rushing stream of visitors hoteliers had envisioned turned out to be a trickle. The economic crisis also severely crippled the nascent meetings, incentives, conferences and events (MICE) industry many hotels were nursing to depress vacancy rates.

This imbalance is breeding fierce competition between hotel brands, some new to both Beijing and China, and they are eager to establish a brand identity and a solid foothold in the capital. The major challenges are reminiscent of other international retail brands that have tried to crack into China’s marketplace – a poorly understood and vaguely defined domestic customer base, a lack of brand recognition and product exposure, and a short supply of trained service professionals to represent the brand.

The primary international hotel brand competitors are ACCOR, Intercontinental – Holiday Inn Group, followed by Starwood Hotels, Hilton Hotels, Hyatt Hotels and Resorts, and Shangri-La Asia, says Kevin Murphy, managing director of Asiawide Hospitality Solutions. New players like Wyndham, and others from the Asian-based Marco Polo Hotels, Meritus Hotels and Resorts, and Langham Hotels are running a close second.

The Grand Millennium, a Singaporean hotel chain with six properties worldwide, built its flagship Beijing establishment on the edge of the city’s Central Business District. Opened just prior to the Olympics complete with large conference facilities, GM was counting on the growing MICE market and the increasing number of domestic business travelers to keep afloat. But times have been tough.

“It’s a buyer’s market,” says Grand Millennium Beijing general manager Francois Vanvi. “And it’s up and down like a yo-yo.”

Though business is less than steady, GM room rates, in line with other high-end hotels in the city, are staying stable. “It’s pointless to drop the rate,” says Vanvi. Not only does it send the message that the hotel is of low quality, it also makes it harder to raise prices again when business is flush.
Instead of dropping rates, hotels are adding value, offering two-for-one deals where visitors get one night “free” on top of the original booking, extras such as free bottles of wine with a dinner in the hotel restaurant or vouchers for various entertainment in the city. For the Christmas season, many held expensive buffet dinner celebrations, with entrance included in the room rate.

Location, especially in a sprawling metropolis where traffic jams regularly turn a ten-minute jaunt into an epic, two-hour journey, is also key. The Grand Hyatt Beijing, one of the first luxury hotel chains to establish themselves in Beijing, made location a priority.

Situated in the heart of the city on Chang’An Jie, the street that runs past Tiananmen Square, the hotel linked itself with one of the city’s first shopping mall developments, Oriental Plaza. Guests can walk down to the first floor of the hotel and through doors directly into the heart of the shopping center. Now common, at the time it opened, Oriental Plaza was unique in Beijing, and drew in the crowds. It remains one of the city’s most popular shopping malls.

Grand Hyatt realized that it couldn’t stand alone in the Beijing market initially, where its brand was unrecognized. By linking to the shopping mall, which opens out onto both a major thoroughfare and a popular pedestrian mall and sits next to a major subway stop, Grand Hyatt was looking to supplement entertainment it could not provide for its guests on its own, and link its name to an increasingly popular entertainment venue.

“You have to look at a hotel like a body,” says Grand Hyatt PR representative Jane Ji. “It needs to be a complete experience for the customer. If there is a missing element, it’s like trying to work without an arm, or a leg.”

For luxury hotels, catering to the domestic market is key, says Vanvi. “If you don’t you’re out of the game.”

Customers in China want the same things as customers worldwide, says Murphy. “Clear differentiation of the offering and consistent application of the values that meet the travel needs of the particular customer profile.”

But customer profiles can be hard to discern in a new, rapidly changing and developing market, leading to potential identity crises for hotels as they struggle to first name, then accommodate potential customer brackets, he says.

One way to build a reputation among domestic consumers is to make your establishment a stop on the celebrity circuit. GM regularly hosts both Chinese and foreign celebrities, announcing their visits in press releases the day after they book out. To date they’ve hosted actress Zhou Xun, Taiwan hip hop king Jay Chou, Hong Kong pop star Karen Mok, and press conferences for Coca Cola, Disney, Intel, the World Bank and various film groups. They also organize large media and high society events, such as the Beijing Tatler Ball and the Singapore Chamber of Commerce Ball. GM also runs full-serviced apartments that house members of China’s rich and famous, that run RMB 10,000 (US$1,465) – RMB 35,000 (US$5,125) per month, while nights at the hotel run from RMB1, 000 (US$146) – RMB1,500 (US$219).

But one of the most difficult challenges is finding, and keeping, trained staff to maintain the level of service expected at high-end hotels, says Ji.

The Hyatt goes to extensive lengths to recruit talented and dedicated staff to keep its level of service at an international standard, a difficult thing to do in a country where turnover rates are notoriously high, and in an industry where poaching is a common occurrence.

In order to encourage staff loyalty, management makes a concentrated effort to speak with members of staff on a regular basis, says Ji, and to ask for staff opinions and advice on how to improve operations from the ground up.

The luxury hotel market isn’t likely to recover until at least 2011, says Murphy. And the future, though bright, may not necessarily be stable.

“China’s ability to occasionally ‘shoot itself in the foot’ such as during the visa restriction period leading up to the Olympics which resulted in unintentional loss of much business for hotels in both Shanghai and Beijing, will always be a potential hazard,” he says.

But the difficulties of the luxury hotel business in Beijing aren’t enough to dissuade players from competing.

Says Vanvi, “C’est la vie.”

Original via Brandchannel

• 

This entry was posted on Wednesday, March 24th, 2010 at 1:34 am. It is filed under Asia, China, Tourism and tagged with Expo, Hotels. You can follow any responses to this entry through the RSS 2.0 feed.