Against the backdrop of the declining profits of upscale and economy hotels, the midscale hotel market which has always been considered less important in China has begun to receive attention from many international and domestic hotel brands. Considering the large room for growth and development potential for midscale hotels in China, branded hotel groups are adopting different strategies to develop and seize China's midscale hotel market.
'Dumbbell' Development Pattern
There is currently still no unified definition on the standard for midscale hotels in the market. This concept can be defined in terms of star rate, development cost per square meter, customer profile and etc. In this article, we consider midscale hotels to be the category between economy hotels and upscale hotels, targeting midmarket and high-end consumers and business travellers.
China's hotel market is generally characterised by a 'dumbbell' development pattern of strong growth in upscale and economy hotels and weak growth in midscale hotels. Between 2000 and 2010, the star- rated hotel room inventory in China increased rapidly at a compound annual growth rate (CAGR) of 11%. Room supply growth was the strongest within the five- star segment, recording a CAGR of up to 18%. In addition, economy hotels have achieved rapid expansion by taking advantage of their low costs, chain management and easy attraction for investment. For instance, renowned economy hotel brands like 7 Days Inn, Jin Jiang Hotels and Home Inns have already reached or will reach the milestone of having 1,000 hotels. However, the new upscale hotel supply experienced significantly slower growth due to the impact of factors such as the macroeconomy and tightening policies on spending from 2011 to 2013. According to the latest Statistical Bulletin of National Star-rated Hotels in the Third Quarter of 2013, the five-star segment's CAGR decreased to 8%, with a total supply of 717. Meanwhile, new economy hotel supply continued to decline. Between 2011 and 2013, the one-star segment grew at a CAGR of only 1%, and the two- star segment was recorded at a CAGR of -2%.
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