China hotel market set to recover within five years...

…and other dispatches from the China Hotel Technology Alliance’s Annual Conference

Jing Zhu, Chairperson of the CHTA
at the opening of the conference

Well attended and organized, CHTA’s third annual conference was held last month in Macau. The overall theme was ‘Creating Value’ and while there were the occasional dull spots, overall the event delivered on what it set out to do.

China Hotel Market is set to recover within Five years

One of the first keynotes dealt with the China market recovery which was pinpointed to occur sometime within the next five years (let’s hope it is earlier rather than later…). Singled out as one of the key factors to set the scene for recovery were international brands, which need to be more flexible in terms of brand standards in China, rather than pursuing a cookie cutter approach to be successful.  

Talking about Millennials - again

Chinese Millennials -
not so different

There is of course no event worth its money that would not bring up the mystical Millennials, and at CHTA’s conference, it was Sunny Wang, Executive Director at HFTP’s Asia Research Centre – herself a Millennial – who took the stage to give us Baby Boomers and GenXers a lesson in all things Millennial. The most interesting for me was her assurance that Millennials are generally happy to play with technology in the room as a novelty factor, even if the technology is not essential. While this shouldn’t tempt hotels to over stack their rooms with gadgets, it is an affirmation that IPTV, second screen, Airplay and Miracast do matter, and will matter even more in the future.

But unlike the Millennials in the Middle East which are unexpectedly brand loyal, Chinese Millennials don’t seem to have a specific trait that makes them different from their peers in other geographies. However, speaking with one delegate from Singapore on the sidelines, he professed that unlike Millennials elsewhere who are generally lone wolf travelers, Millennials in Singapore like to travel in small groups of friends. This type of information has great value to hotel developers as it guides what types of rooms they should cater for, so I hope that someone in due time will make an effort and dissect Millennials likes and dislikes a little more granularly along the geographic divide, rather than just focus on general habits.

With Millennials gradually coming into force, some predicted the hotels of the future will be more like real estate that happens to have some hotel rooms, with rooms being re-purposed as offices, meeting and events spaces and the likes, and sometimes as a place to rest your weary head. While this may sound far-fetched now, one cannot help but wonder what our world will look like once the Millennials have well and truly taken over. As I said before, the 5-star hotel as we know it, for one, will be a thing of the past. And so perhaps will the hotel as we know it, who knows…

Creating Value in a Hotel with IT

The 'Creating Value' panel at the

3rd Annual CHTA conference in Macau

Hotels are run in a very old fashioned way, forcing people to speak to staff for requests rather than fulfilling them through self-serve options. This was the consensus during a panel discussion featuring eminent speakers from the likes of Peninsula, Banyan Tree and Westin hotels. So whatever happened to the coveted ‘personalised touch’? Again, blame the Millennials, but it is undeniable that there is a push away from person to person interaction to self-service – and thank heavens for it, too, if you ask me.

But the far more interesting question posed at the panel was what is stopping hotels from implementing IT to create value? While cost of course is a major factor, blaming the rapid evolution of technology is somewhat less convincing. 

We are on a kind of plateau at the moment when it comes to underlying technology developments. The one thing that’s continuing to change fast is consumer electronics, so as long as hotels underlying technology infrastructure is robust, enabling guests to interact with the hotel’s technology using their own devices should not be a major undertaking.

Finding the right talent to implement and support technology and getting staff to embrace technology rounded off the list of challenges identified by the panel. Nevertheless, the audience vote on whether IT can be a direct source of revenue at the end of the panel was an encouraging 75% yes.

Luxury and the Chinese Traveler

I have been straying a little from the technology side of things lately, and this blog, too, won’t mention technology. But I want to riff a little longer on the relationship between China and the hospitality business which is at an interesting inflection point.

The other week I wrote about international hotel chains’ efforts to create China-centric brands that are designed around, and explicitly target, Chinese travelers. There are, however, also a number of home grown brands that are trying to muscle their way into the native luxury market. The Tangla Hotel Tianjin, for one, is the first mainland Chinese hotel to be given the (ironically) American Academy of Hospitality Sciences' International Six Star Diamond Award. Steven Song, chairman and president of the hotel’s owner HNA, believes the award shows that China is able to develop top hotel brands which can compete with foreign names such as Hilton and Starwood.

The Tangla Hotel Tianjin

While it is certainly commendable, it remains to be seen whether Tangla will be the new Hilton: after all, building an internationally recognisable brand takes years, a lot of marketing dollars and above all, consistency of excellence. However, it is also worthwhile looking at the bigger picture, particularly where the luxury market is headed. Does China need a home grown luxury brand?

The first impulse answer would be: why not? Why leave the field of luxury travel, particularly in their own country, to big North American companies?

China, of course, has a lot of catching up to do. After being under an austere brand of Communist rule for the best part of the 20th Century, the switch to a firmly capitalist ideology has seen China's (just like Russia’s) population experience a dramatic shift from poor to middle class (and beyond) in just a few decades. The result is a socio-economic catch up, pursued by the middle class in particular with understandable vigor. Their long deprived craving for conspicuous consumption has manifested itself in equal shares in mushrooming luxury boutiques and a burgeoning counterfeiting culture. So with Chinese appetite for western luxury goods rampant, wouldn’t it be natural to add western luxury hotel brands to that list? The answer is yes, of course. A recent study by Digital Luxury Group puts Sheraton, Hilton and Shangri-La on top of a list of the most-searched luxury hotel brands by Chinese travelers from January to March 2012; rounding out the top 10 where InterContinental, Westin, Four Seasons, The Peninsula (a Hong Kong-founded brand), Kempinski, Nikko and Ritz Carlton. With not a Chinese brand in sight, it suggests that home-grown luxury brands are facing an uphill battle to gain traction and be able to claim an equal standing with their long established overseas peers. 

Image courtesy of MO Luxury

The Boston Consulting Group provides an interesting twist to this with a recent study on the state of the global luxury market. The study found that while the sentiment is shifting from owning luxury to experiencing it, Russian and Chinese tourists are still much more inclined towards product luxury than some of the more mature markets, which have retreated to a ‘lux-redux’ since the financial crisis took hold. Hotels are, of course, the ultimate luxury experience, but signs are that Chinese travelers may switch from buying to experiencing luxury sooner rather than later.

In line with the stalling property and construction market, which has been fueled and underpinned by the Chinese economy for decades, falling corporate profits and foreign direct investment and even official GDP numbers (see a great article on this here) have dampened the Chinese appetite for luxury goods. In fact, many foreign brands in China are already feeling the pinch of overexposure.

Will these trends jolt Chinese into a more experientially focused ‘lux-redux’ mode as it has affluent people elsewhere in the world? Common sense would suggest so, at least if there is no upswing in the short to medium term.

This may be soothing news for hotels actually: a study on Consumer Buying Behaviour in the Recession suggests that as a consequence of a recession people tend to be partial to treating themselves. However, the same study also found that one of the main consequences of a recession is that consumers from all countries and all social classes are unafraid to change their traditional brand preferences.

This should be music to the ears for the Tangla Hotel and other home grown brands in this space as it may present an opportunity for them to truly break into the luxury market at home.