SHANGHAI—Many hotel owners in China are facing a need to quickly reposition their hotels to capitalize on evolving market trends, according to hoteliers during HVS’s ninth annual China Hotel Investment Conference in Shanghai.

　　SHANGHAI—Many hotel owners in China are facing a need to quickly reposition their hotels to capitalize on evolving market trends, according to hoteliers during HVS’s ninth annual China Hotel Investment Conference in Shanghai.

　　The reasons for the sudden need to reposition can be any, or a combination of, the following:

　　As China urbanizes, what used to be countryside has now become megacities in many areas. Hotel owners in these regions need to adapt to new demand drivers.

　　As China’s economy continues to grow at a fast pace, many Chinese are either discovering a disposable income or are becoming more affluent and, therefore, a new segment of traveler is emerging across the country.

　　Global brands are entering the country quickly and are building large Chinese portfolios. Independent owners and operators of domestic brands are facing stiff new competition in their local markets.

　　“As competition stiffens, sometimes 5-year-old hotels already seem old,” said Tommy Lai, VP of development for Onyx Hospitality.

　　“Overall, I’m seeing a lot of change. There’s a new playing field, a new dynamic,” added Peter Marshall, project director for Aedas, an architecture and interior design firm. “There are now questions about the core product in China.”

　　The China National Cereals, Oils and Foodstuffs Corporation is a state-owned food processing holding company that diversified and began owning and operating hotels in the early 1990s.

　　Chen Min, deputy general manager of COFCO’s hotel division, said revenue in Beijing and North China was “very low” before the company made some major changes to the portfolio of hotels it purchased, demolishing two hotels in Beijing, selling six others and injecting 5 billion renminbis ($808.7 million) in the business. The company decided to go primarily with global brands. Today, COFCO has eight hotels with revenue of 1.4 billion renminbis ($226.4 million), including a St. Regis Hotel & Resort, a Pullman Hotels and Resorts, a MGM Resort, a Waldorf Astoria and a W Hotel.

　　“We still have three older hotels to renovate,” he said. “We need more money, but we cooperate with brands. We still need a clever accountant to give us a (return-on-investment) number.”

　　“There are now questions about the core product in China,” said Peter Marshall of Aedas. Left to right: Tommy Lai, Onyx Hospitality; Marshall; Chen Min, COFCO; and Jolyon Bulley, IHG.

　　Chua Tian Chu, deputy CEO of Meritus Hotels & Resorts, agreed there are many hotels across China in which owners need to reevaluate the market. However, not all aspects of a hotel repositioning need to be done at once, he said.

　　“Brand standards are not fixed. They’re evolving and a lot are depending on the market,” he said. “You don’t have to do everything at once. We try to refresh the public areas often, but we do it in phases.”

　　As a recent example of market-driven exceptions to brand standards, Chua said Meritus has an airport hotel in Singapore where no windows can be facing the runway to avoid “clear lines of sight.” So the hotel owner had to work with the brand team on flexibility.

　　“In China hotels, normally room size is way too big and there are way too many (food-and-beverage) outlets,” Chua said. “A lot of time there’s no creativity and (developers) try to be like everybody else. They don’t think ‘How can I be different?’”

　　Wake-up call

　　Brand standards may provide a wake-up call to many China-based hoteliers that have never dealt with global brands before. One audience member asked what happens if the hotel owner chooses not to apply capital-expenditure money.

　　“An owner has got an option, of course, but if an owner insists on not renovating, the brand will say, ‘You’re not going to be our brand,’” said Symon Bridle, COO of New World Hospitality.

　　“The cost of doing nothing is important to understand,” Chua added. “Your room rate is going to go down.”

　　In 2008, InterContinental Hotels Group announced the relaunch of Holiday Inn and Holiday Inn Express hotels around the world. At the time, there were about 50 of those properties in China, and many were less than 5 years old. Jolyon Bulley, COO of the Greater China region for IHG, said the CapEx conversations were difficult to have and some owners left the system. But most fulfilled their obligations.

　　The brand standards were driven by consumer insight, he said, and “as the China market emerges we need to make sure we’re globally relevant in the marketplace.”

　　“What the brand does is bring a point of differentiation,” Bulley said. “Those points of differentiation hopefully will allow an owner to win in their marketplace. At the end of the day the management company gets rewarded, so we see the partnership as a win-win.”

　　Repositioning downward

　　More so in China than anywhere else, some brands and owners are seeing the benefit of downsizing or reflagging a hotel to a brand that charges a lower rate. The situation makes sense in China because the owner can capture new travelers looking for a mid-priced option and step out of the crowded luxury segment. Also, the owner can choose to lose one or two of the F&B outlets, which would save on food and labor costs.

　　“Convincing the owners (of that) is always a difficult task, but you can sit down and convey how the market is changing,” said James Mabey, senior director of development for Marco Polo Hotels. “Let’s see if we can figure out a way that makes sense.”

　　In the Asia/Pacific region it can make more financial sense to tear down a property and rebuild rather than try to reposition it, Lai of Onyx Hospitality said, citing an Onyx hotel in Hong Kong as an example.

　　However it is accomplished, repositioning a full-service hotel with multiple restaurants is almost always a good idea in China, said Ricco DeBlank, CEO of the hotel division of Sun Hung Kai Properties.

　　“We don’t look at (revenue per available room), we look at profit per square foot,” DeBlank said of evaluating how to reposition within a market.

　　He said Sun Hung Kai owns both a Ritz-Carlton and a Holiday Inn Express and both have about the same profit per square foot.

　　“If you have the right brand at the right location, you don’t have to have big rooms,” he said. “You don’t have too many restaurants and big meeting space that sit empty on the weekend.”