David Sun is the CEO of Home Inns in China with over 250,000 beds per night across over 2,500 hotels in more than 300 cities. Here David explains why he remains optimistic for his business and its continued expansion at up to 500 new hotels a year!
The transformation of China continues to impact every industry and the anti corruption drive which started over a year ago has been felt by the hotel and leisure industry as much as most. Cancelled events, reduced travel and gifting have rippled across the industry to be felt even in the budget hotel market of Home Inns. However, David remains optimistic about the scope for growth in his sector. “This is the new normal. People and businesses should not overspend their budgets wherever they are.” He feels that consumer habits are changing in spending approach and there is more reality in spending with bookings focused on quality and value offerings rather than simply the luxury end of the market.
The market is full of competition. There are over 10,000 branded budget hotels across China and with the numbers rising many are in the same cities as David’s. The market is very fragmented and finding new opportunities and competitive locations is a problem. The scale of the country is his secret weapon. “We are now focused on opening in more of the 3rd and 4th tier cities and our franchise model allows us to be very flexible in the way we expand and where”. Benefiting from the invaluable knowledge of local entrepreneurs -and franchisees – helps mitigate the risk of new openings and new provincial city markets. David predicts that over 85% of future openings will be under the franchise model. There remains the challenge of the Chinese holiday seasons when most people travel and occupancy is not a problem but at other times, including midweek and away from the key holiday periods, hitting the numbers is tough, wherever you are across this vast and varied country. “We really need to leverage our position across the year” says David. There are also significant variations in site profitability from province to province. However, with China being bigger than Europe, with the regional variations that go with that, it is not surprising that disposable incomes, spending habits and attitudes to travel and hotel stays also vary significantly. Pricing strategies and wages do too.
This would sound horribly familiar to the likes of Premier Inn in the UK or any lower cost hotel provider across the US or Europe. The comparisons don’t stop there either. The challenge of getting the right, well trained, management and staff to run the sites is another continual concern for David. “The biggest challenge is human resources. It is increasingly difficult to find, hire, train and retain the right staff. We invest enormous effort, time and money in our people.”
There is one noticeable difference between the conversation with David and his western counterparts. The high touch, always on, Internet consumers in China are driving the business model far more, and far more quickly, than in other Western markets. “The Chinese middle classes are growing and they are in their 30s. They were in their mid teenage years at the millennium when China really moved into the internet age. The late 20 and early to mid 30 year olds are those entering the consumer segment with the majority of the spending power. These consumers are more independent, more active, more lifestyle and self oriented as well as enjoying more freedom and being more open to change than their parents and grand parents ever were.” With this very savvy, web-based, consumer group at the heart of the business everything David talks about has a web aspect. From research to booking, payment and billing, on-line is everything and mobile solutions dominate. David and his team are spending a lot of time looking at developing offerings to develop and enhance consumer loyalty on-line and though mobile delivery.
Is China the only market for Home Inns? David is understandably coy in answering. “There remains lots of room for movement in China. There is about 20%-30% growth available to us in China. The growth opportunities elsewhere are perhaps 3-4%. However, we are open to the rest of SE Asia and to working with people in Europe and elsewhere. As Chinese consumers travel more and more then they will look for brands they know and can rely on. We can benefit from that development as the market opens up.” Right now David remains focused on China and listening to him talk it is clear why!