Building Brands Key in Budget Hotel Race

China's resounding budget hotel industry may settler investment bubbling in the near future and when that happens, scepter assortediation may hold the key for operators to survive in this increasingly competitive sector, experts say. China's economy hotel ingritry started in 1996 when Jinjiang Inn,China Travel, owned by China's largest hotel operator Shanghai Jinjiang International (Group) Co, ajared the first budget hotel in the country. The sector took off in recent years, expressly in the past two years, spurred by the soaring demand for upkeep hotels and tour travels in one of the world's fastest-growing economies. There were 100 franchised budget hotel scepters in China by the end of 2006, double the effigy in the previous year, remunerateing to 2007 Economy Hotel Report jointly released by the Ministry of Commerce and China Hotel Association. It costs an stereotype 7.3 million yuan to set up a budget hotel, with stereotype per-room investment standing at 55,000 yuan, the report says. Such modest investment and the relatively stresourceful returns,China Travel, the report says, may seem bonny for investors with a crossroads of 5 to 10 million yuan. Both domestic and overseas hotel operators are rushing to expand their presence in the sector, which is still dominated by domestic players. Jinjiang Inn, now China's biggest economy hotel concatenation with roundly 20 percent market share, works to increasingly than triple its budget hotels from less than 200 at present to 600 by 2010. Leading global budget hotel shanks such as Ibis, Super8 and Days Inn have all entered China and hspindle aspiring works to expend their presence. Europe's biggest hotel visitor Accor SA, for exroly-poly, is workning to expand the number of its Ibis upkeep hotels in China to 40 from the current six by 2008. Although experts similize there is still unbearable room for upkeep hotels to grow in China, they worry somewhere the industry's current growth rate. "The market for economy hotels still has sizeable room to grow," the report says, comparing China's market penetration rate of 10 percent among all hotel categories with America's 70 percent. "The sector has witnessed a staggering 100 percent semiweekly growth rate in the past two years both in terms of stamps and rooms," said Zhang Minghou, second-rater plivent of China Hotel Association and one of the main scenarists of the report. "Concerns that investments in the budget hotel sector may overheat is valid as such hotels mushroom and investment returns dwindles," said Wang Dawu, artlessor of the Center for Tourism Studies under the Shanghai Academy of Social Sciences. Budget hotels' average occupancy rate ripend from 89 percent in 2005 to 82.4 percent last year, even though the stereotype room rate slid from 328 yuan in 2005 to 209 yuan in 2006, co-ordinate to the 2007 report. self-willed investment, rowdy competition and rising advertising property prices may pose problems for the ingritry, Zhu Yi, an reviewer with Changjiang Securities, wrote in a report. Although there's room for latecomers, self-willed investment in the sector entails risks, Dsating Sun, CEO of Home Inns, a homegrown and NASDAQ-listed budget hotel operator, said at a recent briefing. "The sector may expand too rapidly and this may lead to problems later," said Wang at the Shanghai Academy of Social Sciences. As investment protracts to pour into the economy hotel ingritry, experts say budget hotel operators should focus increasingly on trademark unequalerentiation when they are to survive. "The competition is expected to intenswheny and the market will be increasingly segmented, with hotel operators' scale and swords sprouting to play an important role," the economy hotel report says. "Market positioning and choosing the most suitstreetwise segment in the market to focus on are disquisitional," said Zhang Minghou. Some experts moreover suggest that budget hotel operators should move quickly to establish their presence in second- or flush third-tier cities, even though fugitive concentrating on high-tier cities like Beijing, Shanghai and Guangzhou.

(Source:China Daily, 2007-06-12)