Fierce Competition In China's Hotel Industry Spreads To Second-Tier Cities

Saturated First-Tier Markets Pushing Major Hoteliers Inland If there's one major distinguishing factor about the current state of China's luxury hotel market, it's the contrast between saturated top-tier cities and "blank slate" cities further inland. Though outbound travel continues to boom and mainland Chinese are venturing increasingly further afield, boutique and luxury hotels are springing up not only in and around the likes of Beijing and Shanghai but in second- and third-tier cities, in the hopes of benefiting from the growing premium business travel industry and the popularity of “staycations” around areas of particular natural beauty. But this, of course, means ever fiercer competition for these hoteliers to position themselves correctly and offer more perks and better service than their competitors. But given the short history of world-class luxury hotels in some inland cities -- particularly third- and fourth-tier cities -- this is easier said than done. As Vlad Reyes, GM of the Conrad Dalian and Hilton Dalian, told China Daily this week, "We are improving our presence in China's second and third cities by providing diverse services in our new hotels." So what does this actually entail? According to Reyes, it comes down to understanding the priorities of the local market, and this means lavish events. Since opening this February, the Conrad and Hilton hotels in Dalian have hosted 15 weddings, a launch ceremony for a new BMW model and an international fashion show, among other events. Though the Hilton name, and Conrad to a lesser extent, it fairly established in China, it's by no means the only player in second-tier cities and competition will only grow more intense in the years ahead. This week, Melia Hotels International, announced that it will open its third hotel in China in Chongqing in 2015, following the Melia Xi'an, which is set to open next year. Arguably more recognizable names are entering the industry as well with new and increasingly lavish hotels outside of cities like Beijing, Shanghai or Guangzhou, with the Tonino Lamborghini Boutique Hotel -- the first Asian hotel opened by the hospitality group not directly affiliated with the auto brand -- opening earlier this month in Suzhou. As Jing Daily recently noted, Mandarin Oriental too is set to hit inland China, with a location in Chengdu slated for a tentative opening date of 2015. (It operates three locations in Hong Kong and two in Macau.) Century-old luxury hotelier St. Regis, managed by Starwood, is set to open a property in Lijiang, Yunnan province, which will include a five-star hotel and a set of privately owned villas -- the first time that St. Regis has had villa residences for sale in China. Since China’s luxury hotel boom of 2008-2010, which saw the number of five-star hotels balloon in preparation for major events like the Beijing Olympics and Shanghai World Expo, hotel expansion in China has shown no sign of stopping. As of last year, China had approximately 2 million hotels in total — a number expected to leap to 5 million by 2016 — and at the beginning of 2012, the number of five-star hotels in the country stood at 651, with an additional 500 scheduled to open in coming years. Despite a fast-growing domestic tourism and business travel market, this rapid expansion by both Chinese and international hoteliers has, since the closing of Shanghai’s World Expo in 2010, led to chronic oversupply and low occupancy rates. Still, hoteliers at the high end of the market see potential in places like Chengdu, which benefit from strong economic and tourism growth. Actually taking advantage of that potential, though, and fighting for occupancy will take a concerted effort of promoting either service, privacy and comfort or event venues, convenience for business travelers and proximity to tourist sites. But at the very top end of the market, it'll all be about perks. Jinlin Group, owner of the new St. Regis complex in Yunnan province, recently bought two 12-seat Cessna Citation Sovereign business jets to shuttle around VIPs and convince more ultra-wealthy Chinese to vacation in Lijiang instead of Sanya or Southeast Asia.

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Fierce Competition In China's Hotel Industry Spreads To Second-Tier Cities