Kempinski China's Michael Henssler says there are too many hotels in China. Provided to China Daily

Kempinski China president says nation's hotel industry is overcrowded

Kempinski Hotels S.A., which operates 13 hotels in 13 cities in China and plans to increase that number to 30 hotels by 2015, will officially take a break after its expansion.

In his first indication of the hotel chain's plans last year, Michael Henssler, president of Kempinski China since 2010, cited what could be a fear among international hotel chains: China's rapidly growing hotel industry is simply too full.

After 2015, the company will focus on quality in service and profitability.

"Kempinski will stop expanding in China after our 30th hotel is opened by 2015," Henssler says.

Henssler, who has been working for Kempinski for 14 years, says the hotel industry in China has been developing too quickly. The number of hotel rooms has been growing so rapidly, he says, that competition has been very fierce.

There were 594,700 rooms in star-rated hotels in 2000 in China but that number rose to over 2 million by June 2011, according to the Yearbook of China Tourism Statistics.

The hotel industry in China has affected the market adversely, Henssler says. A room in another country in Asia, he explains, can be five times the price of a similar room in China.

Henssler, who has worked in the hotel industry in Europe, Africa and the Middle East, says room rates in China are much lower than other parts of the world.

"The low price has resulted from the heavy oversupply," he says.

Statistics from the National Tourism Administration show that toward the end of last year, the average price for a room in a star-rated hotel in China was about 322 yuan ($50.8, 39 euros) a night, with the average occupancy rate at 62.4 percent. A room in a three-star hotel was 222 yuan per night, with occupancy at 61.7 percent.

In Europe, however, the average price of a room in hotels in London was 1,923 yuan a night in 2011; the price in Paris was 1,537 yuan per night, according to Hotel.com, a worldwide hotel booking website based in the United States.

Henssler, a French-speaking German who finished his studies in Ecole Hotelire de Lausanne, says he saw how China's young hotel market developed. He says he often came to China for business trips beginning in 2000. He adds that hotel operators in China can't set room rates because too many choices are available for customers.

"China's market is big, but the margin here is low," he says.

Huang Tiemin, vice-president of State-owned hotel management company Shanghai Hengshan (Group) Corp, said in an industry seminar last year that the occupancy and average daily rate of most hotels in Shanghai were expected to drop. "Every new hotel in Shanghai has a 90 percent possibility of losing money," he said.

Despite the pessimism, many other international hotel groups are still expanding. Marriott International Inc opened its 100th hotel in China in 2011 and InterContinental Hotels Group, the largest hotels company in the world measured by rooms and which runs Crowne Plaza and the Holiday Inn, has nearly 170 hotels in China and plans to expand to 300 in five years.

Both hotel chains see bright prospects in China's hotel market and with a good reason. Statistics from the World Tourism Organization show that the number of hotels in China will be equal to the number of hotels in the US by 2015. It is estimated that China will have 6.1 million hotel rooms by 2025.

Henssler, however, had a word of caution, saying "at the moment, the business is good". He says competition in China's hotel market has changed over the past 10 years, adding that maintaining a position at the top of the market in terms of quality has been Kempinski's strategy.

"Our hotel is not mass, but it's class," says Henssler, who says that hotels should now focus on quality instead of increasing room numbers.

All of Kempinski's hotels are five-star rated. Rates vary according to location in China. In major cities such as Beijing and Shanghai, it is about 1,500 yuan per night. In smaller cities, it is about 1,000 yuan per night.

Henssler says that the hotel chain's high prices are not a problem because of the nation's increasing buying power. He says in the past, only about 10 percent of Kempinski's guests in major cities were Chinese, but the percentage has increased to 60 percent.

One wrinkle to Kempinski's latest strategy is setting up a luxury brand called "Nuo" in China, in coordination with the Beijing Tourism Group. As part of the Nuo brand, there will be three five-star hotels in China.

"The Nuo hotels with Chinese style will be very, very high end and luxurious," says Henssler, who would not elaborate further because plans for the brand have yet to be finalized.

The Nuo brand, he says, is in line with the current trend of making high-end hotels. Both small and big hotels are currently tailoring their designs, customer service and amenities to the Chinese customer.

Hutong hotels in Beijing, for example, are increasingly popular, with rates ranging from 200 yuan per night to thousands of yuan. InterContinental Hotels Group also plans to launch a hotel brand tailored for Chinese consumers, it announced in June 2011. Its hotels will include spacious lobby restaurants serving Chinese tea instead of small bars.

Henssler says the hotel industry should stress uniqueness, where even small players can become highly profitable in the market.

"Time will show only unique players can survive, if they are not industry leaders," Henssler says.

wangwen@chinadaily.com.cn

(China Daily 03/16/2012 page11)